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Not QuitE

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Stephanie Flanders | 12:36 UK time, Tuesday, 2 June 2009

Mervyn King said recently it could be six to nine months until we know whether quantitative easing has worked. You can see why. The lending figures from the first two months of the policy aren't exactly a shot in the arm.

Credit conditions have eased since the start of the year, and the Bank of England can take some credit for that - though more thanks to its interest rate cuts than its move to inject billions of pounds of money into the economy via QE. We saw another modest rise in mortgage approvals today.

Bank of England

The Bank's purchases of corporate debt under QE also seem to have encouraged larger companies to put more debt on to the market. That was one of the Bank's stated goals when it kicked off the policy in early March.

But - and it's a fairly big but - a major focus of the policy has always been raising the broad money supply, or lending to companies and households across the economy, also known as M4. That was what distinguished QE from more traditional monetary policy.

By purchasing bonds (mainly government debt, or gilts) from non-bank institutions using fresh central bank money, the Bank of England was hoping to get more cash out into the economy directly, without entirely relying on the banks to lend it on. But growth in lending to households has barely changed in the past three months, growing at an annualised rate of around 2%. And by the same measure, lending to non-financial companies actually actually fell in April. Overall, the stock of M4 lending actually fell by £9bn in April, which I am told is by far the largest ever decline in a single month.

Now, there are plenty of explanations for all this. For one - we are in the depths of a recession. Even without a credit crunch, recessions don't tend to be associated with buoyant lending. The sharp decline in M4 lending (much of it traditional bank lending) might also be partly due to QE itself - if companies are using improved conditions in the markets to issue commercial paper and pay off expensive bank loans.

Bank officials would say there's been too much going on in the markets and the economy the past few months to be able to isolate the effects of QE - even £75bn-worth of it. The same applies to the rise in long-term interest rates during the past few months, primarily the interest rate - or yield - on government debt.

Other things equal, you would have expected that risk-free borrowing rate to fall as a result of QE, thus easing market conditions across the board. But, as I've discussed before, other things have not been equal. For one thing, there's been the small matter of the Budget and some pretty eye-watering deficit forecasts. Mervyn King seems to think things would have been worse for the bond market without QE, and probably for bank lending as well.

Still, it says something about the subdued state of our economy - and especially our financial system - that a cash injection worth more than 5% of GDP in just three months can sink, almost without trace.

For the true QE believers, such as Jamie Dannhauser at Lombard Street Research, the still weak state of corporate lending makes it even more important for the Bank to press ahead. If it wants to see broad money growing at 6-8% a year, he thinks it's a forgone conclusion that the Bank will use up its £150bn initial allotment for the policy, and it could spend much more than that by the end of the year.

That's quite a leap from just two months of data. But I don't think the members of the MPC when they start their meeting tomorrow will see reason to spend any less.

Comments

  • Comment number 1.

    wHY WON'T THEY USE nORTHERN rOCK ETC TO GIVE LOANS TO DESPERATE PEOPLE AND SMALL BUSINESSES RATHER THAN BANKS TO HOARD THE CASH? nEPTUNE FUND MANAGERS BELIEVE THE uk BANKS NEED TO WRITE OFF £240B AND HAVE SO FAR DONE £120B. I THINK I SEE THE PROBLEM. THEY ARE ALL INSOLVENT (ESPECIALLY WHEN YOU ADD OFF-BALANCE SHEET TOXIC ASSETS TO THE EQUATION). THIS IS NOT QE, IT'S A CONTINUATION OF THE BANK BAIL-OUT AT THE EXPENCE OF THE TAX-PAYER.

  • Comment number 2.

    "Now, there are plenty of explanations for all this. For one - we are in the depths of a recession. Even without a credit crunch, recessions don't tend to be associated with buoyant lending. "

    The problem with QE from the beginning was that it rested on the premise that increasing supply of money would reduce it's value. This is false because the quantity of money in circulation determines it's value, and that in turn is determined by demand for credit.

    It is well known that QE cannot arrest a deflationary spiral unless the magnitudes involved are enough to trivialise current public and private debt levels.

  • Comment number 3.

    #1

    Basically you are right. They want a return to status-quo. It can't happen though - it's just clutching at straws.

  • Comment number 4.

    One interpretation of the apparent lack of effect is that the theory of QE is not and could not be based on evidence and the BoE is advancing in hope. It is more likely that what we are witnessing is the next phase of the depression fuelled by unemployment and job insecurity. What is needed is managing the economy by a wide range of interventions not an elite gang of money gnomes fiddling with interest rates and a definition of the money supply.

    P.S. Obviously the Peston "eye - watering" tendency is contagious!

  • Comment number 5.

    The point missed by the governments and the banks is one of lack of confidence by the public. They all say things are getting better when the numbers do not support such an assessment. The "Elephant in the Room" that is never discussed by economist, politicans and the media is:
    What happened to the trillion or so that simply disappeared? Where did the lost money in retirement accounts go? No one seems to want to address that matter. If someone lends money to another and then is told that the money no longer exist a logical question is: Where did the money go? If a bridge fell down the last time you crossed, what question would you ask the next time you were about to cross the same bridge?

  • Comment number 6.

    There's an old saying that monetary policy is like pulling on an elastic band attached to a brick.

    At first, you pull and nothing happens; so you pull a bit more; and a bit more; then, all of a sudden, the brick shoots towards you and hits you in the face.

  • Comment number 7.

    Perhaps someone more familiar with QE can explain something. Bonds and gilts are tradeable, surely? So how does replacing an amount of these with equal value of cash amount to an increase in the 'real' money supply?
    I appreciate that there are different measures of money, but if the bonds and gilts are locked away and no longer circulate, I don't see the difference.
    In past recessions the government used printed money to pay for new public works - things useful in themselves - and these increased employment and benefited everyone. Does the current type of QE actually do anything at all, and if so, how?

  • Comment number 8.

    ahoy there Stephanie; a news story here on the BBC confirms that savings rates for individuals in the US - by far the most profligate and spendthrift societies involved in the current 'blip' - are continuing to go up and is now something like +5%, having fallen into negative numbers during the boom; presumably something similar is the case in the UK, though perhaps it is not as pronounced

    house prices were also falling (as of April) in nearly all the 'advanced' western economies, with the exception of Switz (and we can probably all work out why that may be!)

    the twin engines of rising unemployment and falling house prices mean that the economy remains in reverse; as #2 FrankSz says, it's demand for credit and money circulating that really matters

    the US and UK govt are pumping new money in as fast as they dare but so long as people feel Mullered they will not increase spending

    as a PIRATE I've always found it best to pump water out of the boat and not into it, though that does not make me an Austrian........

    all this economic policy stuff remains incredibly primitive IMO BTW; where are the new economists with some new ideas for a newly screwed up new global economy?

  • Comment number 9.

    somali_pirate #8 I agree we need a totally new way of looking at things. What's so wonderful about "growth"? We only have one planet and need to find some kind of sustainable steady-state homeostasis for the world. If we all lived the lifestyles of the US we would need 5 planets to sustain ourselves. We're not that much further behind in the UK. This means those in the west must consume a lot less to allow for those in the east to have a bit more. The sort of salaries Robert Peston alludes to in todays piece by him are a total fantasy for most of us and impossible if we're to have a sustainable future. Perhaps some of those on these fantastic salaries would like to give some of it away. They'd hardly notice the difference.

    It seems to be a case of fiddling (literally in some cases) while Rome burns and if we don't change our collective mind-set pretty quickly we may not be around to see much of a future.

  • Comment number 10.

    somali_pirate (#8) "all this economic policy stuff remains incredibly primitive IMO BTW; where are the new economists with some new ideas for a newly screwed up new global economy?"

