The short and long game

Mervyn is still digging the hole deeper!

He really should resign for the Nation's benefit, but he lacks the bottle.

Missed his first opportunity to undo the mistakes of the last four months... Interest rates are insanely low and he knows it.

We are at the following stage of the cycle:

(i) Rising unemployment = threat of unemployment = consumers don't want to borrow

(ii) Business profits falling, due to over supply and over capacity = businesses don't want to borrow to increase capacity

(iii) Weak pound = imported consumer price inflation = business and consumer costs are increasing

(iv) Fixed interest securities and low interest rates on cash deposits, minus consumer price inflation = falling real rate of return


So the government and the BoE want to increase price inflation, to try to cause an increase in lending and borrowing.....
How is that going to benefit the economy? Surely, it just aggravates (iii) and (iv) which in turn aggravate (ii) and (i) ?

Stepahnie

The number on goal of this policy is to get Gordon re-elected. Forget the rest.

There is no deflation other than in the property market and there are signs that that might be bottoming at an unsustainable level.

No: inflation is to be expected. Food is up 18% year on year due to the fall in sterling. Even my council tax has gone up by 3.5%.

We are in an unholy mess and there is no sign as to when or how it will end.

Fear of deflation was almost certainly overdone. The only deflation we have had was caused by reduced interest rates cutting mortgage payments. By the government's preferred measure, inflation remains above the upper parameter set and yet Bozo the Bank of England governor decides to print money to try and save his lord and master Golem Brown. It's insane.

What's really crazy about all of this is ALL THIS SIGNALLING!!!

As with Indian Smoke Signals, there are no real rules. Everybody is left to their own devices to interprit what the 'smoke' actually means.

Dear Stephanotis,

At last !
an economics reporter who recognises that inflation might be about to burst its banks and flood the country with all manner of woe, woe and thrice woe. And a bit more woe for good measure
Well done.

Our troubles are all compounded by the usual trio who appear to be playing Financial Charades and are currently miming
'How to turn the tap on and off and instantly control inflation'
No chance.

Still what can one expect from the likes of

a) Brown - self annointed saviour to the world who is inviting the Pope over for his cannonisation
'Step in front of this cannon Mr Brown....'

b) Darling - the man who up until last week, didn't think the recession would get as bad as it is despite being backed up by a whole Whitehall load of Treasury advisors.
The Chancellor who is dimmer than an eco-friendly bulb and has to remember to write himslf a note each night saying
'Remember to wake up in the morning otherwise they might bury me quickly'

c) Merv - who doesn't really think inflation can be turned on and off like a tap, but what the heck the others do so he will just pretend you can.
He puts me in mind of Lewis Carroll almost - 'you must have very good financial eyesght Alice, to look so far along this road and not see any financial problems coming'

The sum of the collective financial nous of the above trio is always likely to produce a negative number no matter how many different ways you measure it.

Still, have a pleasant Easter break one and all

I agree that we are watching a game of "signals" and that the message is "don't worry about the borrowing because we are not going to overdo it - and we will be able to pay it back".

That's what they want the markets to believe - and they may even mean it. But however many signals they send, sooner or later the reality will become apparent. So how is the Government going to raise the tax revenue to repay it's borrowing without depressing the economy (so much that they don't raise the revenues after all)?. There are elasticities here and with a "ceteris paribus" assumption this can be answered.

Will "growth" (pace Ishkander) return to provide additional revenues? Maybe you can predict some growth due to the emoney being pumped into the economy, but the stimulus bounce will only take us so far since it is based on the borrowed money which will have to be paid back with interest (and which is being funneled into paying off debt and encouraging more borrowing).

So, in the absence of rising tax revenues, do the Government have any choice but to devalue and inflate their way out of trouble. Answer, probably not: but once the markets come to believe this then the game is up and the markets won't lend. And so they signal madly that nothing could be further from their thoughts.

Do the markets believe them? It looks to me like they're already at the end of this road and will have to walk the talk. The budget will shuffle money around, and dress it up as something new, but there's not much more that anyone can do except cross theirr fingers and hope against hope that something will turn up.

Gordon Brown's cunning plan....he will offer to sell the debts he has incurred, but buy them back himself with money he has just printed....

it wont solve the immediate problem but will ensure inflation next year, (after the election ) by which time he will have an inflation linked pension....you really couldnt make this up!

Where is this fear of deflation coming from. GBP is low, so imports are high. Interest rates are supposed to be low but you can get a great deal more than the BoE figure, in the same way anybody wanting to borrow does not necessarily see a low figure. Wages in the UK cannot fall below the minimum wage. If some commodity prices have been pushed high in a boom so what. They have to drop but they will bottom. It looks to me as though inflation is wanted to reduce debts simple as that (post 7 looks on the money). Osborne can't say anything until Brown does, and why should he, its Brown's mess. Shoot the messenger of bad news, so let it be Brown. This is not going away in a hurry, and the longer it goes no the worse it gets.

Quantitative easing (euphemism for printing money) and billion-pound stimulus packages are the crazy policies from an insane government. There is absolutely no risk of a deflationary spiral in the two segments that really matter: food and energy. For other products, let market demand dictate the prices.

Let's face it, Stephanie, we are all in uncharted waters here - The Bank of England, Europe, the whole global economy.

Even our wonderful government may be out of their depth.

We seem to be down to being concerned about the signals that we send out, instead of the positive actions we need to take, to escape this financial hell-hole.

If that is the case, then the present solution is a psychological battle to Con the rest of the world into thinking that we know what we are doing, so that the IMF will extend UK credit to the uttermost ends.

By this route we seek into a deeper mire than we have already bogged down in.

I know what you mean by it being enough to do anyone's head in.

We're supposed to trust the same ones who messed up in the first place. Those who didn't know or care what they were doing and who are now trying to undo their own mess.

It feels like a gigantic jigsaw puzzle and no-one can find the pieces to fit.

I think some new faces on the block are desperately needed. Those who do talk sense are not involved in the action. And they're not just from one party either.

Eventually and I hope it won't be too late someone will accept that it is hard work and a long haul paying off debt. Borrowing even more to make life a little easier for a short time only makes it a longer and harder slog.

Bankruptcy is certainly not an option.

so let me get this straight, they actually want inflation ?
so this is to scare me into buying that new vehicle now rather than later ? but my wages will stay the same , but costs are going up so I will have less in my pocket, taxes WILL go up to pay the debts , so its all good then ???

time to make one bank, let the rest go ,take the money back and get a commission from the new bank or other good banks that take over the mortgages of the failed banks seems simple in my small mind

I find the thing that really messes with my head is the metaphor shear that goes along with switching tracks. One moment thinking about the macro picture, the next thinking about an individual countries fiscal policy. I got that a lot reading Martin Wolf's "fixing global finance" while also reading Alphaville and the FT, etc. V odd.

We are looking at indicators to see if we are going forward. Looking at the GDP we are getting depressed and looking at the stock indexes we are getting positive during the last month. We are also some who are looking at the fact that you can now go at 250 KMH on most German autobahns where a year ago this would have been a drive in queues. At the border to Denmark you will see lorry park places filles with lorries that was otherwise empty. Going through Hamburg you have three container carriers opposed to twenty only half a year ago.
Now where we enter the Easter holidays the Autobahn is full and we have the queues back.
We are still giving our European customers sixty days, while we have put our UK customers on pay up front.
Altogether things has changes but are the politicians capable of making a difference?
Soros said on an interview lately that the old time is never going to come back.
Maybe he is right. In this case the current positive move on stock indexes is not going to be able to move the GDP and then we are going to see another depression on the stock exchange. The increase traffic based on Easter holiday opposed to lack of business traffic is exactly what we could fear. Should this be a trend then we will see Dow Jones down at 6000 before the end of 2009 and the happy DAX will hit 3000.
I believe that we are not seeing a picture of the ability but we are rather seeing a picture of the laziness. The economy could well be moving out of the hands of the Westerners .
For now I still hope that we will see that the figures are improving over summer and in September we will have a come back for the Western economies.

