Britain: A land fit for multinationals?

"A combination of an FSA determined to be a more intrusive regulator...."

it's a bit late for the FSA to get tough with the banks. If you want to see how the FSA can get tough when the Govt. asks them to, have a look at the wikileaks cables released on Feb 2nd from the London embassy regarding the Iranain banks.

Meanwhile they were letting the UK banks at with murder. The hypocrisy of it all!

Agreed in full

'Mr Clegg talks about the imperative of investing more - in infrastructure, in new greener technologies, in education and skills. And he wants the engine of growth to be a national engine, not a London and South East engine.'

Empty rhetoric to which I ask one question: what initiatives are you going to be put in place in order to achieve this?

In the North East, an area which is going to be heavily hit by public sector cuts, sweeping promises have been made about developing 'green jobs' in a 'green economy', without any evidence to prove that this is going to happen. I also think that this 'green' rhetoric is spurring false hope when it comes to creating jobs - one of the most significant issues facing green technology is that pretty much anyone can be shown how to build a wind turbine, for example, however the problem lies in technical maintainence and the skills sets that are required to support and develop the industry - making you wonder whether anyone could do these jobs, even if they were there in the first place.

Do we look to the higher education infrastructure of the North East then? There are some fantastic universities in the region, but a tiny fraction of graduates from these institutions actually remain in the region, and there has been limited investment in developing green learning programmes.

There needs to be a clear strategy which starts at vocational training in renewables, through FE and HE institutions, specifcally targeted at, linked to, and preferably influenced by, industries that actually exist and that are investing in the local economy. Until the government can identify such industries, encourage them to invest (because they can provide the skilled workforce), and help develop the industry in the best way it can, the 'green economy' will be a pipedream. The way in which the coalition handle this agenda will determine economic output of the UK for decades to come.

I'm sure this relates to other regions as well - the North East is just a clear example.

"the banks who warn that their ability to finance the recovery would be undermined and that there would be a permanent loss of the third of Britain's growth routinely provided by financial services till it all went pop"

But this economic "growth" coincided with, and I would argue helped cause, the decline in manufacturing, and our capability to provide for our own needs. The "growth" was partly asset inflation linked to debt, partly extracting revenue from overseas, and, more recently, oil revenue which was not wisely invested. All this distorted the British economy to the detriment of the productive part of it, and fueled cheap imports.

As well as being immoral, this is a very unwise strategy in view of the changes in world demographics and global balances of power.

Medium to long term we would be better off without the power of financial services and the city. We would have been far better off without them ever since WWI!

What UK plc, including the banks need is a period of certainty in order to plan their future business strategy and investment.

It is fine for a group of MPs on the treasury committee to caution against rushing regulation and re-organising the FSA - but delay just causes uncertainty and stagnation when what is needed is some bold decision making.

The Swiss have done it - said that Basel III doesn't go far enough and given their banks new tougher parameters to operate in.

We need to do the same. Splitting the banks is a non-starter in my view, but ring fencing the payments system and savings deposits in the UK to prevent the taxpayer bailing them out again is relatively straight forward. If you want to use UK taxpayer savings to fund your activities and lending you need to make sure you aren't taking too much risk. What you do with investments from other countries and banks is up to you. If you mess up then the UK bit of the bank will be taken over without a huge bail out.

The second urgent change is a tiny levy on financial transactions to ensure more 'real money' is being invested rather than simply being used to speculated or diverted into the accounts of hedge funds and the mega wealthy to sit in offshore tax havens or used to buy £100m appartments at 1 Hyde park. £100m buys an awful lot of investment for UK businesses as does the $4bn that a single hedge fund owner pocketed in 2010.

Once banks and investors know what rules they are operating investment will flow again and a country like the UK with a competitive economy and strong but fair rules and legal system. Likewise, once the reward for productive investment and not hoarding and speculation are more balanced sanity can be restored.

Just get on with it please!

The banks have demonstrated a reluctance to provide support to engineering for many years now, it was always a question of appetite. I hope that we can redress the situation and offer to support to the widest range of engineering and manufacturing enterprise in the hope that we can move on past the demise of the financial services sector. There is no magic solution, in any manufacturing environment there must be the political will to succeed. The infrastructure such an essential part of success has got to be delivered by the politician and the banking system.

"What obsesses (and I choose my words carefully) those who run larger businesses is the 52% marginal rate of income tax for those on high earnings (a 50% top rate of income tax plus 2% National Insurance)." No surprise that these captains and officers of industry would like to keep more of their earnings after tax even following the explosion in executive pay. However can someone explain to me how this affects investment by their companies in the country that educated them and furnish the opportunities for accumulating extraordinary wealth. As Robert showed this week there does not seem to be a shortage of talented foreign executives will to come here and pay our 'extortionate' taxes.

As far as a policy for growth is concerned from the coalition is it not the case they are all free marketeers now.

It is to the eternal shame of Labour that they compulsively worshipped the idol of laissez faire economics as practised by the City.

To re-balance and to return the economy to growth requires monetary, fiscal and interventionist policies. Otherwise it is just waiting for godot!

Thanks Mr P for pointing out what we already know. The lamentable performance of the last government who created a magical country with illusory growth from banking, retail, the public sector, immigration and house price inflation. All of it unsustainable and built on sand. The defeatism and doom-mongering of the BBC and the left to current sensible government policy is now threatening business confidence. You should all congratulate yourselves.

When oh when is someone in the Labour party going to put the likes of Clegg and his master Cameron right about who caused the present financial plight this country is suffering. We all know it was their friends the bankers who they refuse to prevent even now awarding themselves yet more undeserved and obscene bonuses.

A good piece Mr Peston and also the tax dodging by UK based multi-nationals is huge.

Our govt can and should flatten these rotten monsters and create more opportunity for the UK domestic business.

Unless they pay their full dues ... we should tax these over privileged anti British spivving machines out of the country and distribute their business to UK SME's.

This is a non strategic nightmare for the 'UK have nots' as the previous govt seemed to get little in return for endowing these banks with too many rights and privileges.

The other side of its is that the banks have over-leant to these spivving giants and their investments may yet unravel as a new corporate investment debt/finance crisis.

The treatment of UK workers by these giant companies and their links with the UK establishment should be investigated ... equality audit?

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Nick Clegg is a thoughtful and well meaning chap. I agree with most of what he says.

The problem is I am not sure he really has a strategy of how to get from here to where he wants to go. If so what is that strategy? Surely it must mean some sort of industry policy with comprehensive packages of measures - funding, tax, regulatory, education etc. etc. Where are the details?

And where there is a clash between the interests of the old finance/London based economy and the new one he wants to create how is it he intends to overcome the inevitable powerful resistance.

Until such a strategy is articulated I will be left with the sneaking suspicion that Messrs Clegg and Cable et al can talk the talk but they can't walk the walk. Or as my grandmother used to say "they are all mouth and no trousers".

Britain: A land fit for multinationals?
I'm afraid not.
Business likes certainty - at least where finance, regulation, and that sort of legal stuff is concerned.
But Britain
- may break up the big banks (or not)
- may get tighter with the EU (or looser)
- may impose a bank levy (when, how much uncertain), etc.
Now tell me, if you were a busines person, would you chose to place your multinational corporation under this sort of fluctuation?
This sort of "unknowing" allows financial institutions to play games
- break us up and our ability to aid recovery will be undermined'
- break us up and that there would be a permanent loss of 1/3 of Britain's growth routinely provided by financial services. When in fact break-up might be the very thing needed; after all, how much good did the investbank banks, incestuously married to the retail banks, do for the economy of Britain...or anywhere else?
I agree with My. Clegg the UK needs a whole new model of economic growth.
1) to address a massive explosion of household debt, savings must be encouraged. How about we cut up those credit cards?
2) Productivity improvements driven by a massive influx of cheap labour, especially from the newer East European members of the EU.
Now this absolutely no way to run a country because you will soon find your own workers unemployed.
3) A promise by the last government to overseas multinationals that they could buy more-or-less whatever assets or businesses they wanted in the UK.
How on earth could any Government know that?
4) A pledge to multinationals that congestion at the Heathrow airport transport hub would be reduced...
especially when there is plenty of snow.
5) A promise to the City that the regulatory environment for hedge funds and private equity would be as light touch and unintrusive as anywhere in the world.
Are you kidding me! Hedge funds are like gambling casinos; they hedge!!
6) A promise to those on highest earnings that the marginal rate of tax on income and capital gains would be as low or lower than in any other substantial developed economy. Now this is just plain bribary and appeals to greed.
Thank God the old pillars have blown up.
A combination of an FSA determined to be a more intrusive regulator, and a growing EU ambition to write rules for every nook and cranny of financial services in the EU, means that London cannot claim to be a place where hedge funds, for example, can any longer frolic with gay abandon. This is a good thing, especially if Britain fails to sever investment from retail banks.
Now there may be good social and economic reasons to replace those pillars of the economy with new ones - which might be more solid, and which might ensure that more of the fruits of growth go to more people (rather than being scoffed by the top 0.01% of earners). I'd sure like to see this! Where's the plan?
But when I talk to those who run out biggest companies, I don't hear defeatism, but I do hear reluctance to make substantial investments at a time when the outlook is so uncertain. Exactly!
So, for example, the independent Office for Budget Responsibility forecasts that business investment will rise by 8.6% this year, 8.4% in 2012, 10.2% in 2013 and 9.8% in 2014, and when this doesn't happen, there will be tens of thousands of articles to explain why. So let me shorten this up for you: the business environment in Britain is far to uncertain; there is little to no stability. There is no plan, and there are too many fingers in the pie.
As for those smaller companies and their need for credit for investment, split the investment banks too big to fail and give these smaller companies community banks designed to fit their needs.
Reducing the public sector's deficit and demonstrating that the UK isn't bust are not the sole criteria. The Business environment must be stable. It must be fair. And the Government must not pansy-up to corporations just to get them into Britain. The Government must set standards.