    The planning type economists who had the idea that one needed publicly owned ultilities and services were all mad (which we now know is largely genetic), so were purged long ago. They were replaced with super-rationalist, non-empiricist, Chicago/Austrian Schoolers, who hate order (very German) and gave us the economic freedom, choice and anarchism (aka permanent revolution) which reminds us of the infant/adolescent narcissism we all crave.

    Can one buy electricty from the Post Office yet?

  • Comment number 11.

    #8

    I recommend this guy:

    www.debtdeflation.com/blogs

  • Comment number 12.

    No.7. Cassandretta21

    (i) UK Banks will suffer future bad debts, and will need cash to cover their losses
    (ii) British government provides the cash to the banks, under that GBP600bn insurance scheme set up for HBoS and RBS
    (iii) BoE buys GBP125bn worth of gilts from the banks
    (iv) Government issues new gilts to pay for the cost of insuring the banks' bad debts
    (v) The new gilts are bought by the banks
    (vi) The government cancels the gilts bought by the BoE, and doesn't repay them

    But, also

    (i) Government issues yet more new gilts
    (ii) These new gilts are bought by friendly foreign investors
    (iii) The government spends the money on unemployment benefit, welfare costs, defence budget, and providing liquidity to the banks under the GBP600bn bad debt insurance scheme, etc

    At the same time, America is attempting to do the same sort of thing.
    The dollar is depreciating as a result.

    Britain and America will then export their way to wealth, as their weak currencies will make their goods cheaper abroad, thereby transplanting the market share of the foreign countries whose friendly investors lent money to the British and American governments.

    Success is guaranteed.

  • Comment number 13.

    In terms of a more useful metric for measuring economic performance, here's a thought:

    The GDP figures currently produced as referenced generally include a "deflator" to account for inflation (which is different again from CPI and RPI).

    Why not have a standard calculation of GDP including a "deflator" or similar modification for fossil fuel use? Our children/grandchildren are going to have to live with the ending of the fossil fuel age and possibly the AGW effects of burning all that carbon-based fuel (don't want to get into *that* debate), so why not align our economic performance more closely to getting more "boom for each terrajoule", or whatever?

    Just a thought...

  • Comment number 14.

    Hi Stephanie

    See below my post to Newsnight on 08 May ( and to 13 May) :

    " Paul,

    The MPC forecasting period is two years.The MPC minutes of 4 and 5 March give you their take and may explain why they are now increasing the scale of purchase. MPC are authorised to spend 50bn on private assets and 100bn on gilts. The corporate paper and bond markets are relatively small to achieve their objective of increasing money supply, depress yields thereby forcing ( preferably) UK non bank institutions to look for higher yield assets stimulating demand. A much more significant asset purchase operation was needed in the secondary gilts market to make up for the 5% shortfall in nominal GDP ( 50 - 100bn).The MPC are obviously not convinced that the initial boost was enough to ramp spending and CPI upwards.They wanted to target gilts of terms held by non bank financial institutions rather than banks who could simply hoard the cash - medium / long maturities ( 5-25 years) gilts holders were targeted with 75bn for private and gilt assets over three months.

    If the initial boost was too small it would bring into question the effectiveness of the tool and dampen the reduction in premia and the boost to asset prices. A month and a half in - the Quarterly APF report says that after initial drop in gilt yields they bounced upward. They need to find out what the sellers are doing with their cash from the APF. Which non bank investor-sellers are targeted - pension funds, overseas etc? What if they squirrel the money away to foreign shores or replace portfolios with index-linked gilts or new issuance. The budget flagged that new glit issuance could overwhelm and credit downgrades could put upward pressure on yields for new issuance, syndication is in the offing....worry and headache I would have thought.

    I tell you, how good is it to see a BBC journalist get stuck in and question things rather than merely report the official releases - keep it up P and Newsnight !"

    Good to see you question it also - what are the sellers of gilts doing with their liquidity ? Who are they? Can you find out?

  • Comment number 15.

    QE can't work as the BoE had already blown the economy away with too low interest rates for a decade so it had nothing left to lower when bad things happened to the economy.

    Also QE only helps banks NOT the real economy.

    And of course (being entirely self consistent) Mervyn King, his MPC etc. CAUSED and managed the lax regulation and compounded the problem with interest rates that were far too low for a decade and are unfit and intellectually bankrupt and thus unable to understand what they did let alone fix it!!!

    Mervyn Must Go! (I shall in future abbreviate this to 'MMG' until such a time as he and his clique go - which I hope will be very soon!)

  • Comment number 16.

    Yep, the age of economic ignorance is here if the BoE's QE policy is anything to go by. It is all too clear that we have not learned much from several millenia of monetary destruction. The persistent demonstration that capital, not paper, is the basis for prosperity has fallen on deaf ears. Every day we face the pathetic spectacle of government officials, media pundits and even Nobel Laureates informing us that creating money ex nihilo is the solution to an economic downturn.

    We shouldn't overlook the fact that, since embracing the aggressive lowering of rates, central banks have been aggressively pushing money into the banking system without succeeding in reviving economic activity. So why should aggressive money pumping work now?

    The yearly rate of growth of the balance sheet of the BoE jumped from negative 7.2% in May 2007 to positive 179.4% by October 2008 before easing to 157.6% in November last year and 129% in January.

    What permits real economic growth is an improvement in the investment infrastructure of the production process. What makes the improvement possible is real savings. It is real savings that fund the enhancement of infrastructure through various tools and machinery, i.e., capital goods. With better tools and machinery, a better quality and a greater quantity of goods and services can be produced.

    In a free, unhampered market economy the established infrastructure is in accordance with the tendency toward harmony between various activities. This means that the flow of real savings is sufficient to fund various lines of production without any disruption.

    On this, Ludwig Lachmann wrote:

    "Capital is an intricate, delicate, interweaving structure of capital goods. All of the delicate strands of this structure have to fit, and fit precisely, or else malinvestment occurs. The free market is almost an automatic mechanism for such fitting; with its price system and profit-and-loss criteria, [it] adjusts the output and variety of the different strands of production, preventing any one from getting long out of alignment."

    As a result of the artificial lowering of interest rates and massive money pumping, an additional demand for various goods and services emerges. This leads to an attempt to expand the infrastructure.

    This attempt is bound to fail since the flow of real savings is not large enough to support the expansion of the capital structure. Consequently, the attempt to expand the infrastructure leads to the diversion of real funding from various activities that make the present flow of real savings possible. Thus, the flow of real savings comes under pressure and the rate of real economic progress follows suit.

    Neither an artificial lowering of interest rates nor monetary pumping by central banks has direct input in the production of capital goods and the production of goods and services that are required to promote and maintain human life and well-being.

    On the contrary, any further planned expansion in monetary pumping by central banks can only weaken the flow of real savings and undermine prospects for a sustained economic revival.










  • Comment number 17.

    We are rapidly entering an new phase of this depression wherein the government, BoE, and major financial instituions are becoming dangerously divorced from both the people and the 'real' economy of the country. QE, it's level, its effectiveness and those involved in it is a good indicator of that.

    The numbers are becoming 'silly'. Billions pledged, borrowed, lost, with no appreciable benefit that can be seen by the majority of business or the man in the street. There is no Law which says that QE will work, we are in unknwn territory. There are no policies which appear to be brining any relief. We are not seeing new roads, power stations, etc - even the promised ones are merely plans brought forward! Now we are being told that we don't even truly know what happened to the laready printed QE billions.

    When are we going to call STOP to all this financial manipulation and demand that we (business and people) actually see some tangible benefits from what is being done with our money? When we can all see the confusion in the government and financial industry why should we accept that they must take priority and believe that things would have been worse if they did not take the actions that they have?

  • Comment number 18.