#2 and #5

I think it is important to realise that Economics is similar to a casino. There are 2 modus operandi in a casino - foresight and hindsight. eg Foresight - "I've heard that the UK economy will come out ok, so I'm putting my money on that"; Hindsight - "If only I'd put my money on the red!".

But you cannot take the lessons of hindsight and apply them to foresight; the artificially constructed chaos of the casino means hindsight has no value in predicting the future.

Economics is chaotic at its core too. But there is no casino creating an artificial chaos. The market players compete against one another to win, thus creating both chaos and control. If this recession was just like the last one, then market players would know how to bet and there would be no chaos, just a choreographed dip. Except, of course, if everyone bet that way, the recession would take a different shape. So markets create their own chaos in bad times and no recession turns out like any other. If we believe that markets are rational then hints and tips are just another set of levers for the powerful to pull.

The morning when we all wake up and say collectively, "I've had enough of gloom. I want to be happy again." (which is, of course, the unofficial bottom of the recession), is impossible to forecast.

In fact, I am still very worried by the number of people in the UK denying the downturn. [BTW I am all for keeping the money moving, but one must be aware of the economic climate.] Worse - France, Germany and the ECB are still in denial. UK-wise, that gives us short-term opportunities. But I just wish more people would get into the gloom bit sooner, instead of dragging out the whole process.

No wonder businesses (banks included) don't know which horses to put their money on, even though most sense it is a time to be betting.

The future will not be modelled on the past, but which future will it be? However well economists explain why we are where we are and how we got here, I don't think they have a cat in hell's chance of predicting where we will all end up. (Sorry Stephanie :o)

All us plebs can do is keep bailing out our bit of the boat...

#15 TomBenedictus

Don't look to the stock markets as an indicator of economic health or otherwise. The stock market is essentially the same as a casino or turf accountant (bookmaker). It is merely a location to gamble. The brokers and analysts will try and tell you that a company's share price is a true reflection of the competitive position of that company and its wellbeing. If that were so then how come either you or I could affect that price merely by spreading rumours? They try and tell you that shares are a long term investment whilst they play speculative games on a daily or even hourly basis.

Based on intangibles like rumour, speculation, and just which side of the bed they got out of, the 'players' will move the market up and down. Therefore, it is a poor indicator of economic activity or the lack of it.

Your own observations about lorry parks, the lack of traffic jams, etc. etc. are far better clues as to which direction the economy is really travelling :)

PITY KING HASNT THE HONOUR TO RESIGN!

no he has resigned himself to an honour , its the way it goes isnt it with Labour and the Tories before them, scratch my back heres an honour :)

I get so confused with all these numbers about inflation that the ONS produces on behalf of the Government. I know that statistics can be misleading if you do not know what they are based on and what the confidence limits are.
My concern is that at a macro level (my household) we are suffering from unprecedented INFLATION. My food bill continues to soar, as does my fuel and utilities bills (not to mention my biggest expenditure which is council tax which has increased by 4.95 per cent). So I think that Merv Kings' figure of the rate of inflation (which he claims is dropping rapidly and may well go negative) is just hooey!
Stephanie, make no mistake, the policies being executed are designed to produce hyper-inflation which suits this governments needs. There will be no turning off the tap when this feeds through into the economy in about a years time.
Perhaps, as a responsible and passionate economist, you will review your analysis of the cause and effects of the current BOE (government directed) policies?

Stephanie

All of this is just smoke and mirrors. Inflation, lowest ever interest rates blah blah blah. The key issue for me is, as Bernanke recognised in his interview with 60 minutes, there is too much fear in the system. It's the lack of business confidence that's the biggest issue.

When fear eases and confidence takes hold the result is investment in productive capacity by businesses, increased employment, increased consumption ... and we can all get back to worrying about inflation running over by 0.1% instead of which we're now wondering whether we'll still have a job in two weeks.

Unfortunately to get fear out and confidence back I fear the most important ingredient is a good leader, with a plan that we can buy into. Instead we have a prime minister with no mandate (yeah me mate got me this job) and no credibility (yeah er I was really good at my last job next door). Until the government is brave enough to talk honestly about how long this is going to last, and how hard we will have to work to get out of it, the fear will persist and so will the recession.

I can't for example believe that we don't have monthly forecast unemployment numbers out for the next two years somewhere in government. And yet each month it is suddenly 'news' that unemployment has increased. We're in a recession for goodness sake, of course it's going to increase. The question is has it increased beyond what the government expected it to increase.

I really fear either Gordon & Alistair are pretending 'everything'll be alright' in a month or two ... or worse, that they actually believe it. How about you're honest with the taxpayers for once, and think about the good of the country, and not about what's going to get you through the next election.

#20 splendidhashbrowns

I read of these increased council tax bills down south, and am rather glad I live in Scotland. Council Tax has now been frozen for 2 years, and local authorities (for political reasons the Tories forced a system on us that gave us 32 unitary authorities for a population of only 5 million) are being required to combine back-room services to save the money. My friends in our LA describe empty desks at HQ, as staff are no longer replaced - but I see no cut in front-line services. OK we don't see quite the increase that was expected while Labour were racking up public spend and debt (for little effective return), but would we want that anyway?

You guys might like to try smaller government as well.

SelfStyledBanker,
I've no doubt that you are right when you say that fear is one of the prime drivers of this depression. However that fear is well founded and is not just another word for confidence. The whole economic system on a global, regional and national level has been tested and found to be wanting. The fear is gnerated by the fact that we have nothing in place, or even in development, to replace it with.

It does not matter which party is in power in the UK, they do not have the answers or the power to really influence matters. The best that they can do is to ameliorate matters whilst this thing works itself out and a new system emerges. However, it will not be going back to a 'what was before'. The problems are systemic. As far as I can see little or no work has been done by the European powers to really address what shape this new system sould have i.e. the balance that should exist between financial profit and social wellbeing. Therefore the reall fear is that somebody (probably China or the USA) will ultimately seek to impose a system that is favourable to them by military means.

presently we are in a hiatus and that provokes even more fear.

The problem with the current climate is that fiscal stimuli won't work - it's too late in the game. Once fear reaches the level it has if you "give" people extra money they put in straight into savings, or use it to pay down debt. The people aren't as stupid as people like Golem Brown believe.

Just a quick post to wish everyone a "Happy Easter"

"That's being helped by quantitative easing - indeed, as I've said before, by reducing gilt yields, the Bank of England's purchases could save the debt management office quite a lot of cash. "

You keep stating this fatuous assumption Stephanie and it is no more likely to be true now than then. The likelihood is it will lose money.

Happy Easter

There will be no policies that will be effective until after an election. Until government spending is slashed , there will be no improvement.Local and national government , the welfare system and the number of quangos must be pared to the bone.This will not happen until all hope of Labour being re elected is gone, and the sychophants of the Labour party will support the self promoting policies of Gordon Brown to the bitter end whatever the cost to the country.Higher taxes are inevitable and cuts in welfare and the health service will also be inevitable,how bad these cuts will be depends on how much more damage this awful regime does before it is consigned to history and the job of repairing the damage can begin.

Isnt the real struggle you are pointing up is the way size, composition and ownership of government debt influences and interrelate with monetary policy. The Bank of England used to have responsibility for government debt management, but no longer. We have an executive agency, The Debt Management Office, that keeps the brief on debt management.

QE / asset purchase thrusts together the two and Mervyn King seems to be taking the helm ( why?). His brief must be getting worryingly blurred now that the conventional tool of monetary policy, base rate, has become useless. QE produces: public debt recycling which could adversely affect private lending in recession, liquidity platforms for banks insurance companies and overseas investors, yield curve and the Bank of England balance sheet changes. G20 recognised the importance of planning an exit strategy for offloading asset purchases made through these extraordinary measures.

All of these complex inter-reactions must be tracked and I dont see how inflation objectives can be forecasted with any accuracy allowing for all of these imponderables. CPI inflation remains stubbornly high and has taken the BoE by surprise. QE is not an exocet, but a scatter-gun.

HAPPY EASTER EVERYBODY!!