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Just another quickie before I disappear again.

If banks are money driven and they have a choice of earning £10 somewhere else or supporting SME and make the possibility of £5, which are they going to choose?

Split’em up and cap’em! If the yewk smile, if they leave clap.

Or lets move our money away and watch them yewk and leave. It will be difficult for us in the short term but better in the long term and at least we can smile at their, not our misfortune.

So we need to rebalance our economy away from the debt fuelled banking and consumer spending which has been main driver of growth?

Why then has the government decided to cut the headline rate of corporation tax by reducing investment allowances for companies investing?

This is a transfer of the tax burden from banking and supermarkets (and other service organisations) to manufacturing and other companies with heavy investment!

The tax policy is completely at odds with the what they are saying they want to do!

Government can borrow 10 year bonds at under 4% at the moment - a real rate of approx 1% when you consider inflation.

The government can borrow so cheaply at the moment - why doesn't it borrow and invest directly in infrastructure.

Most companies are not willing to invest and they are hoarding cash - yet we expect them to do it

Quote from IFS green budget...

"The corporate sector is in much better shape than the household sector, enjoying strong profits growth and with healthy margins. Firms’ balance sheets are in good shape too – leaving many cash-rich. Availability of finance is unlikely to constrain firms’ investment plans. But we do not expect a strong investment-led recovery as many firms remain cautious about the demand outlook."

RP Wrote:

"Mr Clegg talks about the imperative of investing more - in infrastructure, in new greener technologies, in education and skills."

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So why is the Business Innovations and Skills budget being cut by 24% over the next four years, in particular the budget for the Skills Funding Agency.

Weasel words Mr Clegg!!

I agree with much here.
I haven't heard his Rotherham speech but Mr Clegg was on Today, today.
My heart fell: mostly, it was what Labour got wrong. Mr Peston puts it better.
But the two things (IMHO) that are nothing more than political stand-bys (empty rhetoric) are the High Speed Rail 2; and Carbon Capture.

I won't debate HS2. It's just a way of burning more carbon (and you know how those Brummies just love going to London) as you smelt miles of steel, burn tonnes of limestone, buy Canadian trains (Bombadier). No, I won't go on.
But Carbon Capture. If only. Separate air to get rid of the 80% nitrogen, burn the carbon, react the CO2 with a capturing agent, re-heat to release the CO2 for harvesting, transport it (how???) to where? In otherwise empty bulk carriers? Using cities worth of diesel just to change direction. Burn fuel to pump it under great pressure into a hole. And assume it's going to stay there.

Carbon Capture - if only. (Can some natty alliteration by any chance fool half the Nation?)

We simply can't allow coal burning for power. The technology skills and investment have to go in a different direction. (No shortage of suggestions)

There appears to be an obsession with huge companies setting up or relocating into the UK with this government. What about encouraging new setup companies? Manufacturing, software or service or whatever? The banks wont lend money to start up's, landlords are charging full rate rent and keep rising the rents in the belief that any firm can afford it and the tax due to government keeps rising.
Is it any wonder there is no new business growth in the UK?
After all the new companies could be the giants of the future..

The question is not whether Britain is fit for multinationals, but whether multinationals are fit for Britain. Those that are not must leave.

PS. The green investment bank was a good idea

But now this will apparently be no more than a token gesture as the Treasury are only focussed on keeping the (60% GDP) deficit lower rather than making sensible investments when money is cheap and the private sector doesn't want to invest as their debt is over 200% of GDP.

PPS Robert your FTSE friends being 'obsessed' about the 50% tax rate demonstrates the fact that our largest companies are run for the benefit of their highly paid senior employees rather than their owners.

Sadly these people seem completely self obsessed. At the bottom of the scale benefit claimants see marginal rates of over 80% effective tax and this is OK - yet this rate of tax on high earners (who already have enough money in the bank to live a very comfortable life) is unacceptable.

I'd say 60% tax for all income over 100k - who needs more money than this? - if people are so shortsighted and will work less hard or leave this country - so be it!

Tullet Prebon offered staff the chance to relocate to Switzerlandv after the 50% tax rate was introduced -

Q: How many left?
A: 0

"1) a massive explosion of household debt, from 100% of disposable income to an unsustainable 180% of disposable income - a borrowing binge that fuelled rapid and unsustainable consumer spending."

This is required to extend the period between crises of capitalism, by extending the hand of debt to more and more you can ensure your consumer is not priced out of consumption by diminishing wages - with the longer term consequences we're now witnessing.

"2) Public spending that grew faster than the growth rate of the economy as a whole."

This is because private sector profits diminish (due to surplus labour value) - and the public sector has been subsidising the private sector for much of the time. It was also a reflection of the massive under-investment in public services under Thatcher (i.e. catch up)

"3) Productivity improvements driven by a massive influx of cheap labour, especially from the newer East European members of the EU."

...again, the goal of the capitalist is to maintain their profit margin, sourcing cheap, slave or child labour from other countries is inevitable.

"4) A promise by the last government to overseas multinationals that they could buy more-or-less whatever assets or businesses they wanted in the UK."

...well everything is for sale in the UK bargain basement.

"5) A promise to multinationals that there would not be significant immigration obstacles put in the way of their ability to employ whom they like and when they like in the UK."

....trampling on workers rights to maintain the wealth of the bourgoisie - this has been occuring on and off for hundreds of years.

"6) A pledge to multinationals that congestion at the Heathrow airport transport hub would be reduced."

...because the environment always comes second to profit making!

"7) A promise to the City that the regulatory environment for hedge funds and private equity would be as light touch and unintrusive as anywhere in the world."

...great move, because when the city fails to regulate itself it can turn around and blame the regulators for allowing them enough rope to hang themselves, in the most atrocious example of irresponsibility that would make a five year old cringe.

"8) A promise to those on highest earnings that the marginal rate of tax on income and capital gains would be as low or lower than in any other substantial developed economy."

Come to Britain - fill your boots, don't mind the poor, we'll sweep them from the streets into the slums. it's the sort of invitation a despot would think twice about making.

Most of these promises were made to stop capitalism collapsing - but yet again they failed to prevent it. Maybe they'll spin a brand new line about why - but it's obvious that it's the same old contradictions causing the same problems as they have always done.

Identify the source of your profit and it all makes sense. You cannot screw your workers wages and then expect him to buy as many goods and services as he currently does. The result will always be collapse - and the longer we go between collapses, the greater teh collapse will be - just as we're finding out.

"That said, if the Labour leader Ed Miliband is right to warn that the so-called British promise to the next generation that they'll be better off than us could well be broken, that's probably because it is quite hard to discern how and when the new model of the British economy will be built."

COULD be broken? There's no could about it. Although you describe it in more detail, the economic policy of the last ten years can be summed up more succintly - get rich quick!!!! And beggar the next generation.

I speak as someone who is in neither camp - I'm old enough to have benefitted from a free university education and to have secured a job in an industry of substance that at the time at least still provided real opportunities. But I'm also not quite old enough to have benefitted from the ridiculous house price bubble and transfer of wealth from the young to the old.

I feel desperately sorry for the younger generation - those who aspire to higher education face a massive burden of debt before they've even set foot in the workplace, whilst those who would previously have taken a more manual or vocational direction are totally screwed.

I'm afraid I simply don't trust Clegg, his words have proven to be empty, more so than the average politician. They should be judged by their actions and nothing that this coalition has done indicates any clue about how to rebuild the economy to the benefit of the man in the street. In their first real test they made a show of facing down the bankers but blinked first. Why should we believe that they have the ideas or the nerve to build a better economy for the masses?

The eight inducements, identified by Robert Preston above, offered by post-Thatcher governments (the Conservatives but more enthusistically by the Labour) have done more damage to this country's economy than anything else since the WWII. The break-up of the CEGB, the UKAEA and the BNFL into small bits and then allowing these small bits to be swallowed up by foreign companies, allowing foreign companies, particularly the American companies, to pick and choose British companies to takeover regardless of those companies' significance to the economy and national security have done immense damage.
The present coalition government's policy to reverse the erstwhile suicidal economic policy is absolutely right and laudable. In addition, this government should instigate public inquiries into the mis-management of the economy by the previous Labour government. Take, for example, the sheer stupidity of selling national gold reserve by the previous Labour government at the historic low price. The country country could get now nearly three times of the previous sale price. What a damage done!