    When the money multiplier is in reverse, there's little QE can do!

    Nearly everyone's repairing or preserving their balance sheets!

    Only expenditure and/or confidence can turn it.

  • Comment number 19.

    Question: BoE lends (injects) money to retail banks. Given that the retail banks are international these days, domestic interest rates are low and there's not much to invest in, wouldn't these international retail banks be lending the money in the international (say Far Eastern) markets where they can presumably get better returns for their shareholders?

    When asked if they are lending the answer would be 'yes, we are lending (sotto voce - but not domestically').

    What preevents that from being the case? The banks are still responsive to market-forces not HMG/public ownership, we have been told.

  • Comment number 20.

    Addendum: Even if money was loaned on to businesses in the UK, if they are multi-nationals, what's to stop all that money going elsewhere? There are no barriers are there? Isn't everyone earnestly preaching anti-protectionism? Don't we live in a global economy? Sadly, Britons live in Britain of course.

  • Comment number 21.

    Mervyn King can print as much money as he likes it won't have any real effect so long as the only way the likes of you and me can get our hands on any of it is if we borrow it!!
    The amount of personal debt in Britan is, to quote a Pestonism 'eye watering'. I know I've banged on about this in the past and its a case of More Creaking From An Old Gate, but every first time house buyer I know who bought a home between 2002 and 2007 did so with a mortgage of between 6 and 9 times their salary, none of them have been unfortunate enough to have been reposessed, but none of them are consumers in the sense that people were say 10 years ago.
    Think of the mortgage paying population as a comet with the head representing those people who bought onto the property ladder in the last 8 years, and the long tail of the comet representing all those other people who bought homes before that and are mostly paying mortgages of 3 times their salary and have plenty of disposable income to go out and spend in the shops on goods and services or save for pensions or whatever. One of the signals of a return of 'confidence' is said to be the sign that house prices are rising again, but if that happens over the next 10 years or so the head of the comet will rise as the amount of people mortgaged up to the eyeballs increases and the tail will get shorter until spending in the economy slows to a stop.
    If printing money is just aimed at the banks and their ability to 'lend' and get an already debt ridden population even further into a mess, then will any of this money be spent on increasing wages? No. Will any of it be put directly into peoples pockets? No. As far as I can see the plan dreamed up in the heads of all these people with the high IQs is, all this new money is going to pull the country out of the recession by giving even more of us the oppertunity to borrow and spend today money that we're not going to earn until tomorrow.

  • Comment number 22.

    I just need the USD to drop a tad more....Another 20% should do it.

  • Comment number 23.

    And as an afterthought, what happens when the new higher base rate of interest comes along?

  • Comment number 24.

    MAY ITS BIG END GO

    FrankSz (#22) "I just need the USD to drop a tad more....Another 20% should do it."

    It appears that LibertarianKurt's magic has wormed its way into your brain or were you just hiding these dispositions for socially desirable reasons? ;-)

  • Comment number 25.

    No.19 JadedJean

    On the one hand:

    We want our banks to increase their profits.
    Given that financial services was one of Britain's few trade surpluses, UK banks making profits by exporting their financial services abroad is not a bad thing. The more profitable our banks are, the less state aid they will need when parts of their loan book go bad in the future.

    British households and businesses need to learn to survive with less borrowing/ leverage, and to save more of their earnings.


    On the other hand:

    Those British businesses and households which are over-indebted are at a high risk of going bust, as the banks don't want to keep lending to them.

    This makes the UK's economic crisis all the greater, as bankrupt businesses and households leave the game, and further reduce aggregate demand within the British economy. Unemployment is likely to keep increasing for another 4 years.

  • Comment number 26.

    #20 JJ

    "Even if money was loaned on to businesses in the UK, if they are multi-nationals, what's to stop all that money going elsewhere? There are no barriers are there? Isn't everyone earnestly preaching anti-protectionism? Don't we live in a global economy? Sadly, Britons live in Britain of course."

    Whisper it quietly but you've just writen something that I can totally agree with!

    As for the solutions - well we are still miles apart there.

    Just thought I'd let you know.

    Have a nice day

  • Comment number 27.

    FrankSz # 22

    So do I! The more USD drops, the more the price of gold rises. Even when USD puts on a bear rally and the price of AU goes down; I buy more gold!

    USD is going down, Frank, big time. Buy gold now!

    ;)

  • Comment number 28.

    MrTweedy (#25) Meanwhile, government policies here (like Education, Education, Education) mean that we'll keep skewing (i.e reproducing and importing more 'low-skilled'/less able people), and some 'dissidents' here will assert that this isn't true/important because, well, most people don't see it or don't like to hear it......

  • Comment number 29.

    #27

    Hmm. Gold might be ok for currency turmoil coming in the near future. I also think the current crisis is a result of decoupling from gold in 1970. I don't think gold specifically will be the basis for finance going forward though. I think SDRs will be adopted.

  • Comment number 30.

    #25 MrTweedy,

    It certainly is a dilema.

    I agree that our financial services sector still needs to be profitable and that to be so it has to be active in overseas markets. But not at the expense of the domestic market. Hence a few ideas as to how we might be able to do that:

    Split banking activities. Either, pass legislation that requires UK banks and/or financial service providers that are operating in the domestic market to have completely seperate operaing activities. If that is not viable then construct firewalls between the two operations (this would also require a strengthened FSA to ensure compliance - but one that the public can have confidence in ie no self-policeing).

    Where lending activities to business could result in a mix of UK and overseas activity require a special licence to be applied for.

    Domestic Banking activities could then return to the bread and butter of yesteryear. However, we could use the majority shareholding in LBG to force Barclays and HSBC to open the tap a little in areas which may prove fruitfull - my thoughts here centre around SMEs particularly in selcted economic areas perhaps by differential interest rates. If we required LBG to offer lower interest rates for SME investment purposes then the other 2 would would either have to follow suit or withdraw from that market sector.

    IF we did that, then we should make changes to the general accounting rules so that firms who can demonstrate that they are making changes to fund operating costs from retained profit rather than borrowing can offset some of that against tax.

    It would appear unlikely that the present interet rates can be sustained for too much longer. We are already seeing that rate guarantees on tracker mortgages are being removed. Therefore, there is a strong likelyhood that consumer spending will be contained and savings promoted. As for those business and households that are over-extended: the former would collapse at some point and the latter could be helped by compulsory (as against voluntry) agreements.

    They are just ideas but better ones may emerge from considering them.

    If however we are going to have increasing unemployment for the next 4 years then all bets are off! Western Europe started this depression with higher levels of unemloyment and this is continuing. If they carry on shedding jobs at this pace - and there's no reason to actually believe they won't - then people will be on the streets far sooner than they will here. At that point the proverbial will really have hit the fan and no tinkering around in the UK will be of any use!!

  • Comment number 31.

    Comment 12 : Mr Tweedy

    "(vi) The government cancels the gilts bought by the BoE, and doesn't repay them"

    I suppose this answers the question of how easy it's going to be to put the BoE's gilt assets back into general circulation at a time when the market will be awash with new gilts to fund the ongoing budget deficits.

    What happens to the BoE balance sheet though? At the moment the gilt assets being acquired are being matched by ... what? A "notional" liability to withdraw from circulation the "money" being created to fund the purchases? So presumably the cancellation of the gilt assets will have to be matched by the cancellation of the notional withdrawal. Or by some other means of creating an asset of sufficient size to balance the gilts whose value is having to be written off.

    Isn't it nigh-on fantasy to believe that there is a way out of this that doesn't involve default by devaluation?

  • Comment number 32.

    #29

    Frank,

    Please not SDRs. That would be a real can of worms and open to far more political manipulation than the present reserve currency system.