Nobody really knows what Britain's debt position will be in either two or three years' time. Nobody knows when Bank profits will generate tax revenues again, nor by how much. Nor does anyone know how much our investments in Banks will be worth in either medium or long-term. We're all gambling on one notion or another. With hardly any evidence that's reliable. What we do know is that we bought huge bank shareholdings for a fraction of their values two years ago.

Whilst a cautious view is that our shareholdings in UK Banks are almost worthless, suppose that's not true in two years time? Any return towards previous valuations and profit flows out of Banks, and current negligible values will become our massive windfalls.

Here's one, the origins of which obviously go way back to Big Bang, and the 'democratisation' of equities (and the state) by Thatcher, which I've asked elsewhere in Robert Peston's blog, and I will ask in Paul Mason's.

Anyone else have any constructive comments? I've found this quite unsettling for years.

The following 'signal from within the BoE' may offer a bit of insight value for those interested in the inflation prospect.

Some kind soul pointed me to BoE Pension Trustee report and to the associated comments on the FT blog and on the Guido Fawkes blog from 31 March, regarding the BoE Pension Trustees large transfer of funds into Index Linked Gilts as protection against inflation.

The pension asset movement is significant in itself without considering whether the Trustees think Merv and Co are on the wrong course.

Figures as follows

Index linked investments 70% (25%)
Fixed Interest investments 22% (20%)
UK equities 0% (20%)

The Trustees now have a 70% bet on inflation being the main area of concern.

The FT blog and the Guido blog are interesting reads on the matter with some insightful comments which basically cover the ground that those crying wolf over 'deflation, deflation; deflation' scares are naught but political mouthpieces for the Brown, Darling, King triumvirate.

It appears that the BoE Pension Trustees take a similar view to the rest of the real world in that Inflation is the major cause for concern and inflation proof measures must therefore be taken.
This being in direct opposition to Merv's viewpoints that deflation is the major concern and that inflation is a readily controllable beast.
I disagree with the Merv view.

The BoE Trustee Report is here
https://www.bankofengland.co.uk/about/humanresources/pensionreport.pdf
(table on p14)

The FT report is here
https://ftalphaville.ft.com/blog/2009/03/31/54240/the-bank-of-englands-gilty-secret-betting-on-inflation/

and the Guido blog is here
https://www.order-order.com/2009/03/bank-of-england-pension-fund-surges-betting-on-inflation/
(shows the same table as the Trustee report)

Alternatively, if the mods are required to remove the above links then simply Google for
Bank of England Pension Trustee Report 2008 2009
and follow the appropriate links

No 30, I'm afraid you're quite wrong when you say we "bought huge bank shareholdings for a fraction of their values two years ago". We (collectively) were given shares in return for underwriting the "toxic assets" of a couple of banks - almost £500 billion worth. If even a fifth of those go sour, the nation is knackered and the banks, more stridently regulated, may never return to the profits of the past.

31 jj

Your link is none functional like a lot of yours recently. I think somebody thinks you are a bit of a closet anarchist. ; )

33 subed

Toxic stuff in distress sales was trading a 8 cents in the dollar in summer 2008 and being bought up because it was believed to be worth more than that. Property still is worth something whatever so there has to be value somewhere, it is not like shares in a bust company in the 1930s. The problem was - it would seem - that it was impossible to to give a value to a variable determined by a future property market value so the idea of selling the stuff at auction in the US had to be scrapped because the likely outcome was the banks did not want to let the stuff go too cheap. The banks had to value the toxic stuff rock bottom for accounting reasons not because they wanted to. The US auction floor, late 2008, from memory was proposed at about 28 cents in the dollar. The issue is not whether the toxic stuff falls 20 percent against the original book but at what price it was used as security. In view of the banks bleating that they were screwed by El Gordo and Comical Ali, or at least the treasury team, who said take it or leave it you're the one over the barrel - remember the later swop (12 percent interest rate etc etc) for stock to escape the punative payback - I think there is still some hope of a decent return, it is timescale. I very much doubt with 8 cents in the dollar established as a US market distress price, 28 cents in the dollar (proposed in the US as the auction floor intervention level but shyed away from by the banks) that the UK treasury would have been saying it is worth an upper quartile figure. The US banks behaviour suggests quite a bit more than 28 cents in the dollar, say high 30s to 40 odd cents. The fact they are marked at approx 10 cents from what I can fathom, is neither here nor there. There is still some considerable hope of the banks coming off worse in the deal. There is only one bail or rescue mechanism in the last resort and that is the taxpayer and it is a choice of one, ie no choice for the banks so they cannnot negociate much. If they manage to wriggle out of the cleft stick they have put themselves in without taxpayer help themn all to the good, that too indicates the toxic stuff is not disasterous. It is the dismal public account figures and prospect of years of high unemployment stats that worry me more. BTW somebody out there probably has better figure than these.

The Chinese are getting more reactive to public opinion.

https://news.bbc.co.uk/1/hi/world/asia-pacific/7993377.stm

Could Britain do the same for our wholly or partly nationalised banks and over-paid civil servants ??

glanafon (#34) "Your link is none functional like a lot of yours recently. I think somebody thinks you are a bit of a closet anarchist. ; )"

Do you work for the FSA? ;-)

36 jj

Only considered if heavily medicated.

So Obama sees the first glimmer of a recovery. Well good for him because I find nothing in the published stats from the US that even indicates that they have even sighted (let alone reached) the bottom. The majority of US analysts now appear to be hoping for a shelf to offer a little relief.

I find the timeframes of this debacle very interesting and very different from previous downturns/recessions and even the 1930 depression. We can normally set a date when the proverbial hit the fan - Black Tuesday, Black Friday, etc. However, with this event we are seeing a gradual worsening of conditions. The pace is slow and all the more worrying for that. Perhaps, becuase there is no crash, the analysts either can't or don't want to see the worsening situation for what it is e.g. we still get experts telling us to see an upturn in the housing market or stock market any day now - but no upturn transpires! I get the feeling that one day we will wake in the morning to be told by the Beeb that we are all effectively bankrupt.

Stimulus packages come and go, yet I so no signs of increased activity in the real world - no new roads, schools, power stations etc. The jobless totals keep rising - even the major recipiants of the stimulus, the banks, keep shedding jobs! Even in France and Germany where they espouse a different answer economic activity keeps falling.

It is because of all of the above and the slow pace at which it is happening that I really feel that we are in a DEPRESSION. This will go on and on for many years. Left to it's own devices it will strangle initiative and hope and will ultimately lead to war.

So my cry is now WAKE UP. Use what little time there is before we are truly 'locked-in' to decide what kind of future we really want. Do we really want to get back to some kind of pre-2007 situation or do we want to construct a new type of economic structure.

After all, as the man said, it's only money! The real values of the economy are still there - underused, badly managed, but they exist. I am not ashamed to say that I would want money put back into it's box and become an oil for real activity rather than an end in itself. I keep hearing people say we must cut government expenditure as though that will sort everything out. But, I ask why? Is not the social welfare of the nation as important as individual profit maximisation. I certainly don't want to see a return of the crazy bonus culture. I certainly don't want to see a continuation of the imbalance between executive pay and the rest of the workforce or pay-offs for failure. I do want to see an end to the lie that you have to pay big for the best (that probably only really applied to whores anyway). I do want to see effort and initiative rewarded. I also want to see the least able looked after reasonably and not threatened with Tory style cuts (which is only a reapeat of the old deserving and undeserving poor). But none of this could come about if we continue to try and fix the 'old' system. A new and better system is out there to be discovered if we make the effort.

Yes, glanafon, I'm still looking to change things but in the end if we don't have hope we have nothing. ps that wasn't meant as a dig!

38 foredeckdave

doc dave This is all about the destruction of illusions and expectations. If you have swallowed the illusions peddled or your expectations are set too high you too will become depressed. It has nothing to do with hope. As has been pointed out again and again the majority are not doing too badly. If an individual sets their expectations too high they will undermine the progress. If there are no expectations there will not be progress. So it is a value call and an individual thing.