8. At 14:40pm on 4th Feb 2011, sandy winder wrote:

"The defeatism and doom-mongering of the BBC and the left to current sensible government policy is now threatening business confidence."

Nah - Gok Wan's on channel4 - he's all about the confidence.

Isn't it great how you can ignore the contradiction within capitalism that causes the crisis - and somehow blame the 'left' and the BBC (who I imagine you think are one and the same)

...so which elements of the left caused any of the previous crises? - and what's this about confidence. I mean everybody was over the moon with confidence right up until 2007 / 2008 - but then it evapourated. Why was that? - did we do a lot of 'negative talking' in 2007?

What total rot, how can anyone seriously blame another crisis on how the people of Britain feel?

It's exactly the same as the fraudsters who run Ponzi schemes - you can ask Madoff, as long as there is 'confidence' in the scheme it all works nicely, but when the confidence goes - so does the scheme. Of course this has nothing to do with confidence, otherwise Madoff would still be in business.

You're seeing the cause and calling it the effect.

Clegg is right of course. Although the bits about breaking up the banks is Robert's hobbyhorse rather than Clegg's.

But what is important is that we try to do it over 10 years and not 1. We should learn from Germany, Norway and Denmark.

People often accuse the Chinese leaders of being secretive and aren't sure how to read their next move. But they openly publish a five year plan. And do you know what - everything they do is consistent with that plan.

So we could do with better long term central planning and a stable regulatory framework that doesn't knee-jerk to short-term blips. Rafter at post number 5 is dead right.

And anybody who thinks the way to bring about change in the UK is through Egypt style protests please think again. Global businesses have already closed down their operations there and won't be back for a very long time. Tourists won't be going for a while. Egypt is going to face extraordinary economic hardship.

I genunely not sure you can read what he said as a threat to "cut banks down to size" as a concern to rebalance the economy so it isn't as reliant on banks and financial services for wealth creation. That makes perfect sense and isn't predicated on an absolute reduction in the size of the financial services industry. I think your conclusion Robert is arguably spin.

The tax answer is relatively simple - but would take some guts.

Flat tax of 20% on everything over £10k

No tax credits, no NI

This removes incentive to avoid tax
It makes it easy for all to work out if they have paid the right amount of tax
It still taxes the higher earners more than the lower earners

Like I say, unfortunately it would take guts to implement, so I do not see it happening soon

Some food for thought. I may have stumpled upon the most progressive article energy and a new economic model
https://www.theperfectcurrency.org/energy-currency.htm

The observation, attributed to Nick Clegg, that, "The model of economic growth fuelled by debt and based on financial services is broken for good" would ring truer, if the Government was not so obviously trying to put the pieces back together again.

Equally, if it is correct, then we are desperately short of any other model of economic growth with which to replace it.

I am personally convinced that the old model cannot be revived, for the simple reason that it was based on an ever expanding volume of debt: and the level of indebtedness in the UK cannot expand any further for the simple reason that it has now reached (or exceeded) the capacity of the people, government etc to repay it.

Current policy is, however, still directed towards keeping that defunct system going: and it seems likely that it will continue to be so.

#5 Rafter wrote,
"Splitting the banks is a non-starter in my view, but ring fencing the payments system and savings deposits in the UK to prevent the taxpayer bailing them out again is relatively straight forward. If you want to use UK taxpayer savings to fund your activities and lending you need to make sure you aren't taking too much risk. What you do with investments from other countries and banks is up to you. If you mess up then the UK bit of the bank will be taken over without a huge bail out."

Isn't this what we were suppose to have pre-the crisis? If it were that easy, then please explain how this could be done Rafter!

There is no reasonable justification not to break up the banks. They had their chance to self-regulate and greed got the better of the entire industry.

Arguments as to their worth to society in terms of the tax they pay are laughable when we see all of our high street banks utilize thousands of off-shore vehicles for the purpose of tax avoidance. And lets not forget those banks which posted massive losses are offsetting those losses against tax liabilities.

The views of the CBI should be viewed with the contempt they deserve, as CBI head, John Cridland seems keen to toe the British Bankers' Association's party line.

Food prices are going through the roof, and weather (how many times will that excuse be used?) has little to do with it. Weather is a factor every farmer in the world has to factor in, and globally farming disasters are common each year.

The fiscal stimulus which was supposed to filter into the wider economy has been hoarded by the spivs to gamble again, this time in creating commodity 'bubbles' which push up the price of those things which are basic human necessities - fuel and food.

Have we forgotten so quickly the spivs disgusting manipulation of commodities markets when oil was pushed to a speculative high of $145 in 2008?

I highly recommend Frederick Kaufman's excellent 2010 piece, The Food Bubble https://bit.ly/crcXMV

More political theater. There never has been any suggestion that the banks and financial institutions have any obligation to repay the retirement accounts they diminished through their criminal lending. The result being that individuals (consumers) have less to spend and feel financially insecure and the economy remains flat. They took care of the wealthy and now say they will prevent this happening again. It just keeps happening because the banks own the elected. As the government pays high interest on loans from banks, borrowing back the funds they gave them, they wish to pretend they are protecting the common man. They protected the wealthy at the expense of the economy..bad decision but one was do what their masters tell them to do.

I simply cannot see how the private sector will grow 10% per annum in the next 4 years. If this does not happen Labour will win the next general election. Backed by the unions they will then go back to investing in the public sector again creating growth under a false economy. With both parties we are in between a rock and a hard place and those who will suffer ultimately will be the public.
Somewhere in the middle please!

I surpose the key thing is to decide whether we want slow substained growth or do we all want to but it on red and spin the wheel.

The issues you raise are all valid however there is no definition of size so we are left to decide which is more importabnt.

at the moment as you say both the public and the banks are paying off debt and saving money as fast as they can. this in turn must meen a decline in demand for goods. As a friend of mines said when i go to buy some thing I work out how long I would have to work to pay for it and how much intrest UI would have to pay if I brouth it on credit. ( you donet have to work out how much intrest you would loos of your savings for reasons I dont need to go into.

This then usually means the item is not brought. Any new copmpany would have to deal with this issues. as 805 of small companys and new companies fail in their first year you can sort of understand the banks relucktence to lend them money.

this situation is going to remain the same for some time.

However as it appears that none of the bankers or hedge fund managers were committing fraud ( no one has been sent to jail)_ then i forsee a large amount of wealth coming into this county from countries that are currently rightfully getting rid of their leaders! I mean based on the bankers they would feel very safe wount they?

Robert,

Another excellent piece. You are the best thing on the BBC today!

The large universal banks are warning that their lending will decrease if they are split into two separate entities. Well, wouldn't that be a good thing? These banks make most of their money from investment banking. If they didn't have the free money from retail banking, their investment-side loans would -- and should -- reduce. On the other hand, the retail banks, shorn of the ability to make lots of money on the investment side, would have to turn to lower profit commercial loans. Wouldn't that be a good outcome?

@18. At 15:08pm on 4th Feb 2011, Seymour froggs wrote:

Yes. Carbon capture. Yet another example of the manipulative influence of vested interests in the 'mining industry'. They treat us like fools, take our demands and distort them into another 'profit-making' venture.

@20. At 15:16pm on 4th Feb 2011, Jacques Cartier wrote:

At last. Some perspective. This is the basis from which to start discussions about multinationals, banks, and the overindulged who run them. If they won't reach the required standard......then go.

Good post Robert, which dismantles the illusion of Labour's term of office and the economic boom we just had. I think you should draw back the curtain on the BBC News a little more, though I can see the difficulty if you're needing to present a balanced or 'progressive' view politically.

My view is that the Govt should cut Corp Tax for large and small companies immediately to just below our immediate competitors in Europe. Not too aggressively as Ireland did, but we must attact businesses to the UK and cutting tax would in the end give a higher tax revenue to the Govt.

It's tragic that the Labour experiment, like the King's Clothes wasn't revealed earlier while they were in office. Of course they got away with it because so many of us were having a laugh at our children's expense, enjoying the party I suppose while it lasted. I hope this Coallition will get inward investment and growth going for all our sakes. I agree with what they're doing but an awful lot of Labour's work needs undoing first.

I would add I think the privileged background of so many in Politics disadvantages them in their ability to see the problems we face. For the Coallition they must knuckle down and meet business men who know everyday man and woman and what's needed for jobs.

26. At 15:39pm on 4th Feb 2011, Slessac wrote:

"And anybody who thinks the way to bring about change in the UK is through Egypt style protests please think again. Global businesses have already closed down their operations there and won't be back for a very long time. Tourists won't be going for a while. Egypt is going to face extraordinary economic hardship."

