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Does size matter?

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Stephanie Flanders | 15:45 UK time, Wednesday, 22 July 2009

It's how big it is, not what you do with it. At least, that's the view of Britain's central bank.

I'm tempted to leave it there. But I suppose a little explanation might be needed.

You'll remember a couple of weeks ago I wrote about whether the Bank would continue its policy of quantitative easing. Back then, I said the answer might partly depend on whether you thought it was the quantity of new money created that mattered, or the process of injecting it into the economy.

Bank of England

If QE is a "topping up" exercise to bring nominal GDP - and the amount of money flowing the economy - back to normal levels, then what matters for the policy is how much you've put in.

If, on the other hand, you think of QE as an ongoing stimulus, you might be less interested in the size of the injection than in how it's being injected - and how long for.

You will find supporters of QE in both camps. But the minutes of last month's MPC meeting, published today, suggest that the Bank's policy-makers had a very clear view:

"The key question for the committee at the current meeting was whether it needed to make an immediate change to the total of planned asset purchases. It was important to recognise that the degree of monetary stimulus associated with the asset purchase programme was determined by the stock of the assets purchased rather than by the flow of purchases. Decisions on the appropriate degree of monetary stimulus would depend on the outlook for nominal demand and inflation."

So, size matters. QE is about how much money you inject into the economy - and how many assets you buy for that money - not how long you spend it for.

Does this help us establish whether the MPC will stop QE when it meets next month? Well, yes and no.

It does tell us that the best place to look for clues to that decision will be the Bank's expected path for cash GDP in the next year or two, not short-term developments in the asset markets.

On the basis of this statement, for example, I don't think we should expect the Bank of England to extend QE, simply to prevent further increases in long-term borrowing rates (notably the government's). If gilt yields rise, the MPC won't necessarily consider that a good reason to carry on.

To repeat and (grossly) oversimplify, if you think it's about quantities, that x amount of money is needed to get cash GDP back to normal levels, then once you've put x into the economy you should be unconcerned about what happens to bond yields after that. What matters is that the money is filtering its way through the economy.

That might lead you to conclude that the MPC is likely to give QE a rest in August. Or, as I suggested in that earlier post, to ease the markets' pain, it might say it will spend the last £25bn authorised by the chancellor, though more slowly than before.

Could it possibly be that simple? I suspect you know the answer. Because in this limpid description of the Bank's view of QE, I have left a small detail out.

Even if the MPC can agree that QE is about the quantity of money created - they don't actually have a clue what the right quantity is.

As senior figures at the Bank said at the time, the £150bn figure that was authorised by the chancellor when the policy began bore some relation to the shortfall in the broad money supply that the MPC was hoping to make up. But no-one knew how much they would actually need.

The Bank's critics - including Martin Weale at the NIESR, as it happens - have said that it has taken an overly mechanical, "monetarist" approach to QE in focussing only on the amount.

He and others would support a more Keynesian approach, intervening directly to support corporate debt markets, looking more at the direct effect on private lending rates than on how much money has gone in. As I noted last week, the IMF Board seems to agree.

On the basis of the minutes released today, this question was not even discussed in the July policy meeting. The debate was all about the scale of the asset purchases under QE, not the nature of the assets purchased or the way it is done.

Regardless of whether they opt to continue with QE next month, in putting quantity before quality some critics will say they have already made the wrong choice.


  • Comment number 1.

    Sounds like magical money. Just create it and the economy absorbs it, doesn't matter how or on what. Because government most of all will support government, i.e., keeping government workers employed, the results will not be as promosing as proposed. Those government employees already have homes and cars and kids and debt and are not going out on a spending spree. Government works projects tend to be one time expenditures, although they certainly take their time about finishing, and produce little in the way of a sustained economic investment. A new bridge is a new bridge and it doesn't produce any revenue or jobs after completion, maybe some maintainence but that already exist. Sustainable job creation, not inefficient unstainable projects that are more for political elections than for economic growth. It appears that current economic policy is to throw enough against the wall until something sticks. We are so lucky to have retained the great minds of banking and government that created the mess to begin with. They just miss the most obvious points, people lost money in their personal accounts, they trust neither banks nor governments,the future is very unclear, and potential for increased personal income is unlikely. All while the governments say that it is important to save more and spend more. I am sure this makes sense to those in the land of OZ, but to working people they sound like economic policies hatched by some economic cult off in the woods.

  • Comment number 2.

    Newsnight last night had a good discussion on whether these stimulus packages are really working.

    They are not but it is worrying that those who originally pushed for the Keynesian approach are unable to admit it is the wrong way to go and insist on even more of the same.

    It seems they would rather keep throwing money around willy nilly in the hope that it might work someday and they will be proved right.

    Problem is they have no ideas on the consequences of what they do.

    The US is now asking where all the money has gone. We should be asking the same question. 125 billion pounds injected as QE and an 800 billion pound borrowing

  • Comment number 3.

    .... "once you've put x into the economy you should be unconcerned about what happens to bond yields after that."

    The Bank of England couldn't possibly remain unconcerned if bond yields start to head north though. This would surely be an early warning of the inflationary price we will inevitably be forced to pay for QE. As usual the international value of the pound would be the first to suffer.

  • Comment number 4.

    All you will get from the Monetary Policy Committee is the usual government spin. The more opaque, the more incomprehensible, the better.

    The real question is not "How much?". It's "Does it work at all?". It would be more interesting, in my opinion, to read Stephanie Flanders' own view on this, rather than that of the MPC.

  • Comment number 5.

    There was an election coming up last year in the USA and one next year in the UK. One thing which these expensive bailouts and cash injections at the public of the future's expense will achieve is a serious curbing of future public expenditure, i.e socialist dreams....

    Neither the unpopular Neocon driven Bush administration, nor that of Blair, were at all keen on socialist dreams. The bottom line/big-picture surely is that they now have the public funding private ventures, and they've been skimming a bit of cream off up front too.


  • Comment number 6.

    2. At 4:36pm on 22 Jul 2009, virtualsilverlady wrote:

    I'd venture, from that comment, you have no idea what Keynesian economics is about.

    Here's a hint: it has nothing to do with printing money and what you are seeing today is a bastardised version of JMK's theory on how to work through a recession, used to suit the purposes of those proposing it.

    JMK proposals for working through recessions, Keynesian economics if you will, were purported on doing two things - lowering interest rates and massive spending on public infrastructure development.

    The idea is that you put a lot of people to work when unemployment is high and wages are therefore cheap.
    The premise is that government stimulates the economy (and gets necessary infrastructure on the cheap) when the private sector is battling through recession and work is scarce.

    I see the lowered interest rates but am struggling to see the infrastructure construction...

    How Gordo and Darling think printing money is akin to building roads, bridges, schools and hospitals is beyond me. The fact that crossrail is likely to be scrapped is even more puzzling.

    So dont spew this nonsense about Keynesian economics not working - rather complain that you have a historian/journalist and a solicitor holding the purse-strings and printing and spending money and claiming to be doing it in the name of Keynesian economics.
    It's not.
    Keynesian economics is not about spending on anything - it's about using the opportunity to construct assets when things arent going well in the economy.

    In 1931 JMK advocated pulling down the whole of South london from Westminster to Greenwich to build better housing for a much larger population than they currently had (how would that've improved the housing shortage today?). He also advocated building a massive thoroughfare through the middle of London (imagine that!). This, he said, was better than having good men standing idle.

    This was the crux of his economic policies - tell me where you see that in Brown's plans? Then tell me again Keynesian economics doesnt work. Fact is we dont know if it works because we havent bloody well tried.

  • Comment number 7.

    Inflation is coming folks... do you really expect the BOE and the Dalring Gordo circus to print just the right amount of money to stave off recession and not dump us in the inflation camp?

  • Comment number 8.

    People wonder why the stimulus is not working. It is not working because it is being run by government and layers of government. The centeral governments are asking the other governments how they would like to spend the money. Since the other layers of governments, and it doesn't much matter what country you are talking about, are faced with revenue shortfalls based on spedning commitments during the false-boom, so they want to maintain boom level spending when the boom is over. Next, whtever is left over is in the process of the layers of governments deciding on what projects they would like to fund and those projects are going though the normal governmental process and therefore will take about two years before anything looking like a direct result will be apparent. Meanwhile, the banks have taken all the good loans and are making some money while the governments have all the bad loans. The business communtiy sees that the governments have no real recovery plan and are positioning to survive and not take on debt in risky times. Everyone is waiting for something to happen and no one knows what that will be. Let's hope the World Cup is interesting, at least the Chinese will make some money on sportswear and maybe the university sutdent will retain their part-time job as a sales clerk.