A minority need help. It is the quiet minority that need help that are the ones to worry about. The squeaky wheel gets the oil. Hence organised and very squeaky big business gets oiled. Be quiet and nothing much happens. Everybody in this country has access to food and accomodation, they might not think it is up to scratch but it is there.

This event is still following the scenario laid out in September 2008. Intervention needed, vocal public say no. Intevention inevitable, only government (taxpayer) has the funds to stablise an economic infrastrucutre need at the point of collapse. Politicans sit on fence play the blame game. Fear needed to move vocal public into line, let some selected structures fall, deliberate act. Fear grows, not enough, move fear to terror, let more scenary fall, put firebreaks in. Suddenly dawns lump sum liability to prop is better than job or house loss for the majority. Shouts begin. Politicans cave with bluster claiming they are the salvation, driven by public mood swing to do something. Posture to the end of the beginning.

Terror overshoots, feedback loop not rapid enough, too much instability in structures. Difficult to manage deliberately stoked emotions, difficult to manage structural instability. Politicans sell story of we have acted results will come. In time of crisis people huddle around tribal leader. Support leader automatic. Results dont come, terror followed by anger. More bluster. Public become despondent. Politican loses credibility. Due to failure in faith in politican public depressed, acts according to envirnoment and reduces financial exposure. Says I am on my own. Realises some of the illusions are illusions.

Thats all pretty much as laid out in Sept Oct 2008.

Politicans cannot win, have to keep calling upturn too soon, pressure to call it short. Otherwise accused of talking it down. Cascade set up, false expectation, no progress, avoidable adverse reaction. Cascade of political credibility failure, increment by increment. Do not understand why anyone would want to expose themselves to this death by a thousand self inflicted cuts. Must be mental condition. Brown at best a Canute when we need a Noah, Obama due a very rocky course but at least a new broom, not also an architect of downturn.

More fear, more in the order of apprehension, but fear will disipate when becomes norm, people become numb, despondant, called the bottom. The people who keep on keeping on carry it through.

Things that needed to be done at the start and the end objected to on principle grounds not pragmatic reasons. eg intervention to stop bank collapse, historically proven strategies eg house building (that you object to). There is nothing new.

Meanwhile most people are getting on getting on, a minority are sacrificed, and some are in growth. It is despair and dseperation in the 3rd world you need to worry about, and global warming which could make this lot look like a picnic, continents of people moving.

I remain hopeful that pressure can come to bear in the right areas but by definition adverse things have to develope before change occurs, whether the change is good or bad is another thing. Take a look at a disater zone, the behaviour in response, the implementations that take place or don't take place, the people who get trapped in a zombi state and those that move on, the failures in strategies and those actions that seem to work.

You comment that you see no sign of stimulus packages working. It is probably too soon, it seems to take a year. Most action to date has centred on the banks, unduely to me as a simple obseverer. I cannot see any reason for an activity that simple skims everybody elses endeavours and whose only product is debt to provide ecomonic growth. It may enable others to provide economic growth but is will not provide it on its own.

Shame armegeddion times is not about he would accuse me of a homily. But there you go. By all means shoot me down. Sun is shining, I'm off out.

None of this inspires much faith in the 'transparency' of what comes out of No. 10 & 11. There's form here, and little evidence for rehabilitation or improved integrity through retraining - quite the opposite, which is grist to the mill of those who have been calling for greater regulation here too.

Time for the stables to be cleaned out.

''Economics is a twisty-turny game at the best of times''

Not a science then, a game. No wonder the gamesters are not terrible good then, they presumably have to make the rules up as the scenery unfolds. Is this why the projections that keep coming out from ecomonists are so lacking. They are each building their own game virtual reality and it may or may not match what is going on. Chances are it will not match reality. Why is this game treated as important. So that policy makers can say I have had expert advice, I have not just guessed, I am not just playing a game. Interesting.

glanafon,

Unfortunately you are 100% on when you describe the game playing. If we leave out the politicians (who know nothing other than game playing) we have to ask ourselves why?

Firstly, we have the employed economists. They will always view the 'facts' and the world from the standpoint of their employer - hence the "there are signs of....." statements when the rest of us see a totally contrary picture.

Secondly, we have the academic economists. The majority of the 'famous' ones are so wedded to their own thories that when viewed through the filter of those theories, the world looks like a different place.

Thirdly we still have an information deficit. With all the data produced (both public and private)we have no agreed set of rules as to how it should be handled. Therefore we have lots of data but little real information. Hence, the decisions, conclusions, interpritations, etc. made from this morass are flawed (why does JJ come to mind here?).

Finally, we have the scope of the issue. It is just to braod and complex.

Oh I nealy forgot!! We aslo have the 'I just made it up' merchants.

42 ffd

doc dave you forget the most telling data in this mess. That only one lone voice on the BoE committee said this was coming, Prof David Blanchflower. Seems to have been repeatedly voted down and told he was wrong. His game model reflected reality, the others are documented as having virtual realities that were that, virtual realities.

On what basis can anybody take this nonsense seriously. Or plan the future of millions on it. If I proposed a control mechanism with this amount of error in it to the treasury it would get laughed out of the room. One in Nine right repeatedly with the majority favoured. Could reading tea leaves be worse, or say measuring traffic along a road over time, too much traffic says economy overheat in place.

Furthermore - Repeatedly economic forecasts from others outside the BoE have been revised downwards, that is upwards in 'negative growth' whatever that is - on a fortnightly basis at the start of the year. The errorband on any forecast is enormous it would seem, but is usually give as a figure of certainty quoted to decimal places. The opinion at the IMF seems to have been far far more accurate than the BoE.

PS That lone voice has now left the BoE committee, probably with a sigh of relief. Must have been fun turning up and saying the emperor has no clothes and everbody saying oh yes he has. So now we are left with those proven to have been completely out of touch - but sure they were in touch, telling us they are in touch - and sure as before that they are in touch, plus a replacement who is yet to be proven, although he does at least favour fixed term mortgage rates should be favoured to give stability.

Reassuring.

foredeckdave (#42) "Oh I nealy forgot!! We aslo have the 'I just made it up' merchants."

But how do YOU tell the difference between your 'alternatives'?

You do not appear to have grasped the nature of the problem, and I suspect that this is why so much harm in general is being done, i.e through very poor awareness/interest of the consequences of behaviour.

44 JJ

This is an education problem coupled with the corporates using sophisticated targeting of groups. There is a imbalance where the resources applied by 'interested parties' dwarfs any ad hoc lobby group.

It is the development of 'interested parties' and the ever increasingly subtle professional services that they use which is dangerous. The main education venue is schools which are simply not set up to deal with the scale of the problem, or self help or advice groups which are underfunded. Corporations will go to substantial lengths to undermine or discredit anything seen as an obstacle. So apparently will members of political groups, whether authorised or not, as show recently.

There is no reason why the scale of the problem as you put it should be realised by anybody if it is not vocalised. The result of increased industrialisation is the detatchment of the individual from the location of problems that result from behaviour, in particular behaviour encouraged by interested parties. A good example is the climate problem and the export of pollution creating activities to overseas locations.

We are already living in science fiction.

glanafon (#45) "We are already living in science fiction.

Exactly, and that's what needs to be reversed, scien ce being another term for knowing. At present, lying is euphemised, and people appear to get away with lying through further disembling/distorting and then apologising.

This is white-coller venality is sadly endemic, and this is essentially a consequence of a) education having been corrupted, and b) education subverting the population in a way that I've explicated elsewhere (as Herrnstein did back in 1989). More need to look carefully into the details of exactly how this has been effected....

JJ

Does there have to be a difference in effect or are we just looking at expressions of the same thing?

e.g. The Genral Strike. The government of the day, in an act of desperation, states that they believe that the strike is illegal. Result, the strike collapses. There were no laws on the statute books at that time which made the association of strikes illegal but few knew the truth. matters not which side of the argument you supported, the "I made it up" merchants were successful.

The same kind of result can be achieved via mathematics - 1x0=0, 10x0=0 but 0x0 can be any number that you want it to be!!!