Here's me thinking we live in a democracy - and you just put a 'price on freedom' - so I presume the people of Egypt should have kept quiet and suffered Mubarak for another 20 years because otherwise corporations would leave?

Oh you couldn't make it up - clearly the fact that the protests were sparked due to ECONOMIC HARDSHIP is lost on you then?

What's the matter - ruined your holiday?

I would say although Labour were feeding off the 'cloud-cookoo land' leverage that arose from so many international mistakes and that set the climate, they should have avoided this bear trap, as many prudent people did, but for political motivations to try to improve social mobility they squandered this nations wealth with vast politically motivated blindness to the facts of economic stewardship. It was short-termism, a political gamble that paid off for 13 years but then blew up in their face.

I'd invest in education strongly, but returning to the core principles as the recent A-level recommendations lay out. Other countries policies might serve this one well and much distruction of what has gone on before must be done but taking care to damage what is of value as little as possible - it's a terribly difficult challenge they face.

Re the Tories' intentions:

Do they wish to call the bluff of the banks who warn that their ability to finance the recovery would be undermined and that there would be a permanent loss of the third of Britain's growth routinely provided by financial services till it all went pop in 2007-8?

We had better hope so. For one thing what the banks mainly financed even before the bust was Ponzi investing in property that took house prices far beyond the reach of ordinary mortals, not to mention putting up industries base costs - one way or another, directly or indirectly - property is a big contributor to costs.

As to threats by the banks to move overseas it's all hot air and disinformation. As Simon Johnson says,

Whatever you think of places like Grand Cayman, the Bahamas or San Marino as offshore financial centers, there is no way that a JPMorgan Chase or a Barclays could consider moving there. Poorly run casinos with completely messed-up incentives, these megabanks need a deep-pocketed and somewhat dumb sovereign to back them.

https://economix.blogs.nytimes.com/2011/02/03/the-ruinous-fiscal-impact-of-big-banks/?ref=business

Lets hope this sovereign wises up at long last.

So what exactly was the post-Thatcher model which characterised most of the period in office of New Labour? Here were its main elements:

1) Caused by greedy individuals
2) Caused by a government buying us off to stay in power
3) Caused by British workers too lazy to work.
4) Caused by British managers ill qualified to run British business
5) Caused by British workers being poorly qualified to do sophisticated tasks.
6) Caused by British governments not planning a modern travel infrastructure.
7) Hedge Funds and private equity did not cause the banks or any other business to fail.
8) People work where they feel welcome.

And here's me thinking that the banking collapse was caused by the banks!!

We (the greedy sort) are the problem. If we (including the bank workers) act sensibly, both financially and politically, all will be well.

There is nothing intrinsically harmful with the banking processes. Without our willingness to take on excessive debt, both directly and through government, the banks would not have the inputs to their weird products.

Leave the banks alone.

Am I misunderstanding something? The availability of easy credit does not mean that people had to take it. I have 2 credit cards, with a limit of £30,000 spread across both of them, a bank overdraft facility of £8,500 and an offset mortgage facility of over £80,000: I use none of them and pay off my credit cards every month by direct debit. I have no personal loans and will pay for the repairs to my garage roof from the money I have saved for the purpose.
Why should anyone blame the banks and the government for the stupidity and greed of others? Or am I the stupid one for living within my means whilst the rest of you are having a high old time whilst expecting me to pick up the bill for your selfishness?
Surely the Tories must approve of the situation? Controlling credit to prevent this situation is surely what they mean by the Nanny State?

For a growth strategy to work it must create new jobs to soak up the people being kicked out of the public sector and begin to erode the long term unemployed.

The new DWP Work Programme designed to mentor people back into work is a key plank in this strategy, but it's going to be seriously undermined by the impact of spending cuts on local authorities.

In order to be mentored you need to travel to the centre where it is being provided - in order to retrain travel is against essential, as it is to go for job interviews or work experience.

In the south west for example the subsidies paid to the bus companies from councils are going to be axed, so fares will rocket and services will be cut back hard, so the unemployed on low incomes quite literally won't be able to get to centres, jobs or interviews at all - ditto students going to college, especially as EMA is also being axed.

The lack of rented accommodation, the slowdown in the housing market and scarcity of social housing already makes our labour market inflexible - throw in a sharp reduction in public transport and it will seize up completely in rural areas, or where there are few jobs - and in the inner cities the caps on welfare payments for rents will drive people out of the areas where there are jobs, but there won't be affordable, reliable and accessible public transport for them to commute back in.

I'm not in the least surprised that a bunch of Old Etonians don't see the contradictory nature of their policies because I don't suppose any of the have been on a bus hardly ever at all in their priviledged lives, so don't understand that there is a problem.

As more than half the deficit is accounted for by the bank bailout and the UK has an asset in the shape of the bank shares land loans worth £85 Bn whilst our borrowing is £110 Bn, i.ie. a net position of less than 5% of GDP, why does Clegg think that the cupboiard is bare?

I'm not a "Deficit denyer", but Clegg & Cameron are "Asset Denyers" - why make self-defeating cuts in public spending when all we need to do is state that we will sell of the bank holdings over the next 55-10 years and pay off most of the debt?

I simply cannot see how the private sector will grow 10% per annum in the next 4 years. If this does not happen Labour will win the next general election. Backed by the unions they will then go back to investing in the public sector again creating growth under a false economy. With both parties we are in between a rock and a hard place and those who will suffer ultimately will be the public.
Somewhere in the middle please!
------------------------------------------------------------------------------------
Good post
Lord help us if Labour get in in the next General Election. I remember voting Labour in 1997 (largely due to the disgust at Tory sleaze) when my old Dad told me "don't trust Labour with the Economy - they always screw it up". He of course remembered the 1970's and knew what they would do. I didn't listen...how I wish I had!
The only difference between Labour in the 70s and New Labour in the 90s was that in the 70s they taxed and spent,...in the 90s they borrowed and spent.

Does this mean that the government is stumbling step by uncertain step towards banking reform and rebalancing the economy away from financial services?

I do hope so, as it makes some sort of sense.

We just can't trust the megabanks not to do it all over again. It is just too risky!

A bit too much dependency on the multinationals in your article, Robert. I appreciate those guys are the fast-track but we need indigenous growth as well and for that we have to make it worthwhile for individuals and groups to invest in their jobs.

Multinationals act in their own self-interests - not society's.

They will reside where wages and taxes are relatively low, regulation is relaxed,
and political interference minimal. There are always client states.

In the modern, international economic jungle, securing their presence is inevitably a race to the bottom and maybe it's an event we should ignore since it's one we can't win.

Having said that, you wonder what the alternative is.

Whatever it may be, it seems inevitable that low growth rates will become the norm.

To Writingsonthewall at 40.

Now I thought you understood democracy. I was wrong.

It's only democratic change if it reflects the wishes of the majority. Which political party stands for the sort of revolution you want in the UK and how many votes did it get at the last election?

If you don't have a majority then it's a form of tyranny.

And no I didn't have a holiday booked in Egypt. But I have colleagues there who despair about the future of the country and I don't want to see the same happen here. Throwing stones at people you disagree with might be your idea of fun but it's not mine.

Robert, I would argue that Britain and other Western nations need to find a new economic model that does not require constant economic growth. Because although we have had it for 200 years it has relied upon cheap energy doing a lot of work for us at truly unrealistic cost. This energy will no longer be cheap and growing in supply and so the dynamics which we have taken for granted have changed forever.

Couple this with growing population, diminishing mineral reserves such as phosphorous for industrial agriculture fertiliser production, and climate change and water shortages. These all point to a turnaround in the amount of disposable income individuals will have to spend on non essential goods and services which makes up the majority of the current economy of the developed world.

A new economic way of thinking to deal with the reality of our finite planet and it's limits to growth is required urgently to avoid social and economic meltdown in the coming decades.

Cameron and Clegg - two very dangerous Lollipop Ladies https://sturdyblog.wordpress.com

Stanillic, rebalancing the economy sounds great and simple. This will not happen any time soon if at all due to cost, lack of skills, and inertia. In addition modern high tech jobs don't employ large numbers of people. Anything that requires large numbers of people won't be done in the UK due to relative cost.

Governments and opposition alike run off sound bites so easily on their economic policies but in reality they are all amateurs and couldn't run a bath let alone a successful business.

Due to global energy and commodity pressures which will worsen this decade severely, the UK and others will be forced to trade more locally and the range of specialisation in the public and private sectors will shrink accordingly as disposable incomes diminish. These are the realities and outcomes that we should be planning for and trying to mitigate, not blindly assuming that constant economic growth and glib talk without facts and details of how to achieve this will miraculously appear and save the day. The country is largely suffering from "ostrich" syndrome presently.

It is generally agreed that the main engine of growth in the economy will be SMEs. The government says it wants to encourage them, and (like everyone else) blames the banks. They are certainly culpable - but so is the government. ALL of the public sector procurement policies make it hard for new and/or small firms to tender. And it's likely to get worse - remember the report a few days ago saying the NHS should 'save money' by bulk buying; so only a vary few, very large multi-nationals will be able to bid at all! Will it actually save money? Absolutely not!