  • Comment number 9.

    QE is a fancy name for printing money. There is no avoiding that fact. I can't think of a time anywhere when this process was anything but damaging. So why are we not stopping doing it, indeed why did we start!

    The overriding fact is we lived beyond our means for over a decade. We deliberately, knowingly and wantonly took equity release from inflated assets and used this for consumption. (You economists said this was good!) The living beyond our means will self correct, very painfully - the QE nonsense is an attempt to ease the hard landing, as are zero interest rates. We are in debt (We have spent so much we have put our children and their children in debt.)

    The economy has to land sometime and prices have to correct, either through inflation or actual price falls. (Wouldn't it have been lovely if when we went into this inflation was 20 percent then we would not have noticed the price falls!) QE (in the form of printing money) has been disastrous in the past I don't see why it will not be now. Nobody has put forward any argument that it will not be disastrous (have they?)

    But nothing will be done about anything until after the election!

  • Comment number 10.

    #6. VinChainSaw wrote:

    "In 1931 JMK advocated pulling down the whole of South London from Westminster to Greenwich to build better housing for a much larger population than they currently had.."

    But it was not built was it, and yet somehow the economy got going again (OK a World War that left GB with a gigantic debt to the USA.)

  • Comment number 11.

    For something completely different, here's the detail of Singapore's $15bn stimulus package:

    It includes tax cuts (that come on top of already low taxes) and S$4.4 for "infrastructure, health and education improvements". S$4.8b comes from reserves. Singapore had a budget surplus of S$6.45bn in 2007. Somehow, they don't need to bail out banks, print cash or borrow a trillion.

  • Comment number 12.

    6 VinCainSaw

    Glad you got that off your chest. Hope you feel better now.

  • Comment number 13.

    Size does matter, as does the point and frequency of application although those two factors can be interchangeable depending on skill to a degree (small size / high skill can have a similar effect to large size and no skill within certain limits).

    Constant consideration should also be given to feedback from the system you are injecting the stimulus into to see how successful you are being and adjustments made accordingly as part of a constant feedback loop.

    If you find this post offensive perhaps you should consider changing the title of your own!

    Personally I just found it amusing and I am trying to reciprocate that sentiment :).

    We all need to lighten up a bit sometimes.

  • Comment number 14.


    Forgot to mention an important factor to consider is also whether there is an election, no election and it is doubtful if the injection of stimulus will be tried at all!!

  • Comment number 15.

    10. At 5:45pm on 22 Jul 2009, John_from_Hendon wrote:
    #6. VinChainSaw wrote:

    "In 1931 JMK advocated pulling down the whole of South London from Westminster to Greenwich to build better housing for a much larger population than they currently had.."

    But it was not built was it, and yet somehow the economy got going again (OK a World War that left GB with a gigantic debt to the USA.)


    Yeah well exactly... and we've all read of how long it took the world to escape from the clutches of that recession.

    All I'm saying is what we are seeing now is simply not Keynesian economics. It's some sort of plan to simply blindly spend in the hope of hitting the bullseye, all dressed up as "economic policy".

  • Comment number 16.

    12. At 6:09pm on 22 Jul 2009, virtualsilverlady wrote:
    6 VinCainSaw

    Glad you got that off your chest. Hope you feel better now.


    Hey you can be as condescending as you like with me but if you want to slag something off it's wise to have an inkling of an idea of what you're talking about.

  • Comment number 17.

    #15. VinChainSaw wrote:

    "All I'm saying is what we are seeing now is simply not Keynesian economics. It's some sort of plan to simply blindly spend in the hope of hitting the bullseye, all dressed up as "economic policy"."

    I hope you are right that 'they' have a plan. I fear however that it is one of Baldrick's that involves turnips!

  • Comment number 18.

    Let's not forget what the banks have been doing over the past decade. It's exactly the same as if they had been forging billions of tenners over a 10-year period. And then suddenly they were found out and all the forgeries were burned. So as a Government, what do you do? You have to make up the short-fall or the economy grinds to a halt.

    QE is OK. The way the Government has gone about it is better than nothing, but it's by no means the ideal approach. Personally I think a much better approach would have been to simply hand out all the money to each citizen, so they could pay off a chunk of their debts (or spend/save if they were wise enough not to have any debts), Public infrastructure spending would have been good too (and would have had a similar effect) but it takes too long to get off the ground.

    The key is redistribute wealth from rich to poor and reduce our dependance on debt, so that there is less need for the banking sector and it can shrink appreciably. Not just to bail out the banks.

  • Comment number 19.

    Calm down folks. Is there any point asking you to debate the issues instead of shouting at each other and at the government? The comments here used to be better than on Peston's blog but I'm worried now.

    The most fascinating news in this article is that the Bank of England is hinting at targeting cash GDP instead of inflation. If true, this could be quite a revolution. Scott Sumner, an American economist, has written some detailed and very interesting proposals about this:

    And John_From_Hendon - if you want to know some examples when printing money was a positive step, have a look at Dr Sumner's blog. 1933 would be one good example...

  • Comment number 20.

    #18 random_thought Why do you think that money has not been handed out to debtors (citizens) and only to creditors (banks)? Why do you think that there has been no material investments in public infrastructure?

    Why do you think that there has been substantially no debate and no mention anywhere that this would have been a viable policy alternative?

    Is it because the government and the media just didn´t think of this as a way forward. Is there some fatal flaw in terms of policy outcome?

    Or...could it be...that the fatal problem is succintly spelt out in your final paragraph. Under no circumstances at all will the oligarchs that captured control of the government countenance any redistribution of wealth, or any shrinkage of their power base.

  • Comment number 21.

    As it is supposed to take a year for QE to show any effect I fail to see how anybody can have the slightest idea whether it is working or not, whether they are for it, or against it. It is a blind shot, but it appeared one had to be made. I have yet to hear any proposal, other than QE, to plug the gap caused by the banks gridlocking on credit. Therefore the matter appears to be a choice of one, which is no choice, as doing nothing does not appear to have been an option. Not that I am one of those economystic types that seem to have all the answers and keep producing the same rubbery graph and pulling it this way and that like some bad act at a club. The bank problem may not be over, that looks likely, and the issue of money entering the economy is certainly less than sorted. The base rate is 0.5 percent yet unsecured borrowing cost is on par with credit cards. The opinion in the banking industry seems to be that it will need the likes of Tesco to entering banking, which apparently is on the cards, and offering low rates for borrowing to cause a change in the situation. All to cosy for my liking. HMG and the FSA appear to be toothless. I thought the principle was that charges had to have some relationship to costs. But clearly not. Nobody is going to rush to borrow at double digit rates if they can wait, so many will rate. As the economy has to have credit to lubricate it, the economy will also have to wait.

  • Comment number 22.

    #20 armagediontimes

    I don't know why such policies, which seem to me to be a perfectly reasonable and obvious solution, have not been adopted. Is it to do with oligarchies protecting their positions of power? I'm not sure - I really don't thing these people are clever or competant enough to control things in such a way.

    I think it is more to do with cowardice in the political leaderships. They are scared silly that saying "the solution simply involves redistrubution of wealth" will be treated with ridicule in the Daily Mail and the Murdoch press, and they have lost the will to say such things. They would rather bleat the received "wisdom" of the City and hope that allows them to be treated as responsible and grown up, even if what they are saying is complete nonsense.

  • Comment number 23.

    20 arm n leg times

    More gangsta rap. You really let the big guys get to you. lol.

    Its just a war game. Largest shout gets attention. Biggest in the room gets a big bit of the cake, takes care of themselves first. Peasants can have what is not grabbed. If not much left, then wait for next cake that is baking boyo.

    Peasants will not form an action group usually. If enough provocation then maybe will group around a would - be - leader. But take a look at Boudica. Okay to start but then couldnt control the peasants, they all went on a party drinking and dancing and marching dead slow, and descended into a rabble who would not do as told, so slaughtered.