    Has anybody really questionned why we need a reserve currency in the first place?

  • Comment number 33.

    #32

    It's not about reserve currencies, at least not from where I am sat, it's about preventing trade imbalances.

  • Comment number 34.

    #31

    If it gets to that, the UK will be accepted into the Euro system on favourable terms, and the Euro will be boosted as a result, which would be a win-win for EU and the UK.

  • Comment number 35.

    FrankSz # 29

    Since the last vestige of the gold standard was dumped by "Tricky Dick" in 1971, USD has become the world's reserve currency (and, of course, still is today; e.g., gold and oil being priced in US dollars). Therefore, the rest of the world's currencies are "pegged" to USD: Hence the expression that US dollars are as good (or used to be!) as gold.

    When Nixon closed the gold window, the US government with the connivance of the Federal Reserve, was free to embark on a course of ever monetary expansion to fund its activities (e.g., Cold War, defence spending and welfareism) without being restricted by the discipline of the gold. What were the exporting nations (to the US) to do? Their only option was to buy US government debt with their accumulated US dollars which, they have been doing for the last 38 years.

    Of course, the major exporting countries (to the US), such as China, Japan and Germany are getting rather fed up now with this arrangement because the US government pays back the debt in depreciated/devalued US dollars or continually "rolls over" the debt. Hence, China's - and to lesser extent, Japan's and Germany's - unwillingness to fund US debt any longer and adopt SDRs (a basket of currencies including USD) as a means of offsetting their potential losses. As a sidebar, this was precisely the reason for Hillary Clinton's low key visit to China a few months ago; that is, to persuade the Chinese to keep on purchasing US government debt in order to finance US consumer spending.

    However, the fundamental problem with SDRs is that the "basket countries" can still inflate their currencies in tandem which, of course, does not solve the dilemma.

    Only an international return to the gold standard can stop insidious fiat monetary expansion by the nations that so desire it.





  • Comment number 36.

    foredeckdave (#30) But surely those were the very firewalls which the USA Gramm-Leach-Bliley Act removed in 1999 (and the 2000 legislation did here), and which led to this mess? Furthermore, given this legislation was in force when injections of cash from the Public-of-the-future along with QE went ahead, any talk of re-establishing Glass-Steagall etc is surely like shutting the stable door after the proverbial horse has bolted (besides which, it would take time)?

    Banks have to compete and will lend money where they get their best returns. At the moment, that isn't the UK or UK it would seem. As the banks said a while back when challened over their lending 'we're not charities!'. Why should they care about the UK if the UK isn't a good investment? First they're answerable to their shareholders (HMG aren't real shareholders), and their sharholders are international are they not? That, plus the fact that Government here doesn't manage the Means of Production anymore, is, I suggest, why politicians are so powerless and precisely why so much of the educated electorate is now so cynical/disinterested in politics.

  • Comment number 37.

    #36

    JJ

    I totally accept the points you make in your first paragraph. However, it is perhaps better late than never in this instance - even allowing for the implementation time-lag

    I wasn't asking for a system that would loose banks money. All lending wold have to be on commercial terms, however the rate charged for day manufacturing investment or 'green' start-up could probably be shaved by a couple of points - especially if HMG underwrites it! As for shareholders being international then one must ask "where-else are they going to go?". Look at the almost desperate movement of capital over the last 9 months.

    As for the Means of Production (oh still my Socialist heart!), I am not calling for a planned-economy in the standard sense. I would wish the government (any party) to be an identifier and enabler of strategically important investment. In terms of finance then let's say a rate of x% for a manufacturer who wishes to invest in his business but x+% for a retailer.

    They are just ideas to be kicked about :)

  • Comment number 38.

    foredeckdave # 30

    "However, we could use the majority shareholding in LBG to force Barclays and HSBC to open the tap a little in areas which may prove fruitfull..."

    Who is "we" Dave? The government? Use of force? C'mon, Dave, banks are just financial intermediaries - they, in themselves, do not create wealth.

  • Comment number 39.

    25 Mr T

    ''Those British businesses and households which are over-indebted are at a high risk of going bust, as the banks don't want to keep lending to them.''

    Surely the issue is in part the 'over indebted' condition. Nothing to do with lending. Lending is still available. Debt is a mechanism to make you wealthier at the point of borrowing and therefore poorer in the future. We have now got to the future.

    Businesses and people have used debt in many cases to try and make something work that wasnt really working. As the debt supply has reached the limits that it can function at then those floating on debt have a problem.

    The problem is that HMG have abandoned governance and actively encouraged debt, public, business and individual. There is nothing that can be done until the debt is reduced and in the meantime generally people are poorer. Therefore volumes have to drop.

    The issue then is one of ensuring that what money is about, which is still very substantial, is seen as an opportunity. If businesses and individuals cannot work within or relocate to areas of growth then they face decline. There is nothing HMG or the BoE or the banks can do to help very much, even if they are bothered.

    If businesses or individuals do not have the motivation or cannot for whatever reason move to areas functioning then how do you expect them to be helped. The reality is their future is in their hands and if they cannot act then the request effecively is one for subsidy. whilst subsidy may be forthcoming for a few it generally is not an effective solution. There is no point in looking to HMG, the BoE or the Banks.

    The important measurement is growth. If you do not have growth or at the very least the near prospect of growth you are simply wasting your time. There is no real reason to expect a sudden turn around in the economy. Take a look at the Depression and see what worked and how slow things went coming out of it. This is not the Depression but it sure is a big recession, quite how big remains to be seen.

    However a question - How many of the big business casualties are really a surprise. Has there never been a question about their strategy or position. If so why is their such sympathy about the inevitable outcome of decline. It has nothing to do about working hard, it is all about producing something that people want, that usually also involves working hard but I am afraid just working hard is not the answer. Otherwise being in a chaingang would make you wealthy.

    Ethics, sustainability, low overheads, flexibility in production are the main drivers. It appears impossible to introduce these into some businesses however rationally they agree it is just beyond them to act, so they keep on keeping on to the logical outcome. High tech and patents are no protection, technology can be copied and patents last 16 years, 19 if you are lucky, and policing the patent is expensive.

    BTW the brick and elastic is interesting, car traffic has been modelled as bricks connected by elastic. So from a standstill there is a take up and lag, staged acceleration in the convoy, then on slowing no elastic action, delay in braking response so shunting in the convoy, ie a pile-up. So your analogy may well developable to be a convoy of bricks all connected by elastic, quite likely. No feedback, just unknown response.

    There is little appetite for consumer borrowing at present and until it is evident I will ignore it.

  • Comment number 40.

    38 Lib Kurt

    Thank you. All banks do is make money available at a cost. If they did not have debt to flog they would go belly up rather quickly. Essentially they skim the economy. I am amazed anybody thinks it is a difficult job. In what way is running what is effectively a cartel based on skimming the economy a difficult job. It was sheer greed that lead here and how on earth did anybody think that the skim on the economy could be dramatically extended.

  • Comment number 41.

    30 foredeckdave

    You sure love your government subsidies and interventions, whilst you use different names that is what you are suggesting. Dual interest rates where looked at last time around the recession loop and discarded as being unworkable. It was government thinking it knew about business, ie banking in particular, that got us here. The last thing I want to see is HMG anywhere near business. Reasonable regulation of the market yes, no getting away from that.

  • Comment number 42.

    BUT THEN MERVYN KING WASNT CONCERNED WHEN HBOS HAD A STATUTORY DEMAND

    SERVED AGAINST HALIFAX PLC IN 1997,SO DONT TAKE ANY NOTICE OF WHAT THE

    B of E THINKS OR DOES!!

  • Comment number 43.

    IF IT WAS POSSIBLE TO SHORT SELL THE B of E THEY WOULD BE DONE FOR!!