49. At 18:00pm on 4th Feb 2011, Slessac wrote:
To Writingsonthewall at 40.

Now I thought you understood democracy. I was wrong.

It's only democratic change if it reflects the wishes of the majority. Which political party stands for the sort of revolution you want in the UK and how many votes did it get at the last election?
==============================================================

Spot on. Just thought I'd check in on old WOTW's facebook page "war on murdoch", only to see it seems to have quietly been retired. I guess that's the equivalent of losing one's deposit. Nuff said.

22. At 15:29pm on 4th Feb 2011, writingsonthewall wrote:
...........
"3) Productivity improvements driven by a massive influx of cheap labour, especially from the newer East European members of the EU."

...again, the goal of the capitalist is to maintain their profit margin, sourcing cheap, slave or child labour from other countries is inevitable.
===============================================================
Another example of old WOTW's many hypocracies. I might start compiling a collection.

When the UK buy's products from China it's capitalist exploitation. But at the same time he praises China as a model of a centrally planned economy.

Try Googling "Tiananmen Square" when you live in Beijing, and see how far that gets you. I know where I'd rather be living.

Exposed at last, the sorry catalogue of 'New' Labour's post Thatcher economic 'morals'. That said it all, I've been longing for some-one to spell out what they were all about since they wouldn't. Now you can see why. And that is why they lost me.
Regards, etc.

From post 46
"Lord help us if Labour get in in the next General Election. I remember voting Labour in 1997 (largely due to the disgust at Tory sleaze) when my old Dad told me "don't trust Labour with the Economy - they always screw it up". He of course remembered the 1970's and knew what they would do. I didn't listen...how I wish I had!
The only difference between Labour in the 70s and New Labour in the 90s was that in the 70s they taxed and spent,...in the 90s they borrowed and spent."

This is how it works:
"In the summer of 1931 a Labour Government suddenly sagged at its knees and fell dead. High Finance had killed it as High Finance will kill the next Labour Government and the next again, unless be-times the creation and withdrawal of money credit comes to be generally regarded as a State Service."

From "The Financiers and the Nation" by former Labour cabinet minister Thomas Johnstone, published in 1934 (out of print).
This quote was printed in that well known left-wing rag, Private Eye, under the title "100 Years Ago..." on page 32 of issue no. 1251.
Labour forgot its own history and was left with its pants down after the honey-trap set by the financial sector.
Forget democracy, absolute power corrupts absolutely from the City of London.

24. At 15:31pm on 4th Feb 2011, A Rahman wrote
The present coalition government's policy to reverse the erstwhile suicidal economic policy is absolutely right and laudable.

47. At 17:43pm on 4th Feb 2011, stanilic wrote:
Does this mean that the government is stumbling step by uncertain step towards banking reform and rebalancing the economy away from financial services?
----------------------------------------------------------------------------

No, this government is as in hock to finance, banks and multinational corporations as the last, if not more so. And always will be. The rest is just cheap talk, smoke and mirrors. For those looking forward to a change of course, be prepared to be dissapointed

"But as Mr Clegg concedes, deficit reduction on its own won't make the UK the natural recipient of multinationals' capital, at a time when they can take their expertise and money anywhere in a financially borderless world."

This paragraph is intriguing. There is also a physically borderless world comprising 25 countries that can be reached just by crossing the channel. Why would multinationals, faced with the choice of investing in a fortress island with its own individual visa regime and the only remaining intra-EU borders (together with Ireland), would choose the UK instead of any of the 25 European countries that are part of the Schengen agreement?

This ex-Tory MEP was quite prophetic in its vision (needless to say a lone voice of sanity):

https://www.ft.com/cms/a395ccd4-9fb1-11dc-8031-0000779fd2ac.html

Examples of the cost of glorious isolation abound (only that you won’t read about them on the BBC):

https://www.economist.com/blogs/bagehot/2010/08/britain_and_eu

There is the interesting case of Switzerland, a role model for the vociferous British Europhobes. By coincidence I came across these statistics that show Swiss economic performance relative to the EU27 between 1995 and 2009

https://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&plugin=1&language=en&pcode=tsieb010

What a strange coincidence. Swiss GDP per capita in PPS was plummeting against the EU average from 1995, when the series begins, until 2005, when it suddenly, as if by magic starts racing up again, the whole picture forming an almost perfect V shape. So what happened in 2005. You can check it here:

https://en.wikipedia.org/wiki/Schengen_Area

Switzerland signed up to Schengen. A coincidence? A strange one perhaps….

Of course, no chance of the UK following Switzerland, check this:

https://bbc.kongjiang.org/www.bbc.co.uk/news/uk-12362464

More likely that multinationals based in the UK will continue to relocate to Switzerland.

How come I'm 50(ish) and this is the first time I've heard of that so-called "British promise"...?

Has it just been invented to suit the spin of a failed political party, now shown to have been doing all the wrong things when in Government and clearly a major risk to the UK if we were ever stupid enough to let them have another turn in office...

Here's a number ...

$200,000,000,000,000.

In case you're having problems understanding what it means, the shorthand (and more palatable interpretation) is $200 Trillion - the low-end estimate of current US indebtedness.

Here's another number ...

£1,400,000,000,000.

That's £1.4 Trillion - projected UK national debt by 2015 (excluding unfunded liabilities, such as pensions etc - and we're aging, fast!).

The first figure summarizes the economic status of the western-world's economic powerhouse, the global reserve currency no less. It's our main export market. Currently rated AAA, but questions are now being asked.

The second, the awesome and unavoidable burden of debt bestowed upon us by the deadly duo.


So, maybe we should force ourselves to love and cosset these profit-generating bankers - unless of course, you have a better idea for digging ourselves out of this hole ...

To quote Nick Clegg "The fact that we haven't published a growth plan doesn't mean that we haven't got a plan for growth" Yeah ok Nick. Let there be no doubt a hugh challenge faces the Country in the task of getting the economy moving again, and failing is not an option. If we are to be "in this together" we need positive action not spin

The real solution to our economic woes is a) the development of a new untarnished political party -the existing ones are very broken b) the establishment of a new set of banks and c) an investment vehicle that isn't run by bean counters and lawyers.

62,

I think we have already esablished that,

a) We are not 'all in this together', and,
b) There is NO plan for growth from the coalition

The aim is to rob us further of the miniscule amout of wealth we ammassed in 'the good years', to plug the gap!!!

I'm amazed they were ever voted in, and I'm NO fan of Labour!!!

So what have we got from our friends in the City:
- high cost of living due to grossly inflated house prices that drives up wages and makes it difficult for us to compete internationally;
- more recently, high food & commodity prices due to their gambling, sorry investing, in those markets; yet again they're determined to divorce asset prices from reality and yet again they will be shocked & surprised when it all comes crashing down around them (or, more likely, us);
- losses of tens of billions of our money through tax avoidance tricks;
- huge future debts through PFI contracts they designed, justified, implemented and are now re-selling [ yes it was Brown & Blair who was stupid enough to listed to the siren voices, although I think Major was the first to adopt them ];
- private monopolies that are (by design) hugely more expensive for tax payer & user than the public ones they replaced;
- a meta-stable international economy;
and the list goes on...

So, how about adopting
- measures to cut property values by ~50% over a few years
(main effect on mortgage holders will be to curtail their mobility & future borrowing);
- flat rate single tax of, say 25% of income, no allowances, no exemptions;
- tax avoidance & creation of tax avoidance schemes to be criminal acts;
- removal of self-regulation everywhere (anyone got an example where this works ?);
- provide regulators with legal powers to act and legal requirement to do so where appropriate;
- law passed to specify limits on how a government may bail out a failing financial institution (say GBP 50K per depositor, of whatever type, to be paid to that depositor and the government to have first call on any remaining assets of the business); that way we all know where we stand *before* the next genius moment.

Any money freed up to be spent on national infrastructure before anything else.

"So what exactly was the post-Thatcher model which characterised most of the period in office of New Labour? Here were its main elements:"

I hope people don't think Robert Peston has made the correct list of main elements there!

He fails to mention -

The worsening of trade deficits in most sectors, especially the high-tech and high-value-added manufacturing sector, and the debasement of the United Kingdom's long term potential in this sector.

Remember how after the Dot Com Boom, everybody was supposed to get a job as a Web designer, or do media studies, or become a DJ? All the Technical colleges closed down. It became difficult even to find a decent course where one could become a plumber or even a bricklayer. Instead, the young and the old were expected to take Mickey Mouse courses in such things as the European Computer Driving Licence.

Meanwhile, economists assured us, and the politicians, that the Financial Sector was compensating for the trade deficits. And they assured us that all that mattered was knowing how to shop to buy something new, throw something away old to landfill, and not give a damn about anything else?