    So just who is going to take on the big guys. The politicans are outclassed, their expertise, if they have any, is politics not commerce. It is just the same on the corporate tax diddling, big wallets funding creative effort, big team of clever guys paid for, on the HMRC side a relatively small squad.

    If you where paid to act for the big guys you would play the same game, logic dictates the war game, therefore dictates the outcome. You have to change the war game rules to get a different outcome. The time has to be right to change the rules. It has to be mainfest the abuse is rife. That is the case. If you have a position of advantage and you overplay, as the banks have done, you erode your advantage. Reform therefore has a chance which was not there before. Patience is a virtue.

    BTW you where wrong to say the other day I was beginning to understand the hopelessness of the situation. This is the environment I expect. The issue is working within it. It will be a force fit for some. Nevermind I expect you will say it is another homily. But I remain hopeful.

    And almost anything is better than the systematic destruction of the planet to produce rubbish for landfill with a short spell of temporary holding of the goods by the western consumer. Because that is what was happening.

    The only way forward is to work less efficiently. That is likely.

    ; )

  • Comment number 24.

    22. random_thought

    No, they are outclassed and do not have the expertise, they rely on information channels which can be corrupted, and basically they trust size and power and slick presentation, it is human. The political system needs reform and to have more open access and information flowing both ways electorate and politican. The higher you go the less idea they have of the effectiveness of the policy implementation. The politican is generally isolated and information is conditioned before it reaches them. I feel sorry for some of them.

  • Comment number 25.

    #22 random_thought. Of course Murdoch and the Daily Mail would go ape if there were any attempt to redistribute wealth. They are part of the oligarchy. I don´t know how much tax you pay but I´d bet money it is more than Lord Rothermere of the Daily Mail.

    Is it not interesting how newsworthy MP´s expenses are and how un-newsworthy Rothermeres tax arrangements are. This despite a prima facia case that his tax arrangements are not in accordance with Inland Revenue rules.

    Goldman Sachs announce record profits and record bonus payments. This is news. Days before the earnings announcement Goldman went before a New York court to complain that someone had stolen from it proprietry source code which could be used to manipulate markets. This was not news.

    So far this century the wealthiest 400 people in the US have seen an $87 billion increase in their net wealth. These numbers are so huge they defy comprehension.

  • Comment number 26.

    I've not yet met a single woman who thinks size doesn't matter! (unfortunately)

  • Comment number 27.

    #23 glanafon. You ask "So just who is going to take on the big guys?"

    The most likely answer at the moment is the Chinese. Somehow don´t think they will be overly happy to see the value of their US Treasury holdings sacrificed to the gods of the City and Wall Street.

    Sadly I suspect you are right and the peasants will not revolt, and the end game will be played out as between the big guys masquerading as police and thieves and using their guns and ammunition to scare the people one final time.

    I spend no time worrying about the planet - It has been around a long time and is big enough to look after itself. Hard to say how much longer it will find its present occupants to be conducive guests. Eviction may well be on the cards. Time will tell.

  • Comment number 28.

    #25 armagediontimes

    I can't really disagree with you on these points. The ("new labour") Government could have done something about it if it had wanted to when it first came into power (restrictions on foreign ownership of UK press, ensuring that the press was not controlled by individual owners etc). But for some reason they chose not to. It's not a new problem.

    I'm not actually someone who would consider themselves "left-of-centre" by nature, but I've become convinced that the only way out of this economic mess is redistribution of wealth, and if certain vested interests in the press stand in the way of such changes, then action needs to be taken against them.

  • Comment number 29.

    How can any sane person argue that it only matters that you spend £150 billion it doesn't matter what you spend it on? £150 Billion is £2.5K for every man, woman and child in the country.

  • Comment number 30.

    Tend to agree with glanafon that we don't yet know if QE has had any effect as its too soon to know. It is worrying though that nobody seems to know exactly where it has gone!

    As for size mattering then perhaps that should be related to NICERs prediction that unemployment will rise to 9.5%. Forget the beneficial business cost cutting and think for a moment of the real misery that figure will cause in UK households. That's on top of short time and wage freezes/cuts.

    As for a plan - well I don't see one from any of the political parties. Until we forget about the banks and look to stimulate the real economy things will just bump along - downwards!

  • Comment number 31.

    #11 Re. Singapore 2009 Budget - Notice that it is very specifically targetted !! None of this "Let's chuck a few billion into the economy somewhere and see what happens" !!

    Furthermore, Singapore has at least 3 levels of reserves it can dip into - (from the top) (1) the national reserves (treasury) (2) Temasek, the Singapore Sovereign Wealth Fund (3) CPF (Central Provident Fund) - the health, housing and pensions pot that all persons working in Singapore have to contribute to !! Each of these are overflowing with the savings of the good years. To date, Singapore has one of the highest home ownership in the developed world !! And they did it without a crazy asset bubble over the last 30 years !!

    In contrast, Britain's Treasury makes Mother Hubbard's cupboard look full; our pension pot is looted and there is *NO* British Sovereign Wealth Fund simply because there is no wealth !! Health service is deteriorating and housing has just gone south !!

  • Comment number 32.

    Non-consensual sex is defined, by law, as rape !! When two or more parties perform non-consensual sex on a third party, it is defined as gang-rape !! Neither the size not the method matters as arguments for the defence !!

    Has there been a proper debate on this "queasing" business in Parliament ?? Has there been a referendum for people to voice their opinions on this ?? If the answer to either of both of these questions is "NO" then it is non-consensual on the part of the taxpayer !!

    It does not matter what size Comical Ali has not does it matter whether he waves around like a conductor's baton or goes at it like a pneumatic drill nor does it matter if the banks are "too big to fail", if it is non-consensual....

    The implied analogy in this blog is, perhaps, a trifle unfortunate !!

  • Comment number 33.

    #29. tom_edinburgh wrote:

    "How can any sane person argue that it only matters that you spend 150 billion...150 Billion is 2.5K for every man, woman and child in the country"

    The true feelings of the 'good and the grea't were expressed by Boris Johnson (aka "the Destroyer" of the Tory party's electoral chances) 250,000 GBP = chickenfeed so 2,500 GBP = 3 and a half days chickenfeed.

    The politicians are amateurs, the economists are blinded by their own pseudo-scientific numbers, and the regulators, who were warned and knew what they were doing was going to end in disaster, are cowards. There is no plan at all. They don't know what they intend to do or where they are going. The surprising thing is that we think that they do know what they are doing! There is the fault line in the media.

    Why should be think they have a plan when they were unable to predict the disaster, and unable to manage the economy in a way to avoid the disaster, and the same people are still running our economy?

    If an army general had been so appalling at running a war he would have either been shot or retired by now. Why do they continue to get away with this...?

  • Comment number 34.

    #33 "If an army general had been so appalling at running a war he would have either been shot or retired by now."

    Never !! Any such army general will be knighted and promoted !! History proves this time and again !!

  • Comment number 35.

    John_from_Hendon (#33) "Why do they continue to get away with this...?"

    Is it possibly because they and they are legion unwittingly don't/can't look at what's going on within the bigger picture?

    What if people are locked inside their conceptual schemes/cages and fight off/abuse anything which threatens their comfort zones? Is change ever possible via reformism/education, or is it in fact always brought about via structural/population change, e.g. revolution, immigration, demographic shift/eugenics etc?

  • Comment number 36.

    erratum (#35) "Is it possibly because they (and they are legion) unwittingly..."

  • Comment number 37.

    Most of what shapes verbal behaviour (including what journalists post) is shaped by their immediate environments (after all, those who grow up in England tend to speak English, those in Japan, Japanese - it's not a matter of choice), but that's the probekm, as most economists and politicians are immersed/trapped in a broken language game.

  • Comment number 38.

    Glad to see there are still some people who actually know what Keynesianism is all about.

    Too often today, the media takes a small part of an overall theory and refers to it as the complete strategy. Hence, any sort of government spending is referred to as "Keynesian" and nothing more than gently nudging interest rates up and down is called "Monetarist". This serves to give a respectable gloss to insufficient government policies. The government has badly managed the country, but Tony Blair is still described as a political heavy weight, and Mr Brown has the nerve to utter phrases like "no time for a novice", when he himself is the perfect definition of a novice.

    Today's politicians are light weights.

    Dumbing down has occurred, whether we like to admit it or not.
    The whole country's going "sub-prime", despite half the population being in possession of a degree..........but that's another story.