  • Comment number 44.

    BUT DONT WORRY THERE WILL BE PLENTY OF REWARD FOR FAILURE WHEN MERV STEPS

    DOWN. . . .

  • Comment number 45.

    foredeckdave # 37

    "As for the Means of Production (oh still my Socialist heart!), I am not calling for a planned-economy in the standard sense. I would wish the government (any party) to be an identifier and enabler of strategically important investment."

    Dave

    Don't let your heart rule your head! The debate with Lange about economic calculation in the socialist commonwealth was ended by Mises in the 1920s when he said that socialism lacks a method to rationally allocate and distribute resources in an economy.

    Only the capitalist free market system can solve economic calculation through the private ownership of the means of production and the market order price mechanism.

    Socialism, and all its offshoots (Communism, Marxist-Leninism, Maoism, Stalinism, National Socialism, Democratic-centralism, Social-democratism, Liberal-democratism Anarcho-communism, Anarcho-syndicalism), is a moribund economic theory.

  • Comment number 46.

    Welcome, good people (and JJ), to anarchy! Full of disorder; that's what anarchy is, right? Let's talk about ORDER. Where does order come from? What causes the baker to bake his bread? What causes the carpenter to build his table? What causes the carpenter to trade his table for the baker's bread?

    The carpenter eats, and the baker has a table to eat on. They THRIVE off each other. Notice: without FORCE and without GOVERNMENT. The Trader Principle is the Anarcho-Capitalist principle # 1. It is through anarchy that the baker bakes his bread. It is through anarchy that the carpenter builds his table. It is through free trade that they are mutually made better off.

    Most of your life is anarchy, and most of the great things you created were through anarchy and thousands of baker-carpenter like transactions. The complexity of these laissez-faire networks creates goods that can only be dreamed of otherwise.

    The Trader Principle creates SPONTANEOUS order by providing the means for men to ORGANISE. It follows that the relative freedom we have in the UK is the sole reason for our prosperity. Hong Kong has shown that it has nothing to do with government created "resources". It has everything to do with the Trader Principle.

    Welcome to the beginning of the argument for anarchy...but we still have a long way to go.

    Anarchy - Etymology:

    New Latin; anarchia. Ancient Greek; anarchia (an-, "not"), (archos, "ruler, authority").

    Anarchy - Definition:

    1. The state of a society being without authoritarians or a governing body.

    2. Anarchism; the political theory that a community is best organised by the VOLUNTARY cooperation of individuals, rather than by government, which is regarded as being coercive by nature.

  • Comment number 47.

    I think this post is really addressed to both glanny and Kurt.

    pleasae don't shoot me it'll hurt A LOT!

    OK so I keep addressing government intervention. The ONLY reason for that is there is no other body who can take on responsibility for the type actions that I feel could help. It won't be done by the banks, it can't be done by the likes of the CBI or any other body and the free market will not take responsibility for it. But at the end of the day (what a terrible phrase) some body has to take a lead. If there's one thing we are good at as a nation is following the bugle call - even if the generals are no good!

    As a born and bred Scouser (and proud of it even though plastic) I had 2 options - be exteemely right wing or be a scoialist. Now education and experience has taught me that Socialism as identified by Old Labour doesn't work. But that doesn't stop me from holding fast to the concept of fairness in the division between capital and labour. I begrudge no man making his fortune from his own efforts.However,I abhore exploitation and the perogatives demanded by wealth - particularly un-earned wealth eg aristocracy.

    In the light of the above you may be able to understand why Kurt's Liberterianism scares the (word deleted so as not to offend the Mods) out of me. Intellectually, I see merit in the Austrian School philsophy. But, when I try and test it against the nature of man, I forsee greed and averice and the exploitation/serfdom of the many. Perhaps I am not understanding the theory fully but I can't get over my stoppers (and yes I have been doing some reading!).

    At the same time I find myself railling against glanafons 'naturalistic' approach that this thing has to work itself out. Perhaps its the stories of the 1930s and the poverty, the utter waste of so many potentially productive lives and the final insult of having to fight a war at the end of it. Well I don't want to see the deapair of long tern unemployment for my children. I certainly don't want to see them having to fight a war. Therefore, I want some form of positive action to ameloriate the present postion and prepare us for the future. We can, to a limited degree, control the polticians, but I won't leave it to the shysters in The City to just look after their own skins at the expense of everyone.

    So, end of rant, there's a rum and coke waiting so if i post again today then I REALLY won't make any sense - situation normal some may say :)

  • Comment number 48.

    MRTweedy

    £ at 1.6575 against $ - said it would! But haven't got a clue where it's going next. Sorry!

  • Comment number 49.

    glanafon (#39) "The problem is that HMG have abandoned governance and actively encouraged debt, public, business and individual. There is nothing that can be done until the debt is reduced and in the meantime generally people are poorer."

    That's right. What's been promoted over the past three decades is anarchism, divisive individualism and worship of Mammon. Look closely into this statistically and you will find a 'political' movement which has driven this and benefited from it. It can be seen most clearly through what it opposes in other groups.

  • Comment number 50.

    #35

    You are telling me things I already know. You are preaching to the converted when it comes to the basic underlying problem of where we are today. I agree. I haven't changed my position on this. In short, decoupling from gold, with a US-friendly IMF/World Bank/etc, and with exporters already receiving payments in USD, allowed the US to begin a massive bubble of liquidity that has been growing pretty much exponentially since 1970 (ok 1971).

    It's game over. However, there are really only two options now:
    a) A coming together of nations to produce a multipolar global state, with a bancor-like framework (SDRs?) to help regulate trade imbalances
    b) A devolution, growing nationalism, collapse of currencies, collapse of nations, turmoil, war, conflict, starvation, and ...of course...a move towards gold in those places where people can still afford to save.

  • Comment number 51.

    glanafon (#41) "The last thing I want to see is HMG anywhere near business. Reasonable regulation of the market yes, no getting away from that."

    Contradiction.

    Contrast with 'The last thing I want to see is authority anywhere near the classroom. Reasonable control of the kids' behaviour yes, no getting away from that.'

    We have seen what light-tough regulation was designed for, and led to. Even accountants couldn't make sense of the books. Take The Means fo Production out of state ownership and the profit motive reinforces lies/spin, corruption, greed, narcissism, and yes, dysgenesis. That's what we have seen growing for thirty years. Do you want to see that continue?

  • Comment number 52.

    Erratum (#51) light-touch regulation

  • Comment number 53.

    Free trade in Asia, ASEAN economic expansion:

    https://www.bloomberg.com/apps/news?pid=20601101&sid=ajRotNc0n4.Q&refer=japan

    https://www.philstar.com/Article.aspx?articleId=473763&publicationSubCategoryId=200

    https://www.google.com/hostednews/afp/article/ALeqM5iRG_Xi4Mtj-A2e411Drr6PvNYGig

    https://www.nst.com.my/Current_News/NST/Wednesday/Columns/2572185/Article/index_html

    https://www.jamestown.org/single/?no_cache=1&tx_ttnews%5Btt_news%5D=35041&tx_ttnews%5BbackPid%5D=7&cHash=f0b872132a

    https://www.chinapost.com.tw/taiwan/china-taiwan-relations/2009/06/02/210495/ECFA-draft.htm

    Facilitators:
    https://online.wsj.com/article/BT-CO-20090601-703466.html

    https://www.businessweek.com/globalbiz/content/may2009/gb20090522_519171.htm?chan=top+news_top+news+index+-+temp_global+business

    In short - there is a rapidly emerging Asian economic integration with China positioning itself to offer the RMB as a regional equivalent of the dollar.