Meanwhile, lamewit politicians continued to encourage in their party followings the 19th Century beliefs of capitalism versus communism, as if either applied anymore to the 21st century global economy.
And those Getting Richer didn't complain, because the distraction served their purpose, as it does still now.

The layers of economic and political ignorance and stupidity piled on thick are still there as though on a ruined building, left for archaeologists to muse upon in future times?

In response to post 61;

The problem is enclosed within the debt. It is the interest.
We have fiat money, guaranteed by the lenders of last resort; i.e. Government, which is us.
Only 3% of the money supply is now created interest-free at source as cash or equivalent electric money.
97% is created by the private banking sector as loans and mortgages.
How they were allowed to get away with this shows me that there has been a fundamental ignorance by modern politicians of what this really means in time.
Time is the key, for politicians must think short term whereas bankers can think in generations.
Wealth slowly but steadily passes from those who create it to those who get to provide the credit.
The first thing to understand is that bankers do not have the money to lend in the first place. Strange but true.
If there were no debt, there would be no money. Strange but true.
If we want to improve society, we must immediately do into debt. Strange but true.
If you have £10 in your wallet, someone must be £10 in debt.
So it goes.
On and on.
If people only applied their minds and did some research into the Fractional Reserve Banking system and Modern Money Mechanics, they would quickly realise that this is not a matter of right and left but right and wrong.
The meaning of the story about Jesus throwing the money changers out of the temple has been lost.
It is a philisophical nonsense to keep pretending that the means of exchange is itself a commodity.
Anything that requires simple faith to keep it going is illusory.
The answer?
Nationalise the clearing bank utilities, sell people-backed money to the private banking system and let them loan out their own real money.
Only the state should be able to create the currency, anything else is counterfeiting, licensed or not.

My biggest worry however is the growing feeling that the Coalition lacks the leadership necessary to bring all players (local and foreign business, public opinion, media, private investors, opposition & unions, etc) together, listen and without prejudices, and devise the way forward: putting the meat on the bone and plough on to do it. Worse even, not sure the opposition can do it as well ...

66. At 21:47pm on 4th Feb 2011, verano wrote:

“Instead, the young and the old were expected to take Mickey Mouse courses in such things as the European Computer Driving Licence.”

I remember it well! I took the complete set a week after it came out because my head of department, she thought it was the best think since sliced bread. I refused to use two of the ‘test papers’ because they were (ok for the mods I’ll be polite) poorly written and yesterdays questions. Luckily I left just before they became main stream, level 1 at best, sub level one or introductory standard, dumbed down OCR, Pitman or RSA.

Sorry if you gained this qualification verano but I guess you already know.

In response to post 66;

We are all victims of The Crime of the Centuries.
Ever since the Bank of England was established in 1694, this assortment of countries has had the privilege of paying for its own slavery.
Where does the answer lie?
We were told by Thomas Paine in Agrarian Justice" published in 1797
I quote from the book "Philosophy. The Great Thinkers" by Philip Stokes;

"Paine advocates an inheritence tax on land which would be used to fund grants to everyone at the age of 21 and annual pensions for everyone over the age of 50 and for those unable to work, not as a matter of charity but of justice, to compensate people FOR THE LOSS OF THEIR SHARE OF THE LAND WHICH IS GOD'S (NATURE'S)GIFT TO EVERYONE." (my caps)

Stokes writes, "Paine's work is characterised by a rare integrity that rails against political oppression, organised religion and poverty. Despite the massive influence of his early writings he remains a philosopher who, curiously, is rarely mentioned."

Unfortunately the noises coming from senior ministers feel more like wishful thinking and lack hard-edged delivery. Its quite easy to blame, dismantle, theorise on causes, effects and possible solutions as they seem to be doing, but much harder to create tangible evidence of recovery that the average person in the street can see and 'feel'. In the meantime, more speaches like this from the Coalition speed up the erosion of self-belief of workers, those seeking work and small businesses that they can act decisively to make a difference quickly. Their vision is lacking - and where there is no vision the people perish

To compete we need to be competitive. Our cost bases needs to be competitive and it isn't!

The biggest coast by far that a worker faces is that of housing - ours is double the price of Ireland's for example and thus to compete is has to be reduced. Any strategy that ignore this is pointless and will fail. We need homes that can be afforded by real workers, paying real interest rates, from real salaries.

67. At 21:56pm on 4th Feb 2011, thomas_paine wrote:
The meaning of the story about Jesus throwing the money changers out of the temple has been lost.
It is a philisophical nonsense to keep pretending that the means of exchange is itself a commodity.
Anything that requires simple faith to keep it going is illusory.
The answer?
Nationalise the clearing bank utilities, sell people-backed money to the private banking system and let them loan out their own real money.
Only the state should be able to create the currency, anything else is counterfeiting, licensed or not.
==============================================================

Yep even as an athiest I like the Jesus character booting out the REAL theives from the temple whilst prior him dying allegedly forgiving the petty thieves.

Your points on money are spot on - unfortunately there are too many narrow minded capitalists on here to understand. They think that even though Thatcherism prepared the cake and all its' ingredients and lit the oven, Blair and Brown minded the cake in the oven and it came out burnt (as they had no control over how long it would cook for) whilst now Blair-Light and Blair-Zero (Cameron and Clegg) now insist there is nothing wrong with the cake just a little over cooked. So they conveniently blame NuLabour. Whereas the problem is the Thatcherist cake. Simples.

Ironic that the Jesus character booted out the theives and hated war mongers - shame two of his modern day disciples Bush and Blair didn't follow suit. More of a shame there isn't a real hell for them to reside in when they die.

2. At 16:14pm on 4th Feb 2011, Sumproduct wrote:
Food prices are going through the roof, and weather (how many times will that excuse be used?) has little to do with it. Weather is a factor every farmer in the world has to factor in, and globally farming disasters are common each year.

....................................

I agree weather is a major factor in farming and food prices which is why there is a futures commodity market, which should stabilize prices in times of flood or drought. However the banks hijacked this market for their own ends.

Banking lesson - The Commodity Markets.

The markets consist of physical participants, in this example Farmer (Seller) and the Cereal company (Buyer) and the two come together to do business at current market prices, pretty straightforward stuff. However they can both also hedge against potential losses through the use of futures contracts.

For example the Cereal company has set its budgets for the following year, so the maximum they can pay for wheat is £200 per tonne, but it is currently selling at £190 per tonne. They want to protect themselves from the risk that prices may shoot up next year. So they buy futures contracts that allow them, in 6 months or a year from now to buy wheat at £200. If there are floods and wheat prices skyrocket, they don't care, because they can buy at £200 and maintain profit margins.

Conversely the farmer can do the same, if he thinks there may be a bumper wheat crops worldwide next year forcing the price down to £160, he can buy futures that lock the price in at £190 or £200. Now if the flood does happen and prices skyrocket to £220, he may not have got as much as he could have, but he has the certainty and peace of mind knowing the price his future crop will sell at.

In a nutshell futures are just a form of insurance designed to protect both parties from uncertainty caused by the weather.

In the 30's the US government decided a third party was needed for the markets to work properly. For example, the farmer goes to market to sell his wheat but at a time when the cereal company isn't buying.

That's where the speculator comes in, he buys the wheat and holds onto it. Then later the cereal company comes to buy wheat, but may be at a time when no farmers are selling. Without the speculator there both farmer and cereal company would have lost out, but with the speculator there everything goes smoothly.

Of course the speculator as the middleman takes a cut, so maybe buys from the farmer at £188 then sells to the cereal company weeks later at £194. So the farmer can sell his goods, the cereal company can buy their goods at a reasonable price, the speculator makes a little money and the markets keep functioning smoothly.

Governments were aware speculators, if allowed to buy up massive wheat crops, could manipulate the markets and drive prices up. So regulation ensured they only performed a functional purpose and set 'position limits' so the vast majority of trade was between the physical hedgers, the farmers and cereal companies.

For 50 years this system worked perfectly, fairly monitoring supply and demand, helping farmers all over the world to get a guide price on what to charge for their goods by checking the futures markets.

Then in the 80's that all changed. Wall Street investment banks, began to buy up stakes in trading firms that held seats in commodity exchanges. In the early 90's all these firms then started to ask the government to lighten up on regulation.

It was a Goldman Sachs firm who succeeded in getting the Commodities Futures Trading Commission to change just one small thing in the regulation. Lift the position limits, thereby opening the floodgates for their speculators to buy up as much of the market as they wanted. Not all firms got this concession however, and only a select handful of the big investment banks got a letter from the regulator allowing position limits to be lifted. So they cornered the market for themselves, allowing them to not only rip off the consumer..us, but also to rip off the smaller regulated speculators.In 2008 when food last spiked it was estimated they controlled 80% of the market.

Here endeth the lesson....

After destroying the credit markets and the housing markets the banks are going after the one market that people who, affected by austerity and less disposable income, are guaranteed to spend money on ... food.

"Egypt's uprising is costing the country at least $310m (£192m) a day, according to analysis from Credit Agricole bank.