  • Comment number 39.

    "Does size matter?"

    It's always interesting to get a woman's perspective on this question.

  • Comment number 40.

    In the context of the current world economic actaulity it's of little concern how much QE is applied or for how long it is applied for.

    Maybe we could think of QE as mechanism for perpetuating the status quo.

    My personal suspision is that elites are waiting for the nuveau riche China to spend its accumulated wealth in monetizing the resourses of emerging economies ( Africa ? ). In this way new planets can come into the solar system.

    Once the celestial bodies that comprise the system move into new orbits then there will be a post QE scrabble to acheive a new equilibrium - with the same elites !

  • Comment number 41.

    What softens the landing slows the take off. May be worthwhile but an election introduces political considerations. Unemployment is a huge drag on the economy must aim to minimise [unemployed don't vote]. The economy may be fully developed and further growth not possible. Longterm zero growth with happiness a priority? Gradual population reduction to pre-industrial historical norms of 10-20,000,000? Who will discuss these issues?

  • Comment number 42.

    Comment 3. you're quite right. The Bank of England might well be concerned about a rapid rise in gilt yields, particularly if they appear to be the result of rising expectations of inflation rather than future economic growth. As ever, the blog was written in haste. My point was simply that the Bank would not take rising yields as a reason to prolong QE. In fact, they might take exactly the opposite view, for the reasons you suggest. (I do think that when the time comes to end QE, they will try to manage expectations to avoid wild swings in prices. Whether that's possible is another matter.)

  • Comment number 43.

    In a land governed by a fiat currency, all roads lead to inflation. Historically, printing money has only ever lead to one outcome - inflation. No matter how the government tries to fudge it away, inflation is going to rear it's ugly head and we are all going to pay for it.
    This crisis was caused by too much money, and the answer of the brainiacs at the top is to pore more money into the situation. Bit like fixing a hangover with more booze. (Hair of the dog approach) Not likely to lead to a lasting or sustained recovery.
    I have no faith in the government or the BofE to sort the problem out largely because they have no idea why we are in the mess we are in.

  • Comment number 44.

    No.42. Stiffy Flanders (BBC)

    Rising yields mean there is less demand for gilts, at a time when the government is issuing more and more......

    This will drive up the coupon interest rate on new gilt issues, as the government tries to attract more investors. If the stock markets recover further there will be less demand for gilts, as investors will buy equities instead.

    The cost of paying the rising interest on the rising government debt will serve to keep the British economy on the back foot for years to come.......

    QE keeps the pound low, which causes imported inflation, which pushes up the yield on gilts, and the interest rate payable by the government on its debt. QE is a "tool" for "reflation" afterall (ie a tool for causing price inflation). It's a shame QE will inflate the cost of servicing our government debt and push up the cost of our imports, at a time when unemployment is increasing and wages are falling.

    Britain is still over-reliant on imports, as we don't have the exports to take advantage of the weak pound. Hence, QE and the weak pound is a problem and not a solution.

  • Comment number 45.


    Offered, with other posts, as source material for a future series of posts Stephanie.

  • Comment number 46.

    #35. JadedJean wrote:

    "Why do they continue to get away with this..."

    The purpose of my question was to ensure that the 'guilty' parties are unable to let the normal processes within the news media hide their culpability. As long as people continue to remark on their culpability they are unable to assume the mantle of competence so easily. When mud is justifiably thrown it needs to reapplied regularly to improve the chance that it sticks.

    The 'good and the great' and their news media had to sacrifice Fred Goodwin after all. When he is now seen in the UK he is quite often described as a 'shamed banker'- (look it up in Google). Fred Goodwin was hindered by his appearance and personality, whereas Mervyn King looks like a bespectacled cuddly old uncle so it will take longer - if only he wore red braces! The pressure needs to be maintained! We must not give in, must we?

  • Comment number 47.

    #44, #42

    I don't think what we are/will see is stock market recovery in the sense that businesses are starting to look more attractive in the long run, but I think what we are seeing is a steady increase in perceived risk in holding USD.

    For a while USD was extraordinarily high because of inability or unwillingness to take other risks, but now it is dropping as Asia starts to integrate.

    I can't help but think that China's integration with Asean and exposure of Yuan to international settlements is going to have a much more profound effect during the next year or two on money flows, and consequently on the British situation.

    I'd expect a flight from USD to result in a boost to the pound you see.

  • Comment number 48.

    No.47. FrankSz

    In future we should expect the dollar down and yuan up, if China's currency becomes free floating.

    I keep expecting the pound to climb over 1.20 euros, but our lack of exports still seems to prevent this. There is talk of a big European banking crisis, but I haven't really looked into that story.

    Not all currencies can fall at the same time. If one falls another must rise.

  • Comment number 49.

    John_from_Hendon (#46) "The purpose of my question was to ensure that the 'guilty' parties are unable to let the normal processes within the news media hide their culpability."

    As I have said many time, I do not disagree with your objectives, what I have been endeavouring to do is explain why it will persist (see the recent venal Goldman Sachs behaviour covered by Peston and others, the idle rhetoric from all main parties about regulation in tbe future etc) until the entire system changes, and for that to happen, people like yourself (ironically) are going to have to see through the propaganda which has been, and continues to be, systematically peddled in support of the status quo, and against those who threaten it (at home and abroad).

    At present you are too quick to criticise/dismiss the very things which are required to make the changes you want.

  • Comment number 50.


    Are you male or female? If the latter, can you send a link to a photo? LOL

  • Comment number 51.

    #49. JadedJean wrote:

    "As I have said many time, I do not disagree with your objectives"

    I disagree with your position, as I have said many times before of offering an analysis of why things may not change because, whilst it may be correct, the very act of saying it raises the possibility that the voices raised against the system may be silenced.

    Most of these matters are well discussed earlier by others are great length see e.g. The First International - "'converted to a political theory of relativity based on reforms within the capitalist state" see 'Karl Korsch archive', or the Putney Debates earlier, or the "First Continental Congress" But none of these events had the Internet and its ability to reach millions of people beyond (or almost beyond) the reach of the 'good and the great' - this new information situation may make historically based judgements, if not obsolete, at least less applicable. I think it may be worth a try, or at least is there anything lost by trying?

    The other information dissemination problem is that only very simple message can be conveyed i.e. 'shamed banker', or in the case of The Sun, 'will the last person please switch off the lights' that did for Neil Kinnock. Pick simple targets, be consistent and use a simple attack. (Just like every spin doctor!) To have any hope of success with a course of action the message has to be simplified, the targets obvious and above all subtlety is not required. Don't give them any wriggle room at all - the best questions are structured as: 'when did you stop beating your spouse?'! It is a filthy game!

  • Comment number 52.

    John_from_Hendon (#51) "see 'Karl Korsch archive'"

    This really doesn't bode well, does it? I've gone to some lengths to point out how political correctness is a tool of the libertarian (anarchistic) right, the very people who are responsible for bringing about the financial crisis we're now are in. It doesn't work the way many have been led to believe in that it's not left-wing at all, or are the Neocons, any more than Trotsky was. What all these forces undermine is the Civil Service 'establishment' i.e the regulator state, cf. Keith Joseph. People like Thatcher, Reagan and Blair were just fronts i.e. pawns - look at New Labour's fund-raisers.

    He also instructed Felix Weil, the founder of the Institute for Social Research, from which the highly influential Frankfurt School was to emerge"

  • Comment number 53.

    #52. JadedJean wrote:

    "What all these forces undermine is the Civil Service 'establishment' i.e the regulator state, cf. Keith Joseph. People like Thatcher, Reagan and Blair were just fronts i.e. pawns - look at New Labour's fund-raisers"

    Do you therefore believe that the impact of the internet on the development of the state is insignificant? Isn't it worth trying to see - and not allow oneself to be defeated before starting? I don't think any agent of change throughout history gave up before starting, and then was effective!

    I prefer the outlook and analysis of Georg Lukacs (in History and Class Consciousness) and that of Rosa Luxembourg. But all the studies in the world of Alienation (I like Meszaros's book on the subject as a summary), but all of these studies, and more will not tell us what will be the result of a struggle for change taking place today. We have to struggle and find out and to use the well developed means of the media and the internet to do so. (I can't see that 'tweeting' will be much use at 140 characters however, even this brief contribution is nearly 1000!)