My argument is that, whilst we have a torrent of data we have very little information and threfore we create the climate in which 'interprtation' (rumour and self interest)

erratum (#46) "This white-collar venality is sadly endemic".

foredeckdave (#47) "Does there have to be a difference in effect or are we just looking at expressions of the same thing?"

You didn't read/understand Two Dogmas of Empiricism as I suggested.

Nor, it would appear, have you understood why 'substitutivity of identicals salva veritate' and the other sine qua non for rational inference, i.e. 'existential quantifcation in' are fundamental here.

Until you do, I suggest you'll continue to be part of the problem. As I said, it's endemic.

47 ffd

I see it as a Goldilocks problem. The data is just a porridge. So the decision is arbitary. Goldilocks picks the data porridge of 'just the right' temperature. It is all the same porridge. Turn up earlier or later the same day and another bowl is the best pick. Turn up on a cold day or a hot day and the decision is different again, Goldi might want very hot porridge on a cold day or cold porridge on a hot day. It's a nonsense.

46 jj

Science is another term for knowing. Well it can be unfortunately science is also close to a religion for some. Comment not pointed in any particular direction.

glanafon (#51) Look at what you and others are talking about/criticising here generally. Look carefully at the verbal behaviour of Myners and others before the Treasury Select Committee and elsewhere. Look at the verbal behaviour of McBride, Draper etc, and then ask to what extent the vague, contentious, argumentative verbal behaviour seen in this blog, and elsewhere is symptomatic of the same general, anarchistic, malaise. Do Draper's post hoc rationalisations carry any credibility (except with the gullible)?

Perpetrators of spin rarely see it this way. That's the problem. They describe their psychological (intentional) states (beliefs etc) instead of the world and their behaviours in relation to it. This is how they have been educated to behave. Exactly the opposite is taught in the sciences. Spin doctors deploy 'narratives' to persuade, not inform, they and avoid accountability. We even saw Peston doing this when confronted by the public over his alleged role in the bank run. Did his denial mean that he played no part? Did his awareness, or his arguing really have any relevance? If someone puts up what looks like a persuasive argument does that mean what they say is true? The answer is no. That's rhetoric at work not rationality, and it's rhetoric which is the problem today.

It is silly to say that science is close to a religion for anyone. In fact, it's symptomatic of the anarchistic malaise which I'm referring to.

What's needed is a purge of nefarious rhetoric, or (which would amount to the same thing) a return to far more selective Higher Education, i.e. just the brighter segment of the population. and an end to all the manufactured, 'filler', subjects. In the absence of that, this will just get worse and worse.

Daryl Schoon has just posted another missive. Again, they are just fiddling around the edges and prolonging the farce.

[Unsuitable/Broken URL removed by Moderator]

51 jj

''It is silly to say that science is close to a religion for anyone. In fact, it's symptomatic of the anarchistic malaise which I'm referring to.''

It is not at all silly. It clearly is a belief system for some, not all.

Take a look at the Darwin debate and Hookers position. In science the facts can be used by some to extrapolate and project a theory. It is interpolation which is sound. Putting aside the issue of what is a fact and how it is measured. Having extrapolated and developed a position or theory this position is defended and can quite clearly sometimes the position is proven with time to not stand up to scrutiny. This is inevitable - it is even quite Darwinian to say that the majority of extrapolations will fail the test. However the scientist uses the position of authority and scientific certainty, when in fact such certainty does not exist, to justify their position. It is strange that when it is quite clear knowledge boundaries have not been reached that a scientist can be so sure of their position. That their position is the end point essentially. Many of the debates around Darwins time are revealing and I would suggest you read them. The problems still remain. I have deliberately chosen historical examples rather than current ones because the concensus is clearer, but I can assure you the same problem remains today even if the concensus is not yet that clear, it is still in process. With the Darwin debate, I find it interesting that the scientist with the strongest theory, supported by extensive work, was the least interested in defending their position. Darwin showed great reluctance. I think this is not that strange a position, the more somebody works on an area the less convinced they are that they have a full understanding of the matter. It is those who are sure they have the answer that you have to look at the most closely.

None of this damages the value of science, it simply means care need to be taken with accepting theories which may be unsound. None of this justifies the spin and narratives that you object to so much.

I am afraid as usual your position seems to fragment somewhat. To dismiss all comment you do not like as nefarious is hardly subjecting your own thesis to any great test is it.

The BBC made the following report regarding the cut in VAT:

"The Centre for Economics and Business Research (CEBR) says that the cut, which took effect on 1 December 2008, has led to £2.1bn of extra sales."

Now pulic opinion has had it that the VAT cut has made no difference to either purchases of the intent to purchase. The retailers intially decried the cut as an extra administartive cost that they could do without. They have continued to report declinning sales and difficult market conditions. I hear nobody saying that their purcase decisions have been influenced by the cut in VAT - in fact it's effects have long since been absorbed into 'regular' pricing!

So who is right the 'experts' at CEBR or the great unwashed? Does it really matter or is it merely an 'interesting take' on statistics? To my mind, it shows what can happen when people look to closely at a set of 'facts' without referring them to the wider environment.

You may like to say that such 'information' is mischievious as it is presentd in support of a chosen theoretical standpoint. However, it is supported by the 'facts' that they present (I cast no aspertions upon the validity of their research). What I believe it clearly demonstrates is that we should continue to challenge all expert opinion.

glanafon (#54) Put some time aside to work through Two Dogmas of Empiricism which is an austere epistemology/philosophy of science/knowledge/learning which amounts to pragmatism/extensionalism, and give chapters 2 and 6 of Word and Object (1960) a go. Try and see through the dramatic fictions masquerading as 'interpretation' ever since. This, like the 'pirates' off Somalia, the 'terrorists' Up North' and 'Smeargate' needs to be exorcised or at least seen as a distraction from the antics of The Pirates of Wall Street/The City.

The cognitive elite stopped talking to the rest long ago, essentially because of what amounts to a language/gene barrier.

At least look into this, OK?

56 ffd

What is more pertinent is who commissioned this stunning piece of work (and what was the brief). Who could that be. Who could benefit from such a report summary.

foredeckdave (#55) "What I believe it clearly demonstrates is that we should continue to challenge all expert opinion."

What if, knowing full well that their political domains are non truth-functional (in terms of credit-assignment, see Johnson on Brown and his non-responsibility/culpabiliity over 'Smeargate' for a trivial example), that's precisely the anarchistic agenda which they're still peddling to further Balkanize Britain in pursuit of their Social Democratic Internationalism?? Do you see how you, and almost everyone else, are roped in, and have been for years?

Ultimately, this is all about selling more stuff to ever more non-discriminating consumers, in my view. See the Cash For Honours fiasco or Obama's campaign team. What they hate is statism and its regulation. That's the Neo-Liberal Ariadne Thread.

"The cognitive elite stopped talking to the rest long ago, essentially because of what amounts to a language/gene barrier."

So JJ isn't a member of the 'cognative elite' folks or else he wouldn't soil his mind by trying to 'teach' everybody on this blog!

Now, if he and his fellow travellers really had anything to say then the world would be beating a path to their door. I don't see any rush do you?

It is interesting to see how cliques use language as a parody of itself. Simple ideas are dressed in 'speak' to validate ideas to the informed and isolate non-believers. A classic example being the marxists/leninists from the 30s-60s. When all the verbiage is stripped away the empty pot is revealed.

I really don't care what you may think of my intelectual capacity or how highly you rate your own or how dismissive you are of others who disagree with you. You have added not one iota of truth to the debate. I doubt that your 'intelectual' arrogance would allow you to recognise a truth if you fell over it.