Economists at the bank have also revised down their economic growth estimate for Egypt this year from 5.3% to 3.7%.

Banks and the stock exchange have been closed for days, and many factories in the major cities have shut."

This is what is wrong with our so called Democratic Capitalistic way we turn everything into "COSTS" Thanks to Thatcher now all we think about is what is the bottom line not human concerns. Until we wake up from this GREEDY Nightmare we will not progress as a civilised society let alone world.

WHen people are prepared to lie in order to go to war something is badly wrong. And yet we simply bob the kettle on and have a cup of tea. madness.

@43. Xellophon wrote:

"There is nothing intrinsically harmful with the banking processes."

You should read the article cited in # 32.

Some quotes:-

"Bankers had taken over the world's food, money chased money, and a billion people went hungry."

"The wheat harvest of 2008 turned out ...so plentiful that even as hundreds of millions slowly starved, 200 million bushells were sold for animal feed. Livestock owners could afford the wheat; poor people could not."

These commodity index funds (derivatives, in other words) which were invented by Goldman Sachs for no other purpose than to make lots of lovely money for the bank and bonuses for the bankers, at minimal or vanishingly small risk to itself (though not to its clients), grossly distorted the global grain market once (and will do so again). The fact that what they deal in is "the staff of life" - aka people's daily bread - was and is a matter of supreme unimportance for them.

Moreover, they achieved their breakthrough into big-time gains by hoodwinking a government regulator set up by Congress for the express purpose of curbing "excessive speculation"! Excessive speculation was, and is, what they exist for.

There is everything intrinsically harmful with the banking processes and to believe otherwise is living in cloud-cuckoo land.

When pleasing the free riders, be they business sectors and/or parts of the electorate, becomes the aim of govt policy, growth dies. Business' stop coming, those here that want to improve and innovate leave, grafters and the ambitious encourage their children to emigrate. That's what is happening to us.

There's not the will to grow here for the banks and others to invest in. Vast reams of legislation have created barriers and costs to new and existing business', to innovation, to growth, to working.

Much of this legislation is a free ride, something for nothing, for various sections of the electorate and loud business sectors. A shortage in the SE of over 1 million homes is growth and millions of private sector jobs but it's not happening. The practical effect of the employment agency regs is to force the skilled self-employed to use employment agencies that take 50% of the ph fee. Where is the reward for skill. Benefits and charity housing have created a situation where a single mum with 2 children has the lifestyle of someone taking home £950pw, so why work. TUPE means the only method of competing for a public sector contract is to cut the quality of service, not innovate or improve it.

We've created a country in which grafters are poorer than families on benefits. Where innovative enterprise is outlawed. Even our banks and business' that are free riders don't want to invest in their own UK business or anyone elses.

61. At 20:36pm on 4th Feb 2011, TonyH wrote:

Here's another number ...

£1,400,000,000,000.

That's £1.4 Trillion - projected UK national debt by 2015 (excluding unfunded liabilities, such as pensions etc - and we're aging, fast!).
__________________________________________________

Public Debt IS private savings in sterling.

£1.4 Trillion equates to around £23,000 for each man, woman, and child in the country. The figure is actually much lower because of persistent trade deficits.

Is it Govt's job to decide what the the level of private savings should be in 2015 and can they control this anyway?

Or should they be concentrating on making sure there is work for anyone who wants it?

1) a massive explosion of household debt, from 100% of disposable income to an unsustainable 180% of disposable income - a borrowing binge that fuelled rapid and unsustainable consumer spending.

2) Public spending that grew faster than the growth rate of the economy as a whole.


Do you see the relationship between 1) and 2) ?
Go back and look at the defict figures over the past 10 year excluding bailout money.
The fallout from 1) caused 2). Private consumption has collapsed since 2008. People are no longer borrowing. They are repaying debt as fast as they can. That is why Govt deficit has risen rapidly over the last 2 years. This will continue for the next couple of years. Its a good thing.
Govt deficit = Private savings.

Anyone wondered about the rate of cuts and the relationship between them and the timing of the next election? Three years of tough times bringing us to our knees followed by a year of green shoots and sightings of pastures new claimed as a huge success by the Condemns. And people may fall for it; and it's so wrong because there is no requirement to cut so quickly causing such misery. The problem is the short term election to election nature of politics.

We need to have a rolling set of elections for example 20% of seats up for grabs each year. This could ensure longer term views explained properly by the politicos and almost certainly ongoing coalition government. The outcome would be a better long term planned economy and probably a government of talent.

threewoodisusuallybetter makes a very good point. The proposal would need a lot of thought but it could end regular policy changes and tinkering by governments. Just thinking of the NHS, doctors and nurses would love a clear 10 year strategy and not radical changes every few years. People could get on with their jobs and politicians might not be so interested in short-term populist projects of questionable benefit.

But would your rolling elections also include the leader and senior cabinet members? If so the role of the leadership would have to diminish and there would have to be greater collective responsibility. And could a coalition of potentially hugely diverse ideologies really deliver what the country needs?

But I would vote for a political party that had this in its manifesto.

Robert, you wrote

'Now there may be good social and economic reasons to replace those pillars of the economy with new ones - which might be more solid, and which might ensure that more of the fruits of growth go to more people (rather than being scoffed by the top 0.01% of earners).'

and Dominic Strauss-Kahn on inequality wrote

'And as tensions within countries increase, we could see rising social and political instability within nations—even war'

What is the Clegg plan to reduce inequality (my preference is for raising those at the bottom up rather than reducing those at the top down)

There will be conflict and much suffering unless this issue is resolved once and for all.

After Thatcher squandered the North Sea Oil dividend ( she studiously avoided making mention of this great source of income) , set in motion the leveraging up of the property market , despised manufacturing to the favouring of the service sector we were in trouble. Thereafter our economy was driven by your "Post Thatcher" model of New Labour.

Now organised crime or what we in Britain call "Bankers" run our economy for the benefit of the very few.
What needs to be regained , in the first instance , is integrity/ honesty which will be difficult in a country where absolute standards are despised.

5. At 14:20pm on 4th Feb 2011, Rafter wrote:
Splitting the banks is a non-starter in my view, but ring fencing the payments system and savings deposits in the UK to prevent the taxpayer bailing them out again is relatively straight forward. If you want to use UK taxpayer savings to fund your activities and lending you need to make sure you aren't taking too much risk. What you do with investments from other countries and banks is up to you. If you mess up then the UK bit of the bank will be taken over without a huge bail out.
==============================================================

I don't believe that the government bailout of Lloyds and RBS had anything to do with depositor protection. The Government could have let those banks go, and covered the deposits of private savers, at a fraction of the cost of the bailout.

By bailing out those banks, the Government was to save the bacon of the shareholders and bondholders (and the banks' brilliant management, of course}- courtesy of the taxpayer. The safety of deposits was never in question.

So given that, why does anyone think that if deposits were ring fenced, the Government would let the rest of RBS, for example, go bankrupt? Quite simply, they would not. The Government knows that, and the banks are absolutely certain of it.

The only answer, in my opinion, is to break the banks up into very much smaller units, which cannot be said to pose any systemic risk. And could we have National Giro back, please? Now there was a state owned body that was light years ahead of those pathetic dinosaur banks in terms of technology and efficiency- so of course it had to go.

67. At 21:56pm on 4th Feb 2011, thomas_paine
78. At 05:20am on 5th Feb 2011, EconomicsStudent

Thanks for the replies - food for thought!

78. At 05:20am on 5th Feb 2011, EconomicsStudent wrote:

Public Debt IS private savings in sterling.

£1.4 Trillion equates to around £23,000 for each man, woman, and child in the country. The figure is actually much lower because of persistent trade deficits.

.............................................................

I think that should say Pensions account for some of the Public Debt, it certainly is not all.

Pensions, like fractional reserve banking, are nothing but a ponzi scheme. The reason Governments need constant growth is to keep shoring up the state pension scheme in the increasingly larger previous layer of the ponzi scheme.

Consistent growth in GDP is completely unsustainable in a finite world. Once the snowball of interest bearing debt is set in motion then falling GDP clashes with the exponential growth of interest that just keep going and going. Eventually, the snowball hits the bottom and explodes.

A policy for growth! Shoes just managed to contain socks when Clegg said coalition were ‘investing in infrastructure, skills and education’. A Government now trying to pretend that their policies have not wrecked Higher Education in the UK – crushing the aspirations of less-well-off with ending of EMA, death of arts and social sciences as State funding withdrawn, and far fewer overseas students simply to satisfy the Daily Mail readers desire that the UK should be preserved for people like them – ie. selfish xenophobes. If people are still wondering why the gentler counterpart to the programme to slash the welfare state, ‘Big Society’ (supposed to improve the quality of life in the UK), is also a dead duck they should just ask themselves why so many of the well-off opt for private education for their children (it has never just been about better education, for many it is about keeping their children away from some other children– I think the following quote in Cameron’s most recent speech is very apposite -"We have failed to provide a vision of society to which they feel they want to belong. We have even tolerated these segregated communities behaving in ways that run counter to our values."), and why the level of charitable donations from the rich in the UK is so miserable by comparison with the USA.