    Keep the message simple, direct and unambiguous and above all eliminate doubt. After all, The Sun says....

  • Comment number 54.

    27 armagediontimes

    ''The most likely answer at the moment is the Chinese''

    What is this thing you have with the chinese. The are just following the western capitalist route but at an accelerated pace. The big factory units there are just like the 19th century mills. Inflexible. long supply chain. The chinese are already in trouble. They cannot keep undermining the western economies with low labour costs and expect western consumption to hold up. So now they are looking to develop their domsetic market for consumer goods. It can only have the same outcome as the west. Give it 25 to 30 years and the cracks will show. Here there is only one conclusion to never ending low labour imports and it is lower wealth. Forget all the rhubarb about multiplier effects and velocity of money. If the basic situation is stuff is no longer made here due to low labour costs elsewhere then economic activity here has to drop. Most trade is basic. Meanwhile short-termism demands business trots off to china, or when that gets more expensive, Vietnam etc. China ia already losing manufacture to Vietnam etc. If everybody in the world industrialises and mass produces then you run out of consumers, simple as that. BTW India is losing manufacture to china, so it goes on and on until they run out of a low labour differential.

    The planet. Yes the planet can just change to another environment that does not fit man. It is not good stewardship. And why should a small number of people be allowed to wreck it for everybody.

  • Comment number 55.

    John_from_Hendon (#53) You're referring to the very sorts of people (e.g. Lukacs and Luxembourg) who were regarded as subversives by Stalin and treated as the scourage of Europe by Hitler. Why? It doesn't even matter if Lukacs, Trotsky and the Comintern ever seriously thought they were doing good, effectively (practically in terms of outcome), they were anarchists i.e anti-statists, just like the original (largely Jewish) Bolsheviks sent into Russia by the Germans to get the Tsar off their East. The Jewish Bolsheviks were used by the Germans and then later purged by the Russian socialists who saw how destructive they were to Russia.

    The Internet is a mixed bag - I used to think otherwise (well before it went web-based) but then I saw it in the hands of people who really knew nothing of IT or much else. Large parts of the grown up human population still think and behave like children, and children need to be supervised/cared for. That's a very unpopular view today, but its unpopularity is why we're headed for even more trouble I suggest. Deregulation/anarchism is ultimately very bad, it's not liberating, it just turns people into consumers.

    See how the PRC handles the Internet? They really do care about their people, and they better realise how people are subverted by predatory lies and distortions. What we now see more and more is people with opinions about matters which they really know next to nothing about, yet being asked what they think. Why? How is that a good thing for either them or anyone else (it even happens at the doctor's and dentist's - why?) This just serves to further undermine the state which used to be there to responsibly serve and protect. As an example, look at schools today - like so many public bodies they're expected to be jacks of all trades (obviously they don't have the time and respources, that's why they had LEAs) - now they have their own budgets but in reality they're just more easily fleeced by contractors/service providers/agencies, and it's the same with prisons and poly-clinics. Ask any senior, experienced professionals. Schools are now even losing their own buildings via BSF and PFI and look who's funding it all who's and ending up owning the property. It's venal.

  • Comment number 56.

    Stephanie you are the hottest Economist after Noreena Hertz. We need more women in Economics rather than all these bald middle aged dull men.

  • Comment number 57.

    "Regardless of whether they opt to continue with QE next month, in putting quantity before quality some critics will say they have already made the wrong choice."

    I am more and more inclined to the Douglas Social Credit approach. Print money if need be, to make sure that productive capacity is actually USED to cater for peoples needs. But channel this money/credit directly to producers and consumers, and bypass the banks.

    Also see this if interested:

  • Comment number 58.

    #56 Modernizer: "Stephanie you are the hottest Economist after Noreena Hertz."

    How dare you, Sir? Nobody is hotter than Stephanie!

  • Comment number 59.

    #54 glanafon. I really do not have any "thing" with the Chinese.

    But facts are facts - banks are playing everyone for mugs. Step up Mr. Taxpayer and pay our bonuses (boni), in return we are going to cut off your credit and if we get lucky we are going to repossess your house and make you homeless, but still you are going to pay us.

    You take that same message to the Chinese (which you will have to because there is no intention of providing value on all those T bills) and try and guess the likely reaction.

  • Comment number 60.

    #59 armagediontimes,

    I'm certainly with glanafon on this one. There's just far too much hype around regarding China. JJ appears to think that they do everything by the Constitution. ishkandar thinks that thousands of yers of Chinese culture will se them take over world leadership. You appear to think that we are giving them that role because of our mountains of debt.

    I think galanafon is being generous in his estimation of the length of time it will take for the cracks to show. I would put that as short as 5-10 years. I base that upon the following:

    Currency. At some point the Yuan has to move to a more realistic echange rate. This will dramatically effect their present apparent levels of profitability.

    Growth. As this depression continues, there is a growing awarenes that our definitions of growth and its consequences are not robust enough. Comparing the general health of disperate economies purely in terms of % growth is just naive and misleading. China is now moving into a position where % growth will slow dramatically but China still has a long way to go in terms of providing the levels of social cover available in mature economies.

    Central Administartion. There are already indications that specific regions are starting to make demands for more control of their own wellbeing. The dramatic growth of the ME2 generation will bring with it more andmore demads for relaxation of 'tight' control.

    The interplay between these and othr factors will mean that China will have to concentrate more and more on internal issues.

  • Comment number 61.



    If a consequence of social credit is that debt-funded asset speculation is prevented, and more focus on investmemt into real production occurs, and if social credit can help bypass banks by the use of 'social lending websites', then I agree and have already proposed the same kind of thing earlier.

    Jericoa - you can add the above to your lobbygroup site

  • Comment number 62.

    #60 "ishkandar thinks that thousands of yers of Chinese culture will se them take over world leadership."

    Well, I *DO* think the Chinese have risen/will rise to a position of world leadership !! However, I *DON'T* think they are into overseas imperialism and world domination Western style !!

    Your arguments are based on projections of Western values, concepts and philosophies on the Chinese thinking. This will not work because they think very differently !!

    "Currency. At some point the Yuan has to move to a more realistic echange rate. This will dramatically effect their present apparent levels of profitability."

    The Yuan is already at a more realistic exchange rate !! It is already 15-18% higher than when it broke the peg against the USD and I admit to having had some benefit from it !! :-)

    However, your argument is also only valid when view from the point that China will always be dependent on trade with the West !! This is obviously not true as others have pointed out since, not only China but most of East Asia, had been and will be developing new markets in Latin America, Africa and Asia. And, until Western manufacturing can match them in price and/or quality, they will dominate those markets !!

    "Growth. As this depression continues, there is a growing awarenes that our definitions of growth and its consequences are not robust enough. Comparing the general health of disperate economies purely in terms of % growth is just naive and misleading. China is now moving into a position where % growth will slow dramatically but China still has a long way to go in terms of providing the levels of social cover available in mature economies."

    East Asian economies will *NEVER* have the kinds of social cover of the West because the Western social cover is based on the *failed family unit* !! In Asia much is based on the cohesion of the extended family unit; which then expands outwards in concentric circles to the clan, the district, the county, etc. Therefore, whereas the individual in Britain, for instance, will suffer because his pension pot is looted by the government through taxation of the pension contributions since he is dependent on one or more external pension providers.

    The Orientals will depend on personal savings and that of the family and clan.When Mao broke the family units in China because he insisted in being worshipped in a personality cult, he broke, not only their families, but also their social security net !! Meanwhile, the Overseas Chinese continues to develop this culminating in the Singaporean extension to involve the whole nation !!

    However, unemployment benefits is an anathema to them !! Historically, they have despised idleness !! There are always land to be ploughed and harvested, animals to be tended, children to be looked after and raised, homes to be maintained. How can any healthy person just sit on his/her rear end and expect to be given hand-outs ??

    Central Administartion. There are already indications that specific regions are starting to make demands for more control of their own wellbeing. The dramatic growth of the ME2 generation will bring with it more andmore demads for relaxation of 'tight' control.

    Historically, China had *NEVER* been a country !! It had always been an empire !! There are more "nations", races,tribes and languages in China than there is in the whole of Europe !! The trick to ruling China had always been to balance the needs of the central government with the wants of the local populations !!