56 jj

: ) We all live in belief systems and controlled environments jj. I have seen nothing yet that tells me this century should be any different than any other. It is the deteriation of the environment which concerns me the most. As has been displayed in the 'fear - terror - drive the public to support intervention which must be made' model which was displayed in the US in autumn 2008, it is obvious the public - politcal system feedback loop is poor. Therefore damage has to occur to force change and such damage does not have to be recoverable. The further damage is from being in front of people the worse the feedback. The living extinct is however a proven model. Sadly the 'save the earth' slogan is misplaced, it is 'save the earth for the human biosphere', the earth has got along just fine without humans before, in many different forms. This is a far greater danger than anything else. I can so far only see 3 things which can help. One is communication, the other is the establishment of a quicker resonse feedback loop on the politcal system, probably through digital democracy, and the other is the wisdom of crowds, ie that sufficent collective effort is brought to bear. How else is change to be made in the face of stubborn vested interests.

foredekdave "So JJ isn't a member of the 'cognative elite' folks or else he wouldn't soil his mind by trying to 'teach' everybody on this blog!

Possibly, but that's an ad hominem again isn't it? On the other hand, maybe I'm just not getting through to you? I suggest you get a copy of 'The Bell Curve' (1994) and try to follow what they were describing. Then look at the ETS material again and Leitch here (the OECD has its own version). The US already has gated-communities, and assortive mating is inevitable everywhere.

These are worth listening to too.

Consider your first responses to these instructions, and try putting them aside and see what happens.

MAKING A VIRTUE OP ERROR TERMS AND INTENSIONS

Consider The Department of Psychology and Social Relations in the same light that you might The Chicago School (especially Bruner's spin/work on 'Going Beyond The Information Given'). If one sees the point here, it might come as something of a revelation to some....

A Conservative example.

This requires careful analysis in the context of the promotion of anarchism/antistatism in the UK in pursuit of 'liberated' consumerism. The UK electorate currently has no real choice of political party as they all promote basically the same policies with trivial variations (see the Newsnight Political Panel/trio).

jj various

You are looking at the wrong target.

It is the system which lacks intelligence not people. The interesting thing is there are many highly intelligent people within the system but they subjicate themselves and the system evolves to steadily remove all independent decision making.

Decisons within the system are made in accordance with a short form rulebook updated via bulletins which ignore the full complexity of the legal situation and focus on the bare statute in an attempt to simplify process. As approximately 90 percent of all law is case law this has significant impact. Case law occurring after statute.

The rules are implemented by people who sometimes know they are short form and are aware of the forced errors this produces. Sometimes they are not aware.

Usually the higher in the system you go the more awareness of the problem there is.

Revision of the system, which can be forced if enough intent is present - for example to include specific case law as well as bare statute - usually incurrs considerable potential budget liability and this then appears to force a further review of the system to contain budgetary problems. The forced fit of complex case law spoils the concept of the short form rulebook and concise bulletin issuing. It introduces too many caveats and conditional queries and reduces the 'efficiency' of the system. ie to assess correctly or fully is 'inefficent', reduces throughput.

If another system review then occurs in response to this increase in budget problems and liabilities and a drop in 'efficiency' then such a review usually removes criteria which is obviously stated as being simplistic and which can be criticised as such, and puts decision making criteria undercover, ie make it 'expert' ie a trained person speaks from a synthetic position of authority but is actually ill informed and usually not actually expert, but is trained to interperate in a skewed manner, ie more no's than yes's, if in doubt. Essentially a trained but blinkered application worker is bolted onto a mor*nic system.

Putting even a small amount of intelligence back in the system would change the situation considerably. Much of this reduction in the intelligence of the sytem is related to computerisation of the system, it removes safeguards and independent intervention and individual knowledge and skill based intervention. As such it is a relatively recent development.

My assessment would be that you actually have little personal experience of dealing with a system at a forced revison level. The issue is one of a entrenched monolithic structure that continually seeks to maintain the status quo. That is nthe way it is built.

Which brings me back to the issue of feedback loops. If the system is perpetually modified to preserve the autocratic status quo there is little point in forcing upward reviews of the system.

Systems are however under political control so the issue becomes ensuring the politcal system understands the issues presented by the implementation of overly simplistic policy. A communication problem. Many politicans do not understand the systems they are putting in place and the impact that implementation can have. My experience has been that some politicans are receptive to hearing about systematic problems providing objectivity is present. Some are not.

I would prefer to deal with a few real mor*ns than a monolithic system(s) which is an unguided mechanism(s), as they are set up and run a predetermined course usually without very much subsequent intervention.

If you want to increase the effect of intelligence, and the positive impact of it, you probably need to focus on systems not people. And the ways of encouraging such an implementation to happen. That is my suggestion.

glanafon,

why bother he/she isn't listening or even have the will to listen. You can scratch an irritant for so long then you either have to ignore it or deal with it. In this instance ignoreing it is the best option.

How anybody can base their opinion upon the scientific method and logic and then ignore or demean any other opinion is just nonsense.

The REAL loss is that the meaningless diatribe has so bored so many posters that the real interchange of economic/social ideas is diminished.

So let's all get back to the economics.......

#22 "You guys might like to try smaller government as well."

We'd love to have a smaller government. Now, how can we export/repatriate these Scottish politicians from England ?? We could start with Crash Gordon, work down to Comical Ali and onwards. We could also repatriate all those surplus Scottish civil(?) servants infesting the local councils and the national services and quangos.

#43 "That only one lone voice on the BoE committee said this was coming, Prof David Blanchflower. Seems to have been repeatedly voted down and told he was wrong. His game model reflected reality, the others are documented as having virtual realities that were that, virtual realities."

Ah !! Democracy in action !! If most people vote for something, then it *MUST* be right !! The wisdom of "the (mythical) people" cannot be challenged !! Quite strange how the Communists use "the people" and "the voice of the people" to justify their personal decisions, too !!

This comment was removed because the moderators found it broke the house rules. Explain.

#55 "The Centre for Economics and Business Research (CEBR) says that the cut, which took effect on 1 December 2008, has led to ?2.1bn of extra sales."

Of course, this statement has to be carefully coupled with the following -

"The CEBR had been *a vocal proponent* of a cut in VAT to boost consumer spending, calling on the chancellor to cut VAT by 5% towards the end of last year."

- to show the whole truth. This is just more self-interested spin !!

Perhaps, if they gave a detailed explanation of their calculations and how they arrived at their conclusions, we might take their conclusions will less than a large bag (1 kg, buy 1, get 1 free) of salt !!

#60 "One is communication, the other is the establishment of a quicker resonse feedback loop on the politcal system, probably through digital democracy, and the other is the wisdom of crowds, ie that sufficent collective effort is brought to bear. How else is change to be made in the face of stubborn vested interests."

Could I add one more to your list ?? Less obfuscation of the truth with verbiage !! It seems to me that, the less real facts there are, the greater to volume of verbal/communication diarrhea involved !!

foredeckdave (#65) How anybody can base their opinion upon the scientific method and logic and then ignore or demean any other opinion is just nonsense."

Or, it's a statement of what is now widely understood (amongst the cognoscenti) to be the sine qua non for rational/accountable (truth-functional) expression. The rest being opinion.

In making the assertions which you do, you reveal to others your ignorance of the distinction, and your inability to learn from istruction. I suggest the two go hand in hand.

I know it's exceptionally unfashionable to be optimistic at the moment, but I feel like I have to respond to all the doom mongers.

It does seem to me that we are approaching a bottom: there are one or two moderately encouraging signs from the housing market, the pound appears to have stabilised against both the Euro and the Dollar at a level where our exports are (for the first time in a decade) competitive but our imports are (just about) affordable, and it is just possible that the banks are profitable again (if indeed they ever stopped being truly profitable.

Whisper it or you will get enormous amounts of abuse from people on here, but taking stakes in Lloyds and RBS at bargain basement prices may just end up being a nice little earner for the government/taxpayer.

No.31. JadedJean wrote:
"Here's one, the origins of which obviously go way back to Big Bang, and the 'democratisation' of equities (and the state) by Thatcher, which I've asked elsewhere in Robert Peston's blog, and I will ask in Paul Mason's. Anyone else have any constructive comments? I've found this quite unsettling for years."

No need to worry, old chap. Take a look at this chart of the Dow Jones Industrial Average. The change to its slope post big bang is not significant.....

https://uk.finance.yahoo.com/echarts?s=%5EDJIdji;range=my;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=off;source=undefined

DO WE PAY TOO HIGH A PRICE FOR CARE IN THE COMMUNITY?