In reply to No.12 Cassandra. My grandmother used to say "they all piss in the same pot".

@88. At 11:36am on 5th Feb 2011, Oldhamdocker wrote:
"In reply to No.12 Cassandra. My grandmother used to say "they all piss in the same pot"."

A shame none of them bothered to empty that pot, we all seem to be experiencing the effects of the overflow.

I assume "post Thatcher" means "post Mrs Thatcher" or is it referring to the use of slate as roofing material?

If the former, may I suggest that people use a bit of respect in using peoples titles? It took me ages to work out that when people were talking about Murdoch they meant Mr Urdoch and not Howling Mad....... ;)

Meanwhile and coming back on topic, the one key factor for any multi-national will be how much tax it has to pay. Companies, like individuals, do not like paying tax and will, as far as possible, minimise the amount of tax paid - multinationals through where they are registered, individuals through paying in cash or buying cigs and booze from overseas.

Make life simple through the tax regime and two results occur:

1. there is no incentive to avoid and so overall tax receipts increase
2. There is no need to have an army of civil servants trying to implement the complicated rules and so costs reduce.

Looks like a winner to me

79. At 05:41am on 5th Feb 2011, EconomicsStudent wrote:
1) a massive explosion of household debt, from 100% of disposable income to an unsustainable 180% of disposable income - a borrowing binge that fuelled rapid and unsustainable consumer spending.

2) Public spending that grew faster than the growth rate of the economy as a whole.


Do you see the relationship between 1) and 2) ?
Go back and look at the defict figures over the past 10 year excluding bailout money.
The fallout from 1) caused 2). Private consumption has collapsed since 2008. People are no longer borrowing. They are repaying debt as fast as they can. That is why Govt deficit has risen rapidly over the last 2 years. This will continue for the next couple of years. Its a good thing.
Govt deficit = Private savings.

--------------------------------------------------------------------------

Is paying down debt a good thing ? Any sane person would say yes.
But actually it isn't..it's bad for the economy.

1) When private individuals pay off their mortgage or credit card debt, the principal we repay is written off because the money never existed in the first place.

2) To pay off all the surplus debt then people stop spending, tax receipts go down and the Govt deficit increases but there are no savings.

3) Now if the people clear their debts, have adopted a thriftier lifestyle because of it and continue to save then again no tax receipts for the Govt and deficit increases.

4) Austerity measures, falling wages, higher inflation, higher taxes and less disposable income also means that if people do manage to clear debts they still may not be able to save and cannot increase spending so again the Govt deficit increases. This is the paradox we are in now, the government are damned if they do and damned if they don't.

I am not going to diverge into point 1. The FRB system has been debated over and over on here.

But point 2 & 4 show private savings may not increase, and only point 3 does. Whatever happens the deficit may increase and all we are doing is transferring private debt to public debt.

I fail to see any good in these situations.

74. At 23:31pm on 4th Feb 2011, stennylfc

Excellent description but how many on here will understand the subsequent consequences of this deregulation? And how many on here have replied to your post? And if we now throw in the deregulation of securities we have the recipe for disaster and the need for a bubble.

Manipulated – we have been!

Why are the multi-nationals here in the UK?

Is it because Britain is the best place to do business, history -v - converenience perhaps? ... or because the multi-nationals prefer to have access to the British Labour market?

In many cases the multi-nationals are here for these reasons only:

- 'loopholes' in UK tax law for multi-nationals and weak Inland Revenue checks on foreign operations and accounting issues

- opportunities to borrow massive amounts of money from UK banks ... to speculate around the world

- favours from politicians - 'over privileged'?

Risks - v - rewards to the British tax-payer?
Optimal Value for money and effects?

In other words tax dodging, spivving and access to UK politicians for 'favours'!

Noting the comments in the article about the FSA being a tougher regulator. Is this true? I work in the City and I cannot say I have seen a lot of this. One would expect random visits, with no prior warning, by experienced inspectors to banks trading and risk departments, separating members of staff and management into separate rooms for surprise and rigorous interviews as to what has been happening that day/month/year. This would surely reveal a lot but, no, I am not aware of this happening at all or, at least, not without prior announcement and lots of formality. It is an obvious thing to do and would help the regulator get to the bottom of what actually happens. It would certainly get the banks on the defensive and to sit up and take notice, while rooting out questionable practices. Why is the present regulator so tame, with little actually having changed from the past other than the odd public speech by their senior figures? Even most of the people doing the 'regulation' are the same as before. More have been added in a hiring binge but few, if any, have gone. Why not? After such a debacle should not most of the FSA's senior figures have been changed already and a fair number of the other staff turned over? This is what happens in many other industries after a crisis.

BBC Breaking News!!!!!!!!!!!!!!!

"..A record number of people were declared insolvent in England and Wales in 2010 despite a fall in the last three months. Record number of Scottish firms insolvent"

Could not possibly be a business story of course which is why it NEVER features here.

Plus ca change.

GC

#50 Sage_of_Cromerarrh:
"Robert, I would argue that Britain and other Western nations need to find a new economic model that does not require constant economic growth. "

++++++++++++++++

Spot on. The politicians just need to understand that.

Any growth from hereon is wishful thinking. The planet cannot sustain it.

Perhaps we should consider birth control on a global scale?

72. At 22:58pm on 4th Feb 2011, John_from_Hendon wrote:
To compete we need to be competitive. Our cost bases needs to be competitive and it isn't!

The biggest coast by far that a worker faces is that of housing - ours is double the price of Ireland's for example and thus to compete is has to be reduced. Any strategy that ignore this is pointless and will fail. We need homes that can be afforded by real workers, paying real interest rates, from real salaries.

===================

Some statements from Grant Shapps appear to indicate that this is understood within government - e.g. houses not being pension plans, the hope that reduced housing benefit limits may remove an upward pressure on rents, which will reduce the value to landlords of houses thus reducing their interest etc. This issue is a very difficult one - it could almost be regarded as being as politically toxic as the NHS.
People here have invested greatly in the notion of property ownership and the value of their house being the greatest measure of their wealth - if prices rise somehow this is a great thing despite the fact the majority have done no work or made any effort to improve the property that justifies the increase in market price. The more it increases the better it is - this also fuelled the debt boom through equity withdrawl.

It is a brave politician who would assault this bastion of ignorance - if my house is worth 500k or 50k - fundamentally it is the same house and suits my needs. The effect as you decribe is simply I need to earn a far greater salary doing the same thing to afford a 500K mortgage compared to a 50K one. This will affect the competitiveness of my company if it competes with somewhere where living costs are lower.

This fetishistic approach to house prices is part of our problems which unfortunately was exploited greatly for political ends.

Mr Clegg says that the UK needs a whole new model of economic growth.

Maybe it does but that is putting the cart before the English political horse.

England needs to find its political self before any new model of economic growth can really succeed.

One sense that business people, especially those with serious money to invest are reluctant to do so partly until they see England run its own affairs (within the context of the EU and Commonwealth), from which will flow consistent economic policies that do not have to accomodate the strictures of the other home nations, which for political reasons, may not be such accomodating business environments.

In plain language, England is a relatively capitalistic society, whereas the other home nations (Scotland and Wales) tend towards the socialist model.

There is an alternative to relying on banks to fuel the economy with credit. It is simply to use quantitative easing to create more money. Indeed this, or something similar, is the only way to fuel a buoyant economy without having high levels of debt. The government would have to use fiscal measures to target the effectively free money to where it is needed.

The lending by banks would need to be permanently restricted, otherwise if they did suddenly increase their lending, there would be excess money and credit causing inflation. Without the risk of the unpredictable generation of large amounts of credit by banks, it would be much easier for the BoE to control inflation. The easy way to do this would be to insist that they should always have sufficient liquidity available to cover all deposits in current accounts and other "instant" accounts. They should not be allowed to assume falsely, as they did before the 2008 crash, that all their customers would not want their money out at the same time and that, in any case, they would always be able borrow any cash required from the wholesale money market. This would mean that funds that ended up in these accounts would be sterilised as far as the banks were concerned and not available for re-lending. They would only be allowed to lend shareholder's money or money deposited in high interest accounts, not covered by any guarantee, like hedge funds.

96. At 12:45pm on 5th Feb 2011, Toldyouitwould wrote:

Spot on. The politicians just need to understand that.

Any growth from hereon is wishful thinking. The planet cannot sustain it.

Perhaps we should consider birth control on a global scale?

----------------------------------------------------------------------------

i agree it's time to consider population control or at least start a debate. so many of the global problems (competition for energy, mineral, food, water resources) are exacerbated by unchecked population increases. Growth cannot continue inexorably - at some stage the planet will reach its natural limit and then we really will be in trouble. although trying to get most humans to recognise this before its too late (if we're not already in that position) will probably be impossible.

we're doomed, all doomed! (to quote Private Fraser, Dad's Army)