    Just because Russia, Ukraine and Georgia are not in the EU, are you saying that Europe is broken ?? Just because the British refuse to join the Euro, are you saying that they are renegades and should be exterminated ?? Why can't the Brits speak French or German as a single unified European language since there are more Frenchmen and Germans than there are Brits ?? Perhaps the Chinese should glorify the Real IRA since they are fighting for independence from their British oppressors and colonisers ??

    China is already in four economically semi-autonomous parts !! The South with its manufacturing and family and trade links to the Overseas Chinese, the East (Greater Shanghai) with its financial acumen, the North-east centred around Beijing with its political and military clout and the rest which supplies the manpower needed by the other three !! This had gone on for thousands of years and they don't see the need to change this !!

    As for the "relaxation of tight controls", this had been an on-going debate since before the Brits were painted in woad and got hammered by the Roman legions !! The Chinese even have a saying - The mountains are high and the Emperor is far away !! Meaning that so long as the central government collects its due and lets them get on with life, everything will be fine !! That's why, currently all five of the Special Economic Zones are in South China and Greater Shanghai plays be a different set of rules !!

    Finally, the Chinese have never been militaristically or imperialistically expansionist. They have enough problems to deal with within their own empire without adding more of other people's woes !! All this nonsense about China's militaristic expansionist threats are simply American spin and propaganda to justify their demands for ever more money for their own military budget !!

    The biggest threat that China and other East Asian nations pose comes from their economic clout !! That they will surpass the West in grabbing market share is almost a given !! How the West will survive this will depend heavily on how they proceed from this point. If they continue to generate tons of funny money, then they will disappear down a black hole of inflation !! Zimbabwe, here we come !!

  • Comment number 63.

    YEah I think it's pretty clear - China, Japan, Asean + others, they'll just end up being an Asian EU in the next couple of years and the dollar will drop

  • Comment number 64.

    Yeah and also Africa is basically a battleground between the US and CHina for its hears, minds and resources.

    [Unsuitable/Broken URL removed by Moderator]

  • Comment number 65.

    Bernanke said it again. He'd be able to scale back the stimulus package without inflation. What a joke. When the government has spent large sums of money it doesn't have there are only so many possibilities when the debts come due. Print money and inflate. Tax citizens and corporations and send the economy back into depression. Default and collapse the entire economic system cutting off all future credit. If someone has a magic bullet that will make it all go away, I'd like to hear it.

    The latest outrage, the US should borrow money from China to get them to cut back on GHG emissions by giving it to them as a bribe and then paying the interest on it. How can anyone put out such a suggestion seriously?

  • Comment number 66.

    #60 foredeckdave. There is no hype or confusion on my part. The Chinese hold something in excess of $800 billion of US Treasury debt. The US has no intention of paying this money back.

    The citizens of the west seem broadly content to allow western financial oligarchs to plunder from both themselves and from the future wealth to be generated by their children. The only questions are; will the Chinese adopt the same sanguine view? If they do not then what are the likely consequences?

  • Comment number 67.

    ishkandar (#62) Excellent post. Thanks for taking the time to write that.

  • Comment number 68.

    #60. foredeckdave wrote:

    "Currency: at some point the Yuan has to move to a more realistic exchange rate. ..."

    Just how far can be very roughly estimated by looking at the labour hour costs in local currency.... E.g. Chinese manufactured jeans retail at 3 GBP. UK manufactured Jeans retail at 30 GBP. roughly the same material and assuming equal efficiencies the Chinese labour rate is 1/10 of ours! The Yuan is undervalued by 90 percent!

    The point I wish to draw is that the distance to be travelled in revaluation is huge and, in the case, that this happens over a short period, the disruption to global trade will be gigantic and the slump like nothing every see before, or in the other case, the transition will take a long long time.

  • Comment number 69.


    The Chinese worker would need to be able to afford more so that he could afford to buy his own produce, thus drive up the price of the exported products and stimulate domestic economy to be less dependent of exports. To thus unhook from the dollar means being able to more easily settle in yuan as dollar reserves would be less forthcoming.

    The other thing it means is a swap to green technology very quickly as 1.x billion people moving to a richer lifestyle pretty much equals drought and death without better infrastructure.

    If you want to know what to export from the UK there's your answer.

  • Comment number 70.

    Does Size Matter? .... IMHO I think we need a different question ...

    i.e. "Does the Size of ..... Matter"?

    For instance take a look at few 'starter for ten' examples I've included below ...

    The size of our debt
    The size of the trade/budget deficits
    The size of the future pensions crisis
    The size of our untapped talent (unemployment, part-time, temporary working)
    The size of the innovation gap
    The size of the population stressed and insecure about their jobs/future
    The size of the waste (between 40%-90%) and frustration systematically created by out of date 'leadership' and 'management' practices
    The gap between what current 'leaders' are 'telling you' and what is actually 'true'
    The size of the gap between the 'leadership' we currently have and the 'leadership' we really need
    The size of the cover ups we now see
    The size of the greed/incompetence current leaders show
    The size of the culpability, current leaders will bear
    The size of the anger that is yet to rise from the people
    The size of the problem that will be eventually occur before most people decide to do something about it
    The size of the failure that will result from people not taking responsibility, or being accountable for what they do (and don't do)
    The size of the hypocrisy we now see
    The size of the gap between the behaviours we now see and the ethical behaviours (trust, honor, responsibility, respect - Leanomics) we now need
    The size of the 'backlash' likely to occur when most people realise what 'leaders' have been doing
    The size of the wealth being generated for just a few, and the expense of the many
    The size of the self interest/greed which will cause certain nations to collapse
    The size of the collusion that exist to stop progress/improvements being made
    The size of conspiracies that exist, to benefit the few and not the many
    The size of the group who 'manipulate wealth' rather than 'add value' and 'create wealth'The size of the arrogance of those in Power
    The size of the failure in 'leadership' we now see
    The size and number of scams we now see
    The size of failure and the lack of democracy people actually have (one of the biggest scams/spin of all)
    The size of the failure by mainstream education, and the impact this will have on us too
    The size of the failure created (and the lack of wisdom shown) by 'traditional establishments', and their failure to see this too
    The size and misuse of power, from all those in 'power' (Poweromics)
    The size of the group who 'manipulate wealth' rather than 'add value' and 'create wealth'
    The size of the group who do not understand this (an example of Ignoromics Type 1*)
    The size of the apathy from people at large (an example of Ignoromics Type 2*)
    The size of the collapse the nation is still yet to see
    The size of power hard-working people currently have but have not yet realised
    The size of change we have to come
    The size of the crisis will get before we see the changes we now need
    The size of our irrelevance in the world of the future
    The size of gap that will continue to grow, until people become more curious and take more responsibility for doing things differently
    The size of the gap between what current 'leaders' & 'management' do and what 21st century "leadership" & "management" is (e.g.
    The size of the holes in the Government plan (or any other parties plan of action) for doing anything about it

    This is a just quick list I've started off ... and everyone's welcome to add to it here (and in future blogs) too ...

    e.g. take a look at for more information (*and definitions of Type 1 Ignoromics and Type 2 Ignoromics too), as it'll add more and more (including yours), along with a few examples too ...

    David Clift, a Future 500 Leader

  • Comment number 71.


    As an aside, there's a remarkable parallel between Jewish psychology (be it psychoanalysis or cognitive 'science') and Jewish economics. Both are hydraulic models, largely a priori, and suffer pretty much the same flaws as a consequence - i.e they are untestable metaphysics (in the case of Cognitive 'Science' a) the so-called predicates are referentially inscrutable/opaque, and b) the method itself is deceptive, as in Null Hypothesis testing the H0 is always technically false (there are always deviations from the expected, the issue relaly is how much and most in this area comes out as 'not very much'.

    Most people won't see the problem, but it renders a lot of what people talk about in these areas a form of entertaining, theatrical, nonsense i.e.:

    'Bubble-Speak'. It's got to contract, bug-time. People won't like it as it will mean slimming down what they have to say....and earn...

  • Comment number 72.

    erratum (#71) 'big time'

  • Comment number 73.

    #71 JJ

    Are we at loggerheads or violently agreeing with each other? Here's a post I put to you a few days back:

    Also, I still don't know whether you have read this book by Kohn:

    Is behaviourism malign in it's very premise, or has it been subverted by powerful forces?

  • Comment number 74.