GHBRich (#72) "It does seem to me that we are approaching a bottom:

As traders say, "the only thing anyone ever got from picking bottoms was smelly fingers".

Put another way, manics don't like taking their meds largely because doing so brings them down to where most people are most of the time. This could (and perhaps should) be said to those worried about the way the economy has gone. Alas, those who have had any dealings with those afflicted by the affective disorders know that this is a very tall order.

I've ben doing a litle research on the US analyst's take on the Goldman Sachs 1st Quarter results. Whilst the majority are taking comfort in the fact that a major financial institution is reporting profits, there are a number voices raising concern about how GS achieved this result.

The vies wxpressed in the US range from the "we've turned the corner" to "when will we ever learn". One of the areas that the majority of the analysts agree on however is that GS are being very caggy about how this rult was achieved. Yes there were diversifications into currency and other markets. BUT there are indicators that GS also involved itself in some major risk activities in its investment arm. This is where opinion appears to devide.

One view appears to be that by taking a non-zero position on risk management, GS has proven that opportunity has re-emerged. The other view, whilst welcoming the performance, cautions that these risk activities could easily escalate out of control again. They point to the allocation that GS is making towards future commissions and bonuses as an indicator that they have learnt little from the financial collapse.

This appearsto be more than just a half-full - half-empty debate. It calls to the forefront what type of economy the world wishes to adopt in future years. Is it to be a return to the US style large corporate financial market or a more cautious value driven system.

The debate is on again!

MrTweedy (#73) "The change to its slope post big bang is not significant....."

So I see ;-)

Still, for those without a sense of humour: here it is without the log scale - select Max

#74 - JadedJean

What an odd post. Care to translate?

glanafon (#64) "My assessment would be that you actually have little personal experience of dealing with a system at a forced revison level."

;-)

See 12 and 14 especially, and remember, try as they may to make legislation appear to follow the format of programs, laws are written in Natural (intensional) Language.

No.77. GHBRich

Market-makers ensure they make a profit by causing volatility.

Stock markets have little to do with real corporate earnings and dividends, but all to do with investor sentiment and the need to make a profit by buying and selling securitites. The actual price of the security is not important; it's the turn that can be made from the change in the price. Money is made when the price goes down and when the price goes up. Therefore, traders look for any excuse to bid the price down or any excuse to bid the price up.

More traders = more bids = greater the price and greater the volatility.

It's the general public, through their pension funds, that provide the platform through their "buy and hold" approach. Once the stable platform is in place, the traders then feed off it by causing volatiltiy, with the buy-and-hold pension funds underpinning/underwriting the losses.

No.76. JadedJean

Now you've manipulated the axis, the whole thing looks a lot safer.

I'm now confident enough to plough my whole life savings into it......

GHBRich (#77) "What an odd post. Care to translate?

I think there's a House Rule about only posting in English.

No. 79 MrTweedy (and JadedJean if Mr T is correct about the interpretation of your earlier post, which made no sense to me)

I did not mention the stock market. Rather I talked about the HOUSING market having bottomed.

That has little to do with day-traders.

No.82. GHBRich

Unfortunately, the clue is the name:

Stock "Market"
Housing "Market"

Robert Peston pointed out on the BBC News that studies of all recessions since WWII caused by a banking crisis found on average the recessions lasted 2 years with unemployment increasing for 5 years and house prices falling for 6 years.

Houses are necessities and should not be traded for profit.
Therefore, the cheaper houses are to buy the better.

I assume those people who believe in the "housing market" also hope the price of food will increase, and the price of gas and electricity will climb, and the price of oil will inflate.....

82 GHBRich

I hope you are right about the housing market not because it affects me but it signals some recovery. However I am afraid it is probably a false dawn. I expect another fall, possibly 10 percent. The economic situation is grim for too many people. All that is going on in the main is level trading of people with equity.

MrTweedy

What sort of logic is 'the clue is in the name'? It is merely a fatuous statement (and one which is not correct). Next you will be telling me that speculators have made apples more expensive at the local fruit and veg "market".

Whilst I agree with you that the stock market is a poor guide to the true value of companies as it is affected massively by traders, the same is most certainly not true for the housing market.

And your take on house prices is over-simplistic to boot.

Food price increases are bad, because people need to buy food every day and do not take out large loans secured on the price on the food in their pantry. Therefore consumers are interested in prices remaining low.

House price decreases are bad because people go into negative equity and run the risk of losing everything and going bankrupt if they default on their loans. A slow and steady rise in house prices is an undeniably good thing.

JadedJean

Quote: "Or, it's a statement of what is now widely understood (amongst the cognoscenti) to be the sine qua non for rational/accountable (truth-functional) expression. The rest being opinion."


Perhaps I am misunderstanding what was being debated, but truth functional expressions do not require evidence. They merely require the assignment of truth values. The statement "God created the universe and I am part of the universe" is truth functional. (The problem with this statement is actually that is not *falsifiable*).

Further, continuous truth values are synonymous with 'probabilities', which are necessarily degrees of belief and therefore opinions. You can look here for more info: https://en.wikipedia.org/wiki/Bayesian_probability and I recommend the book by E.T.Jaynes "Probability Theory: The Logic of Science". We do not employ T/F binary truth values and in general this system is not particularly useful. Our thinking and perception is much more aligned with induction and probabilistic inference (gray scale truth valuation) than deduction and binary (black/white) truth valuation.

In order for a statement to receive truth values based on evidence, the evidence must undergo a process of interpretation and review, and then it must be applied to the original hypothesis. The original hypothesis is *supported* by evidence, and the truth value of the hypothesis is perceived to increase by the community who subscribes to this method of evaluation. In fact, truth values require one or more persons to have an opinion about many things. And even then, published hypotheses and evidences (research) are trusted to varying degrees depending on who did the evidencing and how. The truth values are continuous and the only statements in these communities (scientific) that have a truth value of 100% are statements in the negative (eg: "Not all swans are white"). A statement must be falsifiable.

'Truth functional' is applied to connectives. AND is a truth functional connector. BECAUSE is not a truth functional connector.
However, in my opinion, it is not useful to draw a distinction. The statement "It exploded because I lit the fuse" is simply not a compound statement. It is a statement that is assigned a truth value by a community of people or by an individual.

I would like to say that a Government is not a corporations where it must balance income with expenditures. Governments are told never to go into deficit spending because it is inflationary, that a balanced budget is good even at the cost of not being able to provide badly needed government services. What people need can wait... And people have been educated to believe that this is the truth. Government has no money and must therefore borrow the money it has issued and printed.

Governments issue and print money and it can use this money to create national wealth and services and provided money is spent for this purpose, there should never be inflation. What is inflationary is investing money in commercial and credit documents where no real production of wealth is created (roads, railroads, airports, seaports, schools, hospitals, the equipment and facilities required and the manpower to run them efficiently) or service rendered (free education, free medical and dental services, peace and order, Children and senior citizens care, etc.)

Current economic/financial thought is centered on controlling money supply and interest rates, guess-balancing it for the long and short term effects, hoping that whatever is done will work. If it does not then adjust or try another thing again hoping against hope that it works.

If we want to solve the present financial crisis, the way to do it is for governments to go into deficit spending, creating national wealth and services, employing the people in the process, thus increasing Gross Domestic Product (GDP) through output, puting money into the hands of the masses, which is then converted into consumer demand giving incentive to companies to go into manufacturing to fill this consumer demand. Consumer Demand backed by Purchasing Power, this is what the economy requires.

GHBRich

"Next you will be telling me that speculators have made apples more expensive at the local fruit and veg "market" "

Actually if you remember middle of last year the food and commodity prices rising, it was state protectionism and private speculation that drove up the price...at your local market.

FrankSz

Not really, no. Food prices have been driven up by the basic law of supply and demand - all of a sudden 200 million Chinese have been elevated to the middle class and want to eat bread, cheese and fruit instead of rice and noodles.