    "The People's Bank of China has signed six currency swap arrangements with other monetary authorities, to encourage the RMB's role in trade, and commenced trade settlements at a number of Chinese cities on RMB terms. It is also enlarging the share of loans to African governments or through the Asian Development Bank made in renminbi. "

    The long term trend for USD is unavoidably down.


  • Comment number 54.

    Stephanie,
    Look forward to your comment on the House of Lords Economic Committee's report on the failure of the Tripartite Committee in regulation and supervision of banks leading up to the crisis. Quite why the BBC website referred to this briefly yesterday then took the story off the business website I would be interested to know. Also interested to know why an unaccountable committee of the House of Lords is dealing with this most important of issues with members having to declare interests in the finance sector.

  • Comment number 55.

    FrankSz (#53) Just remember a) COMECON, b) That the PRC is Stalinist with an inscrutible face and c) they will siplomatically treat those of the Chicago/Austrian School as minions of Satan (watch their support of Palestine, Iran etc vs Israel).

  • Comment number 56.

    I note that angela merkel has said QE "could fuel rather than defuse the economic crisis."

    She told a conference in Berlin: 'What other central banks have been doing must stop now. I am very sceptical about the extent of the Fed's actions and the way the Bank of England has carved its own little line in Europe.

    'We must return to independent and sensible monetary policies, otherwise we will be back to where we are now in ten years' time.' "

    I have yet to see any proof that QE has ever worked it is a theory not a solution......In theory, there is no difference between theory and practice. In practice, there is...!

  • Comment number 57.

    No.48. foredeckdave

    I remember the discussions you and I had with MarcusAureliusII about the prospect of dollar devaluation a few weeks ago, when rumours first surfaced about the likelihood of the dollar depreciating. Back then the exchange rate was moving in the range 1.45 to 1.50 against the pound, now it's up to 1.66

    At the moment I'm holding mostly sterling, as the pound will probably keep rising for a while. How far it will rise against the dollar and the euro, I do not know. The bond market will decide that....

  • Comment number 58.

    FrankSz and LibrarianKurt

    Don't buy gold, buy corn and oil futures. Or buy copper or platinum. Or maybe buy the euro....

    Buy something useful.
    Gold only has a theoretical use, as demand for jewellery is going down.
    Kurt never gets out of the library; he just sits and reads theory books all day.....

  • Comment number 59.

    Janchild 9
    Good point. The basis of current policy seems to be creating a set of circumstances where consumers will borrow more so that they can spend more. But consumers have already borrowed more than they can afford and need to reduce indebtedness. Surely we have to accept that the excesses of the past are not sustainable and we should seek policies that manage expectations down.
    Fiddling while Rome burns? Sure. While we are discussing the minutae of econimic theory and whether the world has actually changed, one of the world's largest manufacturing corporations goes bust. This seismic event struggled to make the BBC headlines and has not yet elicited comment from Steph. Change, what change?

  • Comment number 60.

    #58

    I am not going to buy gold or any other commodity. Not because they wouldn't be good investments, and not because I don't want to contribute to starvation by elevating a commodities bubble, but mainly because.... I want to BLOW MY CASH ON A TURBO SYSTEM!!! Do you know how frustrating it is waiting for the dollar to drop to reasonable levels? I just hope Turbonetics don't decide to up their prices as the dollar falls. Is there anyone on this board who would be willing to help a poor soul and donate something to my cause...?...anything? just a humble turbo manifold? a chipped ecu?....please?

  • Comment number 61.

    No.56. jolo13

    I like Angela Merkel and all that German prudence.

    I see Mervyn King's pension pot is worth £5.4m; so he has nothing to worry about regarding the outcome of Quantitative Appeasing....

    https://www.telegraph.co.uk/finance/newsbysector/banksandfinance/5345487/Bank-of-England-makes-1bn-profit-thanks-to-crisis-measures.html

  • Comment number 62.

    "Mervyn King said recently it could be six to nine months until we know whether quantitative easing has worked. You can see why."

    We don't need 6-9 months to see if it worked !! It has already worked it evil spell on the market - https://news.bbc.co.uk/1/hi/business/8078362.stm

    The Emirate of Abu Dahbi - in the guise of its investment arm, International Petroleum Investment Company , has just flogged 1.3 billion Barclays shares, made a profit of 1.5 billion quid and cried all the way to the (presumably their own) bank !!

    Meanwhile, nothing is heard about the Chinese or Singaporean holdings in HSBC, Britain's(??, not Bermudan ??) one truly international bank !! They must be hanging on for dear life since this is one of the few safe(??) bets left in the market !!

  • Comment number 63.

    40 glanafon

    "In what way is running what is effectively a cartel based on skimming the economy a difficult job."

    Hey! The trick as with any pyramid scheme is not to expand your base too quickly (or too slowly). Of course, when you can't expand your base any more you're toast. (See Madoff, for example. What did he *think* was going to happen?)

    It's not as easy as you might think, sat in your cushy little office. I've been running these scams for years and I'm just about packing my bags and getting out of town at the right time these days. It's no joke hiding in a cesspit in a medium-sized Peruvian village for three days or getting buckshot in your derriere. I could tell you stories that would make Fred the Shred's vandal throw up.

  • Comment number 64.

    Mr. Tweedy #58 "Gold only has a theoretical use, as demand for jewellery is going down."

    Not to be too pedantic but gold does have a lot of commercial uses, other that jewelery !! Take the fireman's helmet faceplate for starters !! It is coated in a microfilm of gold to prevent excessive heat hitting his face and to conduct that heat elsewhere. Gold also has many other uses in other applications especially in computer equipment contact points. That said, much of the gold is still used in jewelery but a significant proportion of the gold is made into bars as "currency gold", i.e. transportable wealth !! Not much has changed since the first caveman swapped a shiny lump for some mammoth meat then !!

    #61 Not too long ago, Frau Nein boasted that she will be Mrs. Thatcher Mark II !! However, she has still to acquire a heat-seeking handbag like the one the original version had !! Perhaps she'll acquire a 1 litre heat-seeking beer mug instead !! :-)

    God knows, she's no pushover, as the GM US management found out to their cost !!

  • Comment number 65.

    47 fdd

    I'm not interested in shootin anybody.

    You and anybody else is welcome to pump money into the system and intervene in whatever way you want. I just doubt what will be achieved. However big the sums are they are dwarfed by the size of the problem. You seem to me to be working on a 'stitch in time saves nine' but the problem is it is not in time. I am well aware of both the impact of the depression and WW2 as both affected my family. My father always thought there would be another depression, he just thought it was a matter of time. He died a couple of decades ago so it isnt as though he witnessed recent events.

    The question is why are some sectors in growth and some in decline. Futher - will the sectors in decline return to growth, the chances are not I am afraid.

    51 JadedJean

    ''glanafon (#41) "The last thing I want to see is HMG anywhere near business. Reasonable regulation of the market yes, no getting away from that."

    Contradiction.

    Contrast with 'The last thing I want to see is authority anywhere near the classroom. Reasonable control of the kids' behaviour yes, no getting away from that.'...''

    You are at it again JJ you have no right to put words in my mouth. Your arguements are weak as usual. Utilities have been sold off and the money raised pocketed and spent by government. There is no way the money is going to be spent buying them back and compensation will be required. HMG have no business savvy that I can see therefore they should stick to governance and proper regultion of the marketplace. The fact is they have not been doing that. The fact you cannot apparently differentiate between business, infrastructure and regulation appears to be part of the problem. It certainly appears to me that HMG cannot differentiate either.

    The outcome of HMG not acting in a role of governance will be a lost decade and a damaged generation with apparently little downside for those active in steering the process here. I have little concerna bout those who lose a percentage of their wealth, it is those stripped bare that are the problem for society. As I have pointed out before your endless IQ issue is irrelevent to this whole mechanism. Issac Newton got caught up in the South Sea Bubble and lost a lot of his wealth. Is Issac bright enough for you or do you think he sould be classed as low IQ.