    Hawkeye_Pierce (#71) Don't p[ay any attention to the like sof Alfie Kohn (Cohen?). Instead, watch the 5 part 'Men of Ideas' video on Quine from the 1970s on Youtube paying careful attenton to the last part, and then look at some of the work published at the JEAB/JABA SEAB website. It is descriptive (Machian) hard work, and it is lawful. It works from Aplysia (and below) up to humans and is used across the world in many labs for behavioural assays because of its reliability. It's just biology, and those who know the work don't waste time arguing with people who don't understnad it (it's about reinforcement not hedonic reward - think Aplysia - it's even known what neurotransitter circuits are involed in conditioning at that level - see recent Nobel on Dopamine). Most psychologiosts don't get to really understnad it until they do their own lab work as graduate students.

    This, note, is 'Radical Behaviourism' (R-S*), aka Evidential Behaviourism, aka Behaviour Analysis aka Operant Analysis. It is not Methodological Behaviourism (S-R).

    The problem with most economics is they don't measure what they are talking about well enough to talk about it! When you look into how the meaures are collected the maths is window-dressing...

    What matters is control over one's variables, not good maths later. Think about the quarterly GDP figures, or unemployment stats. Stephanie Flanders must know this. It's puff-science.

  • Comment number 75.

    #65 "The latest outrage, the US should borrow money from China to get them to cut back on GHG emissions by giving it to them as a bribe and then paying the interest on it. How can anyone put out such a suggestion seriously?"

    Desperate times and desperate measures ?? What was it that Abe Lincoln said about fooling people ??

  • Comment number 76.

    #67 "ishkandar (#62) Excellent post. Thanks for taking the time to write that."

    My pleasure !! Still, it helped with the insomnia !! :-)

  • Comment number 77.

    #68 "Just how far can be very roughly estimated by looking at the labour hour costs in local currency.... E.g. Chinese manufactured jeans retail at 3 GBP. UK manufactured Jeans retail at 30 GBP. roughly the same material and assuming equal efficiencies the Chinese labour rate is 1/10 of ours! The Yuan is undervalued by 90 percent!"

    Or the British labour is over-valued by 1,000% !! Two sides to the statistical coin !! :-)

    The Yuan is already higher that the French Franc when France joined the Euro. It is also higher that the Nordic Kroners !! One extremely rapid way yo re-value the Yuan is for China to start dumping USD debts !! That will also have a knock-on effect on the Sterling (international trust and confidence, etc.) !!

    The only other way for the Yuan to rise is for the sale of masses of Western valuable assets to soak up the debts held by the Chinese. Unfortunately, this will have a knock-on effect on the other East Asian countries who also hold large amounts of Western debts !!

    The only viable way is to convert masses of the USD debts into SDRs and, thereby, soaking up much of the US's share of those SDRs. But then, it would mean that the US will have far less say in how the IMF is run !!

    At this point, someone will come up with powernomics, etc. !! :-)

  • Comment number 78.

    Posts 62/77 etc - I agree with a great deal of what you've said ... but are we really hoping for Poweromics, or for Poweromics to be replaced?

  • Comment number 79.

    #62 ishkandar,

    Well that was an interesting view of China. No matter how you play it China is changing and will continue to change. It will soon run into the buffers economically.

    If China is to continue to develop economically it has to become far more engaged in the outside world than it is now. To do so it will also have to expose itself further to the dominant cultural values - which happen to be Western. Perhaps this more than anything will have a major effect upon Chinese business and social practices. If you don't believe me then show me a culture that has successfully sustained itself without taint from Western Culture.

    You really cannot use an example of the Frank in any meaningful way in relation to the value of the yaun. JFH was far closer to the mark in is analysis. It is not a question of if, it is truly a question of when China is forced to raise the value of its currency to REALISTIC levels. Then it will be clear that China's advantages in international trade a purely illusional. If China dos not take steps to do this herself then the likelyhood of major tarrif restrictions grows.

    Amazing that China has always been a empire. Even you know that has not always been the case. An empire is only of use when it is strong and China has managed again and again to prove that its strength is transient. So, how strong is China now? Hopefully we will not need to find out. However, her has not truly been tested since the Korean War and size is no longer the advantage it once was. Perhaps more importantly will the Peoples Army actually turn on the people?

    Sure, I accept that my views are based upon a Western understanding. That does not mean that they are false. You obviously like to colour your opinions with an Asian slant and that makes your thoughts different. Time will tell which is nearer the truth

  • Comment number 80.

    #62 $ #77 Ishkandar. What do you think the Chinese reaction will be when they are told by Uncle Sam that they just have to swallow the losses on all those US T bills.

    Clearly none of the potential solutions as set in #77 will be remotely acceptable to the self appointed rulers of the world.

    Do you think the Chinese understand that there is to be no payback?

  • Comment number 81.

    #79 "Perhaps this more than anything will have a major effect upon Chinese business and social practices. If you don't believe me then show me a culture that has successfully sustained itself without taint from Western Culture."

    China had always been able to take ideas, concepts and philosophies from others and adapt them for their own use. Buddha (or Siddhartha Gautama) was an Indian prince who preached peace !! When his teachings reached China at around the time of the Han dynasty, the Chinese took that in and forged their own version of Buddhism that persist to this day !!

    To learn and adapt is a strength and I would not be at all surprised if China took in Western culture, absorbed the good bits and spat out the bad bits and made it their own !! What would be frightening would be the reverse, taking on the bad bits and ignoring the good bits !! Taking on Western militaristic imperialism and ignoring the cultures and philosophies !!

    The use of the Franc was purely as an example. The Kroners (Swedish, Norwegian or Danish) are just as good as examples !! It is approx. 12 Kroners to a quid which is about on par with the Yuan. Does that mean that there will be a 100% tariff on Lego sets or Danish bacon ?? How about Sony-Ericsson phones ?? Norwegian gas ?? As the Yuan is places into the internal market place, it will find its true value. If one country overprice its own currency then it should suffer for its own stupidity and not try to blame others for it !! If it does not have the *real* assets to back its currency, then it should be allowed to float freely (downwards ??) !! Both the quid and the greenback are now sub-prime currencies. Britain and the US now owe more than they have assets to cover those debts !! If they insist on keeping the values high, then they will have to sell assets to cover those debts !! Tariff restrictions will beget tariff restrictions !! How many Dreamliners will Boeing sell if they were tariffed at 27.5%, the same rate that some stupid US Senators had been calling for against Chinese goods ??

    "However, her has not truly been tested since the Korean War and size is no longer the advantage it once was."

    Again a common Western misconception !! In the 1962 Sino-Indian war, the Chinese soundly thrashed the Indian and then declared a unilateral peace that the Indians had not choice but to accept !! The Indians expected the Chinese to come through the North !! Instead, the Chinese marched troops up through the Himalayas and fought a series of battles at as high as 14,000 feet, an altitude that most people find difficulty in simply breathing let alone fighting a battle !!

    In 1979, the Chinese warned a Vietnam that had been victorious over the Americans and, thus, arrogant, that they had to stop invading and occupying Cambodia. THe Vietnamese said rude things back. The Chinese gave them 6 months warning and then invaded. Despite having layers of minefields and other defences in their border with China and some of their best divisions behind those defences, the PLA steamrollered over the lot and completely shattered them, came within cannon-shot of Hanoi, fired *ONE* shell into Hanoi and unilaterally withdrew. Vietnam withdrew from Cambodia soon after !!

    And then there are the innumerable "minor" skirmishes along the Amur River that neither the Chinese nor the Russians will openly admit to, preferring to present a "comradely face" to the outside, capitalist world !!

    The PLA had been tested and NOT found wanting. What their current problem is, is that they had (1) not been modernised since the early 80s and (2) many of their generals were found to be more interested in capitalism (read gangster capitalism) than national security. Therefore, it had been undergoing a purge and modernisation program in the last 10 years !! The last stated objective was to reduce the standing army to 2 million strong and equip them with the latest modern weapons !!

    "Perhaps more importantly will the Peoples Army actually turn on the people?"

    Unlike so many military dictatorships, China is a political dictatorship. Therefore, the army will not "turn on the people" without orders from the government !! Not that different from Jacqui Smith giving orders to raid parliament, really !! A political dictatorship !! :-)

  • Comment number 82.

    #80 "What do you think the Chinese reaction will be when they are told by Uncle Sam that they just have to swallow the losses on all those US T bills.