Simple supply and demand. You are correct about oil prices, though.

My point is slightly different, however - in that the markets for fruit and veg, houses and even to a lesser extent oil, are real markets based on real factors, whereas the stock market has become little more than a gambling index.

That is why I did not use the recent upturn in the stock market to indicate a bottom, despite MrTweedy's attempts to twist my words.

And btw MrTweedy

Would you care to explain how falling house prices are good for anyone???

No.85. GHBRich

"House price decreases are bad because people go into negative equity and run the risk of losing everything and going bankrupt if they default on their loans."

Yes you are right, which is why we shouldn't allow house prices to climb beyond 3 times income in the first place.
Before the current housing market crash began, the average house price had been bid up to around 8 to 10 times average income.


"What sort of logic is 'the clue is in the name'? It is merely a fatuous statement (and one which is not correct)"

So you don't think speculation and predatory lending had any part to play in the recent house price bubble?


"And your take on house prices is over-simplistic to boot.
Food price increases are bad, because people need to buy food every day and do not take out large loans secured on the price on the food in their pantry. Therefore consumers are interested in prices remaining low."

So, as long as someone takes out a large loan to buy an "asset", and secures the loan on that object, the object in question really is "worth" the price paid?
Is it a good situation where a house built and sold in 1975 for GBP6,000 when the average wage was GBP2,000 is sold for GBP300,000 in 2005 when the average wage is GBP22,000 ?
Rising house prices redistribute wealth from young buyers to the banks lending the money and to the older generations who are happy to downsize to a smaller property and pocket a large capital sum from the sale of their larger house. Rising house prices make those moving up the ladder poorer and those moving down the ladder richer. You'll be quids-in if you are not the one left holding the "asset" when the market eventually crashes....in other words, if you have successfully exploited your buyer and downsized before the market crash.

No.89. GHBRich

I apologise if it appears that I twisted your words....
I was responding to your call for clarification of JadedJean's post no. 74. I took that post to be concerned with "market-makers".

There were market-makers at work in the housing market, attempting to profit from the buying and selling of these assets. It appears to me that you disagree about market-makers being present in housing. Hence, this differing view point has led to a debate about the housing market, whether this was your original intention or not....

90 GHBRich

Realistic and sustainable house prices are 'good' whatever 'good' means Mr Rich. If that involves falling prices then that too I am afraid is 'good' in the overview. Not 'good' if it hits you individually but 'good' in the general sense. Like all things it depends how you are affected. It certainly is 'good' for FTBs, if the prices ever get to a sustainable level, they may not be there yet. The banks are telling everybody they do not think the fall has finished yet with their pricing policy reflecting the size of the deposit. 4+ million households, maybe more, with neg equity are bound to have some effect. Many more repos to go. In particular what is 'good' is property speculation may have ended for some considerable time, so at least we do not have to watch tv programmes about without - a - clue - numpties buying houses to do up. Where on earth did perpetually expanding house prices come from.

MrTweedy

"What sort of logic is 'the clue is in the name'? It is merely a fatuous statement (and one which is not correct)"

So you don't think speculation and predatory lending had any part to play in the recent house price bubble?

Of course I do. That was not the discussion we were having. I said that if the housing market had reached a bottom that could be a good sign. You replied that the recent upturn in the stock market was only indicative of an increased trading volume. I replied that I had not mentioned the stock market, but was talking about the housing market. You replied that the same held because they both had a name containing the work 'market'.

Classic my dog has four legs logic!

"So, as long as someone takes out a large loan to buy an "asset", and secures the loan on that object, the object in question really is "worth" the price paid?
Is it a good situation where a house built and sold in 1975 for GBP6,000 when the average wage was GBP2,000 is sold for GBP300,000 in 2005 when the average wage is GBP22,000 ?"

What you are describing is a bubble, which I agree is a 'bad thing'. But you seem to be saying (unless I misunderstood) that falling house prices are good. I disagree. What we should be aiming for is house prices increasing in line with, or just above, inflation. That is why my original point was that it is good if the housing market has bottomed out.

I think (although your logic is unfathomable) you are saying that a bottoming out of the housing market is not a good thing.

#92 MrTweedy

I don't disgree that there are speculators in the housing market, but the difference is that they don't exert the same influence as they do in relation to the stock market.

I agree with you that the stock market is completely unrepresentative of the health of the companies floated on it, but I don't think the same is true for the housing market.

#93 Glanafon

I think we are actually quite close to being in agreement (we most certainly are in relation to the do-up-your house tv programmes)

The only point I would make (which I think you also agree with) is that falling house prices are not even good for first time buyers, as banks demand much bigger deposits if they think prices will continue to fall, pricing FTBs out of the market. Continuing that logic, it must be a good thing when the market bottoms out.

What is important is that we manage somehow to ensure house price growth of 3-4% pa, rather than 10-15%. Slow growth is desirable and to some extent unavoidable (especially in this country, where we suffer from a chronic shortage of land).

Mr T at 91

''Rising house prices redistribute wealth from young buyers to the banks lending the money and to the older generations''

Thank you for saying that, not many want to consider it.

This is in a nutshell the problem isnt it. A manipulated market, by a number of mechanisms, leading to a wealth transfer, young to old, generally. However as the young do not have any wealth in most cases this can only be fed by debt. Manipulated market not sustainable - so collapse is inevitable leaving only debt, with insufficient asset value to escape debt, and when negative equity remortgage is needed then the computer says higher risk so costs rise, this is already starting to show thru. Just to make sure they go under presumably. And this has occurred under a supposedly Labour government. In fact Halifax continued issuing 125 percent mortgages for 6 months following coming under government control. Shows priorities doesnt it. The government may go in a year or so but the tears and trauma for millions will continue for a long time. It was a totally lunatic government strategy, and labour apologists please do not say it was nothing to do with government strategy, they just loved the revenues and spend spend spend.

Even with this collapse in house prices, on an international level UK prices are still high.

GHBRich

It looks like we have converged.

I was reading an article regarding whether the stock market had now lifted from its lows, or whether the lows will be re-tested in the future. The article was concerned with the role of expectations, and the effect on share prices of data being over or under expectations. From this article I flipped straight into your post and JadedJean's reply. My mind was still on stock markets, hence it appears I went off half-cocked. Sorry for that.

I agree with you, there is quite a mood of "optimism" at present - many people are wondering whether the bottoms have now been found in all asset markets. However, I think this may just be spring fever, caused by our desire for some relief from the constant bad news.

Falling house prices are not good, as they are a symptom of the problem of over-valuation of assets. Glanafon's post number 93 sums it up well. Unfortunately, when it comes to the housing market, some blood is going to be spilled before the wound can heal....

In my view, we are probably still a little way off the bottom of the housing market, given Robert Peston's presentation about recession for 2 years, unemployment up for 5 years and house prices falling for 6 years. House prices have fallen by around 20% so far. My feeling is they will probably fall by around 30% to 40% from peak to trough. However, this is just a feeling I have and I could well be wrong. If prices keep falling, it will add to the bad debts of the banking sector; so falling prices are a bad thing from that perspective. I just wish property prices had never reached such heights and become so unstable. The government's job is to ensure stability, and it has not done well in that respect. However, I think all political parties would have made the same mistake.

Glanafon

"Even with this collapse in house prices, on an international level UK prices are still high"

Of course they are - we live on a tiny island inhabited by 60m people! To some extent, this is simple supply and demand - our property prices will always be higher than more sparsely populated countries (which is just about all of them!)

"In fact Halifax continued issuing 125 percent mortgages for 6 months following coming under government control"

I don't think that can be correct - Halifax came under government control less than six months ago and 100% mortages have been off the table for ages now (since the housing market went into reverse basically)

Or am I misunderstanding your point?

MrT - I agree with all of the above.

I did not see Peston's presentation, but did house prices really fall for 6 years after 1991??

In any event, I would hope and expect the housing market to find a bottom more quickly this time around, as this recession was sparked by a financial crisis. My guess is that this means credit has been cut off more quickly, leading to a steeper (and hopefully sharper) drop in prices.