    ; )

  • Comment number 66.

    glanafon (#65) "You are at it again JJ you have no right to put words in my mouth. Your arguements are weak as usual."

    You really don't know what you are talking about do you?

    Please look up the term argument. Then come back and tell me why what I posted was a weak argument.

    Whilst you are at it, look up what a Gaussian Distribution is, why one must understand how Measures of Central Tendency are critical to grasping what I have been saying, and why people like myself put their trust in regression based technology (see Galton, Pearson, Fisher etc and eugenics) rather than rhetoric. Human beings are fallible, that's why we turn to the extensional stance. Please make sure you understand what that means before replying.

    Have the sense to be grateful for education when it is offered to you.

  • Comment number 67.

    Funny that Isaac Newton should get a mention. Now there was a man who understood the importance of having a robust currency.

    He'd probably be undercover if he were around now, gathering evidence on who to hang, draw and quarter...

    See "Isaac Newton: The Last Sorcerer" by Michael White.

  • Comment number 68.

    66 jj

    For one - my comment has nothing to do with classrooms or control of children. The fact you cannot recognise that is part of your problem.
    My comment was specifically related to HMG being involved with business. It is difficult to be both involved in business and regulate - it there is a conflict of interest, again something you have yet to show you understand.

  • Comment number 69.

    glanafon (#68) "my comment has nothing to do with classrooms or control of children."

    You don't know what an argument is do you? Nor will you be told/educated. For me (and mnay others) this classes your verbal behaviour as irrational. Do you intend to continue behaving irrationally? Follow my advice if you do not intend to continue posting irrationally.

  • Comment number 70.

    Mr Tweedy & Franksz - I am with you on Gold. You can't eat it, wear it or live sheltered by it. Let's plunge in with a globally-acceptable SDR before another state (China) corners the very limited market in reserve currencies.

    Ishkandar - I suspect only a very tiny percentage (anyone hazard a guess?) has practical industrial rather than ritual uses, as in religion, jewellery, gold bullion and the like.

    LibKurt - please, get over the Gold standard, it's so last millenium!

  • Comment number 71.

    Hi JadedJean,

    A few other posters have written at length about how they'd like to see things re-structured and changed for the better.

    I don't generally have time to read the comments on Stephanie's blog, so please RTFM with a link if this is elsewhere, but would you be able to put forward your thoughts on how Britain/The World could be improved. You seem to have strong views and I'm interested. I'm finding most mainstream commentary a bit blinkered, TBH...

    TIA

    Tony

  • Comment number 72.

    ThorntonHeathen # 70

    What the Keynesian proposition for the adoption of SDRs as a global currency controlled by a global central bank amounts to is what governments around the world love to do - spend money on special interest groups and ideologically motivated projects.

    A global central bank would have the necessary means to create SDRs "out of thin air" as reserves to expand member countries' national currencies, or to use to maintain artificial foreign exchange rates or cover the costs of imports or debt a country really can't afford.

    But why have a new "paper gold" international currency, when there is an historical international money - gold - that served this purpose very well before the era of government fiat monies beginning in 1914?

    It is because governments prefer "paper gold" to a real gold standard that would limit their ability to turn the handle of the monetary printing press.

    Of course, the most desirable "policy" would be to "denationalize" money, that is, separate money from the state completely, and leave the choice of a medium of exchange, its supply and value to the free market forces of supply and demand.

    Alas, governments are determined to maintain their control over the printing of money. And now they want to jointly internationalize the process of fiat money creation through the use of this IMF "paper gold," to do what they love to do most: spend, spend, spend through the debasement of the hard earned wealth and income of the those who peacefully work and produce in the private sector.

  • Comment number 73.

    MrTweedy # 58

    "Kurt never gets out of the library; he just sits and reads theory books all day....."

    Ha! Ha! I wish I could.

    The question is would you be happier knowing that your beloved government would have to pay me the money it stole from YOU to sit about all day long drinking beer, smoking cigarettes, reading books and posting comments on this blog?

    ;)

  • Comment number 74.

    Hey y´all, what has happened to the love fest with globalisation and all things American?

    Don´t you remember the old saying "What is good for General Motors is good for the United States"?

    If it is good for the United States then it must be good for its most loyal acolyte, the UK. Let´s get partying. All those houses in Detroit average price $7,500 - can you afford to miss out on such an opportunity?







  • Comment number 75.

    Kurt

    But why have a new "paper gold" international currency, when there is an historical international money - gold - that served this purpose very well before the era of government fiat monies beginning in 1914?

    Have a look at the last link post #53

    In the long run, Asia needs to wean itself off dollar dependence. Yu says one idea, recently floated, is using the IMF's special drawing rights. But this is impractical: SDRs are accounting units using a basket of currencies, and there's no way to calculate their supply or their price against other currencies outside of that framework. Although the use of SDRs may rise for accounting purposes, Yu likens these to Esperanto, the global language that nobody actually uses.

    Another option is to revive the gold standard. Again, it's not feasible. Even if major economies were ready to surrender their dollars, returning to gold would disrupt all asset prices

    There's only about 1 billion ounces of gold in the world, versus $30 trillion of currencies. So you can quickly see how much a unit of gold, or a dollar, would be. Moreover, Europe and America together own 65% of the world's gold reserves, versus only 7% for Asia, including Japan. So returning to the gold standard would impoverish the East.

  • Comment number 76.

    PROPAGANDA

    armagediontimes (#74) "Don't you remember the old saying "What is good for General Motors is good for the United States"?"

    1) Fear, brought to you by General Motors

    In 1929 (after Trotsky 'departed' the USSR) Ford helped set up GAZ in the USSR.

    2) Why was Ford (and Stalin) so opposed to International Jewry?

  • Comment number 77.

    As to the munipulation of currency by various governments and money-changers, I think the flip of a coin may be the best idea presented thus far. The recent past has shown that complex comupter models may be lacking.

  • Comment number 78.

    #65 glanafon,

    Your father was right as we can see for ouselves. You are right when you want to identify those areas of the economy that are in growth. However, we don't know if they are big enough or capable of long term development to sustain a whole nation.

    Sure throughout the 1930s the trains ran and the post got delivered, some areas of the country actually enjoyed a mini-boom. Depression is not the end of all economic activity. It is however a complete waste of natural, physical and human resources. It does spawn social unrest and ultimately sponsor the military option as exit strategy. hese are my big fears.

    My proposals are not a stitch in time. To continue that thought, the stitch was dropped long ago. What I believe is that we must re-position our whole economy and ensure that there is more balance between the sectors. That takes time, effort and leadership. If we don't start now then we will not be in any position to truly benefit as a nation when the upturn finally does come.

  • Comment number 79.

    Addendum (#76) GM and OPEL. An ever so complex history?

  • Comment number 80.

    FrankSz # 75

    "In the long run, Asia needs to wean itself off dollar dependence. Yu says one idea, recently floated, is using the IMF's special drawing rights. But this is impractical: SDRs are accounting units using a basket of currencies, and there's no way to calculate their supply or their price against other currencies outside of that framework. Although the use of SDRs may rise for accounting purposes, Yu likens these to Esperanto, the global language that nobody actually uses."

    Are you inferring that I'm actually advocating the use of SDRs as a world currency? If so, you couldn't be more wrong, old chap!

    "There's only about 1 billion ounces of gold in the world, versus $30 trillion of currencies. So you can quickly see how much a unit of gold, or a dollar, would be. Moreover, Europe and America together own 65% of the world's gold reserves, versus only 7% for Asia, including Japan. So returning to the gold standard would impoverish the East."