    Do you think the Chinese understand that there is to be no payback?"

    They don't just understand, they think there is a strong likelihood !! And they are not alone in this !! That's why there is a rising number of calls by various governments for an independent international reserve currency !! The alternative is to dump USD debts and get whatever they can which will be better than nothing !! However, that will totally destroy America's economy once and for all !!

    The BRIC countries have already agreed that this is a viable alternative and Japan and South Korea are in tentative agreement !!

    If America wishes to be suicidal, so be it !!

    This situation is akin to one child telling another, "If you does not do things my way, I'll hold my breath until I turn blue" !! Highly effective as a blackmail threat, I'm sure !! :-)

  • Comment number 83.

    #82 Ishkandar - Sounds reasonable, and therein lies the problem.

    The rulers of the world spend $1 in every $4 on "defence." So far as they are concerned the BRIC countries role is to do as instructed not to do as they think. No-one wants their thoughts, only their money.

    Look at the US economy today - $ trillions are poured into Wall Street, the rule of law has been suspended insofar as it related to financial oligarchs and Goldman announce record bonuses. Meanwhile 1 in 10 Americans rely on food stamps, and 1 in 50 US children are homeless.

    This tells you something; namely that the only interest of US elites is US elites. From that perspective they will not consider their actions to be suicidal as they personally expect to survive.

    Stand by to receive instructions. If you do not like the instructions you can say a big hello to no less than 12 US Carrier battlegroups.

  • Comment number 84.

    Lots of great posts here ... just the thread 80-84 above provides lots of insight for instance ... and points out the clear and predictable risk of war between nations (which is also covered in the book 'Lean World'* - and if it occurs, it will be mostly driven by those applying Poweromics, up until more hard-working people step forward and take responsibility for changing this). IMHO the real 'battle' we therefore face now is one that transcends nations, and is as 'battle of values'**, and those applying Poweromics cannot be allowed to make it into something different (which they will of course predictably try to do) ...

    David Clift, A Future 500 Leader

    * Take a look at P222-227 in for instance.
    ** Take a look at for instance.

  • Comment number 85.

    #81 ishkandar

    You are spreading the jam a bit thin.

    CURRENCY: Now just stop for a momnet and consider what would happen to the exchange value of the Yuan if the Chinese authorities allowed it to float and find it's TRUE value with other currencies.

    TARRIFS: How much Danish bacon does China import? How mnay Chinese goods do Denmark currently import? Now I feel fairly confident that Denmark could survive the loss of the Chinese market but China would feel the effects more of loseing Denmarks (and consequently the whole of the EU).

    Globalisation has benefited China hugely. The time is now fast approaching when those advantages will be removed because of economic necessity. If it is not via a import tarrif then the same effect will be achieved via Carbon taxes.

    MILITARY: There is a hell of a difference in taking on the Indian Army in 1962 and facing battlehardened NATO forces.

  • Comment number 86.


    "Look at the US economy today - $ trillions are poured into Wall Street, the rule of law has been suspended insofar as it related to financial oligarchs and Goldman announce record bonuses."

    Goldman Sachs has repaid all the money loaned to it by the US taxpayers. It never had much exposure to the toxic assets that destroyed other banks. It is under no legal or moral obligation not to do as it wishes with its profits including awarding large bonuses to execs just as someone who finished paying off a mortgage on their house is under no obligation not to buy an expensive vacation or new luxury car, even if their neighbors are starving to death. You may not like it or agree with it but that is how capitalism works. However, in other parts of the world where there is a belief that there is such a thing called "social justice" where the profits of enterprise are legally stolen by government to be redistributed to "the needy," through some notion that nobody should be rich if other people are poor is the norm. Funny how in those countries there is always a ruling elite who somehow live better than most other people. We call it socialism, a form of slavery. No truly socialist government has ever prospered as a whole. Sooner or later its inability to generate surplus wealth that is used for reinvestment to generate more wealth and incentives to those who created it because it perpetually steals that wealth to redistribute to "the needy" causes it to go bankrupt.

  • Comment number 87.

    #86 MarcusAurelius11. Goldman has repaid most of the money it acquired via TARP. It has repaid nothing that it received via AIG and neither will it. Two things of note here firstly Goldman had already hedged their position regarding any failure by AIG and secondly AIG passed the money to Goldman pursuant to an instructgion from Paulson (Former Goldman executive).

    According to the US Comptroller of the Currency Goldman has on its books credit derivatives with a gross value equal to 1,048% of its capital base. This fact is not immediately obvious to main street investors due to a change in accounting methodology which just so happens to assist Goldman in hiding the true state of its balance sheet.

    Goldman Sachs is subject to the same obligations to obey the law as every other citizen and corporation. Goldman have admitted in a New York court of law that they have developed proprietry source code which allows for the manipulation of markets. No-one is investigating why they could want something like this - hence the rule of law has been suspended.

    There is no theory of capitalism that envisages the forced sequestration of cash from the many to hand it over to the few. I do not know what is going on in the US but it is certainly not capitalism.

    Maybe Senator McCarthy was right all those years ago and the US is infested with communists. Given the propping up of Citi, AIG and others, the quasi nationalization of Freddie and Fannie, the interference with markets in forcing through the BoA/Merrill merger I do not think the rest of the world will be very interested in bleatings about pretend capitalism emanating from the US.

    As you so rightly say no socialist goverment has ever prospered over the long term. Welcome to meltdown USA!!

  • Comment number 88.

    "There is no theory of capitalism that envisages the forced sequestration of cash from the many to hand it over to the few. I do not know what is going on in the US but it is certainly not capitalism."

    Au contraire, that was Karl Marx's exact thesis in his Communist Manifesto, the concentration of a nation's wealth in fewer and fewer hands. Do we still have capitalism in the US? We've never had pure capitalism since the imposition of income taxes, social security, welfare, markety regulations, etc. By the end of the depression, the last vestiges of laissez-fair capitalism were dead. We have a mixed economy. How it is mixed and how well the government is able to exit the role it has taken on in financial markets and other markets remains to be seen but it is clear that what went wrong was too little regulation, not too much. It was laissez-faire capitalism all over again under another name, market self regulation, supply side economics, or whatever. Self regulation meant in effect no regulation. Pure capitalism leads to depressions which while richly deserved by business for its excesses is intolerable to society due to the social consequences, an upheaval in the private lives of many if not most people. Power does corrupt so we will see how willing the US government is going to be to get out when its mission of restoring the economy is done...if it's ever done.

    The money Goldman Sachs got from AIG was not a bailout of Goldman Sachs per se but of AIG. European governments begged the Bush admimistration to bail AIG out because of the exposure of European banks. Much to my regret and that of many other Americans they did. Those worthless insurance policies should have been allowed to default and AIG should have gone belly up. They were a lousy company and I dumped them for car insurance over a year ago.

    You are right about the government having changed the rules about accounting allowing companies in trouble to put a smiley face over their risky investments. Bad idea. The government wants to create a "feel good" factor, what economists call investor and consumer confidence. But this merely delays the day of ultimate reckoning. If those derivatives turn out to be bad investments, then ultimately Goldman will go down with the rest of them...unless they can pawn their junk off to other suckers before they blow up. When you roll for high stakes, sooner or later it comes up snake eyes. The sooner the US Treasury starts printing money and getting it into circulation, the fewer and smaller the defaults on derivatives will be. Because so much of it is ultimately tied to home mortgages, the lack of new job creation and the continual reminder that employment is a lagging indicator is an ominous sign. Mortgages that were not in any jeopardy before the depression hit now are as people whose jobs were relatively save are now at risk of losing them. Does size matter? Absolute size no, relative size yes. As more money gets into circulation and the value of each dollar is decreased, the relative importance of prior debt decreases with it. That is why we must have inflation and the sooner the better. I'd say about a 150% to 400% inflation over the next five years would be just about right. Then it could stop. Government will be given one more chance to live within its means, debtors will have a chance to get out from under an unmanageable burden, and lenders will get something where they might otherwise get nothing at all. That includes China.

  • Comment number 89.

    I really should start borrowing massive amounts of US-Dollars to invest them into more stable currencies. With the coming hyper inflation in the US and the low costs for borrowed money there it looks like a definete win situation :-)

  • Comment number 90.


    Yes, the size of the package in monetary terms is very important...

    =Dennis Junior=


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