    You didn't give this statement much thought, did you, Frank?

    ;)

  • Comment number 81.

    tonytheharrison (#71) If interested, click on my username and use a skip increment of 10 in the URL reather than the default of 25.

    In brief, ability/skills are largely genetic and therefore Gaussian distributed though prone to skewness through ill thought through and badly implemented social policies. The Liberal-Democracies are currently anarchistic which means that policticans have sinecures and don't have the infratructure they once did for effective population management. Unless the trends of the past 30 years or so are immediately reversed through major regain of state control we will continue to see the economy and social order deteriorate. There are, by design, no major political parties in Britain at present which will engineer this reversal. In the past, Old Labour could have done so, but only as a majority/One-Party government, and not with a strong USA, which has opposed such governments universally since it ceased being isolationist and especially since 1989. There's an obvious driver of that hegemony, and it needs to be reined in.

  • Comment number 82.

    No.80. LibertarianKurt

    What are you inferring, that you personally own the other 28% of the world's gold reserves?

    You have been a busy buyer....

  • Comment number 83.

    Great, thanks JJ for comment 81. I'll take a look at the other posts.

    All the best,

    Tony

  • Comment number 84.

    It's interesting that the two traditional pillars of American property [Unsuitable/Broken URL removed by Moderator] have been so severely hit (or is it targeted) whilst the populaton has been dumbed down?

  • Comment number 85.

    MrTweedy # 82

    "You have been a busy buyer...."

    Yes, I like to "dabble" in gold market once in a while.

    ;)

  • Comment number 86.

    No.81. JadedJean

    State control eh? Have you seen how the public now has our political class on the ropes over their sensational expense claims? It's power to the people with knobs on.

    The only hope for exercising some sort of benign control over the country lies with private enterprise exercising corporate control over the nation. If we run the country like a company, it will ensure economic success. Alan Sugar could be the effective prime minister or president of such an enterprise.

  • Comment number 87.

    MrTweedy (#86) "Alan Sugar could be the effective prime minister or president of such an enterprise."

    !&*+%$£&*%£!!!!

    ROFL !

  • Comment number 88.

    I cant be the only one deeply concerned at the colossal amount of money being pumped in. And what has happened to all the talk of reforming the financial system to prevent another meltdown? It looks to me like we are slowly working back to the way it was before.

    How can even more money be pumped in without really waiting to see what effect the first lot and rate cuts had? It sounds desperate and reckless to me.

  • Comment number 89.

    #88 "How can even more money be pumped in without really waiting to see what effect the first lot and rate cuts had? It sounds desperate and reckless to me."

    Surprising as it may seem, this government *IS* "desperate and reckless" !! Look at the daily news of ministers and other MP chucked out or are about to be chucked out, and you can see the desperation to "get something done" before chucking out time !! The whole country is calling time on this government and as the former Lord Protector of England once said, "In the name of God, go !!"

  • Comment number 90.

    Re. SDRs - As I understand it, the issuing of SDRs will be adjusted to the ability of the country to put up *REAL* asset backing for its share of them !! This means that any country that goes "spend, spend, spend" will soon find that it has little or no SDRs left since it will have little *REAL* wealth to back up its share of them !! Zimbabwe is a good case in point !! Currently Britain has a significant chunk of SDRs but that may change soon in the next round of adjustments. The US has the largest chunk, over 15% of the total, but that will also change significantly if/when, first China and then the other US debt holders start trading in their US debts for SDRs, in effect dumping US debts. In order to maintain the US dollar, the US will have to allow the cutting of its share of SDRs because the other alternative is for the USD to go down the toilet !!

    At least 1.5 trillion of USD debt in Chinese hands, about 1 trillion in Japanese hands and a further similiar amount is various East Asian hands out of an estimated 5.5 trillion of current US debt or just over half in East Asian hands !! If they dump those for SDRs, the US is going to have a hard time keeping the ol' greenback up to scratch !!

    The other alternative, that had been proposed and pushed for by an eminent Japanese central banker and economist, is to develop an East Asian currency through the Asian Development Bank based on a similiar mechanism. This will be made to prevent reckless countries from simply inflating their way out of debt (now, where have I heard this before ???) !! No asset backing = worthless bits of paper !!

    Re Gold - Never under-estimate the love of gold in Asia !! The Indians probably have the highest per capita ownership of privately held gold in the world !! They so truly love that stuff !! Just go to any Indian wedding and watch the ladies suffer as they cart around tonnes of the stuff on every conceivable part of their bodies that are on public display !!

  • Comment number 91.

    #84 was a pdf entitled 'Hitler's carmaker: How General Motors helped jump-start the Third Reich's military machine.' which can be easily found. Serialised by the Jewish Journal and The Jerusalem Post.

  • Comment number 92.

    WHO ARE WE TO BELIEVE ABOUT WHAT?

    There's been much coverage of Obama in Cairo today where he has been making overtures of reconciliation, which, prima facie can't be a bad thing. But there's one paragraph in his speech about where his will visit tomorrow which will be sure to raise some eyebrows around the world, and one has to ask, given what is now widely if not unanimously stated, why did his speech writers have him say this given what's their own press? Was it to provoke Iran etc? What is one to believe about the economy? What is one to believe about not imposing US values on other cultures?

  • Comment number 93.

    92 JJ
    I presume you refer to this paragraph: "Tomorrow, I will visit Buchenwald, which was part of a network of camps where Jews were enslaved, tortured, shot and gassed to death by the Third Reich. Six million Jews were killed - more than the entire Jewish population of Israel today. Denying that fact is baseless, ignorant, and hateful. Threatening Israel with destruction - or repeating vile stereotypes about Jews - is deeply wrong, and only serves to evoke in the minds of Israelis this most painful of memories while preventing the peace that the people of this region deserve."

    No eyebrows raised here. Your point is....?

  • Comment number 94.

    ThorntonHeathen (#93) "No eyebrows raised here. Your point is....?

    I thought it had been made clear?. The point is that these horror stories were used by the allies to advance Liberal-Democracy and proscribe command economics as the road to evil. The way it was done was via a highly dubious Collective Guilt i.e psychological warfare campaign. The West is hardly a good advert for the merits of what ensured. Its neo-liberal economics and unsound population management with extinction level TFRs, high crime rates and highly venal economic opportunism is self-destructive. This will, I fear be taken as yet more puppeteering on behalf of Israel and her 'expatriates' and a signal that despite what he says, the USA does indeed intend to export this predatory formula which has clearly brought havoc to the Liberal-Democracies.

  • Comment number 95.

    ThorntonHeathen (#93) "No eyebrows raised here. Your point is....?
    Is that just because some in the Middle East (and elsewhere) know a thing or two which some of us may not? ;-)

  • Comment number 96.

    Now that the lavender hill mops have cleaned out the city ,Mr ve the swerve wants to give them a bun[bungee] in the oven using his dydle doe[itll take more than a shot in the ARM they say] and he is ready to wait up to nine months pacing[pacing] up and down .

    What a mentljam


    Peter Warburton the famous economist who wrote debt and delugeion lucidly predicting the likely economic colapse now happening and its causes a decade back ,commented six months ago that ordinary people had a better grasp of what was happening than the so called "leaders "and were tightening their belts accordingly"[or words to that effect]

    Can anyone immagine Labour tightening their belts even after they got their lego......?

    Gordonzilla wants to grow his big QE'err little inflateable way out way out of a recession in the same way that he grew into it [well he would say that wouldnt he, says handy mandy] having faithfully spent every penny in the prerainy daize like his city barrowboy countertarts who also thought things could only get bet err as they wandered through the streets great and narrow ways selling cockles and muscles alive aliveo
    .

 

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