Intriguing economic questions for 2010

My question is more to do with those of us who are living in Britain today..

What is going to happen to interest rates in the UK? If QE results in huge inflation as some fear then interest rate rises will likely be disastrous for anyone with high borrowings. Others (both private individuals and businesses) seem to be thinking along these lines if they really are paying off their debts.

Anyone with savings will be happy as larry if rates rise but no-one wants inflation.

Intriguing is an interesting word denoting a degree of detatchment. I am not intrigued but remain very concerned.

1. For QE to have a greater impact on lending in the real economy begs the need for there to be business people prepared to borrow in the current climate. They are few and far between. But, how about some start-up funding as there are many good people both unemployed and under-employed?

The prinicple advantage that QE has brought is that it helped to sustain demand in the wider economy coming from both institutional and consumer spending from within the public sector. However, this can only be a temporary device as we do not understand or even know the long-term effects of QE.

2. If there is a sovereign debt crisis somewhere in the world then Britain will suffer collateral damage. Our level of debt is way too high for comfort and our economy is structurally weak.

3. The US private sector remains relatively subdued yet strong. I know a number of US businesses that have battened down the hatches and worked hard over the last three to four years. I feel more confidence in their prospects than I do about ours. Quite when their presence begins to be felt in the US statistics remains to be seen, but US business has had to go down a long way so will take some time to climb back.

4. Europe is doomed to slow growth and public sector cuts. The difference between the Euro sector and the UK will be the slow growth. Britain will remain stagnant at the best. Public sector cuts across the continent of Europe are going to have a major effect upon the political structures in every country of the EU which has built its political and economic model on strong public sector intervention. The riot police will be busy.

A double dip recession in 2010, can there be any doubt?

There is an awful lot of leverage at the banks that still needs to be unwound. The race is on between having a solvent banking system and the bottom falling out of sovereign debt.

Hold on to yours hats in 2010, you may not be able to pay for a replacement!

One question is when will steps be taken to ensure that financial oligarchs actually comply with the law, and when will criminals be investigated and prosecuted.

https://www.nakedcapitalism.com/2009/12/body-count-from-goldman-actions-crosses-into-criminal-territory.html

Or, perhaps that is not a question, as the answer is obvious - No steps will be taken to prosecute fianncial criminals and no steps will be taken to ensure that they comply with the law.

It is not correct to say, as the BBC does, that ALL economic models suggest that QE will have a positive effect on lending. Steve Keen has developed a model that does does not suggest this:

https://www.debtdeflation.com/blogs/

So perhaps another question might be when will notionally independent commentators recognise that the controlling oligarchs do not have a monopoly of knowledge. Again perhaps the answer is already known.

Even captured American commentators are pushing the line of a jobless recovery. Strangely they fail to make clear how this will manifest itself with U6 unemployment at around d 17% and 1 in 8 US citizens reliant on food stamps. This in an economy that is 70% composed of consumption.

Problems with the Euro are manifest and there is a continuing squeeze. Spain has unemployment of 4 million, and 1.6 million overpriced empty houses. Rational commentators suggest that wage costs need to decline by 35% in order to restore Spanish competitiveness. How likely is this?

Policy everywhere is essentially designed to destroy currencies, so there will be a lot of problems in a lot of places regarding national solvency. No great intelligence is required to understand this.

BUT: The dominoes fall slowly - some will fall in 2010. For so long as financial criminals are allowed to continue their pillage meltdown remains the insecapable outcome.

The big question is whether the false dawn created by pumping fictitious capital into the economy gets found out.

For those actually interested in economics I've tried to explain in my posts in the last year or so just what fictitious capital is & why the fundamental problem for the capitalist economy remains.

To understand what I've been arguing requires an understanding of the concept of value.
This is essentially where economists have gone wrong for the past 150 years.

Adam Smith & David Ricardo knew quiet well that money is a commodity, all be it a special one, and that the quantative comparison between money and other commodities is essentially an expression of the amounts of labour put in.

It was Marx who had to adapt the labour value of theory from concrete specific labour in actual commodities to 'socially necessary' labour that can only been known at exchange (in the market).
A subtle but very important distinction and why Marxists talk about use-value, exchange-value and value.

From this conception of value the recession has been a long time in the making (many Marxists predicted it).
This conception of value (although near impossible to put into quantifiable terms) provides good reason to believe that the recession (devaluation of capital) has been no where near large enough to restore a true positive productive rate of profit.

The temporary relief provided by printing money will cause some to wrongly believe the worst is over.
But when trouble returns, hopefully, many will start to take the concept of value and fictitious capital more seriously.

Q. Will the necesary re-education of the failed economists ever take place?

Or will they continue will telling the same 'lies' either through ignorance or malevolence as they did that caused the credit bubble and absolutely predictable crunch?

The economic buffoons who got it so wrong need re-educating. Their 'science' has been shown by events to be rubbish and dangerous rubbish at that. Yet the same proven idiots who we trusted to regulate the economy are still running it! We are being taken for fools. These 'regualtors' are a busted flush and they must be expunged!

Stephanie wrote:

"Europe in 2010 is not Europe 1931"

No, it is far closer to Europe in 1870! (I will not repeat my reasoning here.)

"But I suspect the government's rather under-rated "time to pay" initiative, giving companies extra time to pay their tax, has done more to support the working capital of Britain's small and medium-sized enterprises"

I think the help given to small business in the form of delayed payments of tax etc is going to have a sting in the tail. I have seen plenty of evidence recently of a harder stance by HMRC and it is likely that things could get a lot tougher for small business before it gets better.

The pressure on HMRC will further increase when the loss relief claims start hitting the tax system, and they will have to tighten up their ability to be flexible.

Still some tough times ahead i think

So the QE'ers haven't produced the patter of little feet and its been more than nine months pumping and dumbping on the nations bottom line ,i say give it a rest before the ratings agencies get their Grease gun out.

We are at the mercy of the markets and always have been, a position which has been exacerbated by the exponential growth of the futures markets. With that in mind thise who are looking to take positions on sterling don't need to wait for an election they can merily be trading months ahead if the price is right.
With thsi government having uniquely created the British Peso and generated too many comparisons with Zimbabwe's economic mismanagement. It's more a case of the pound crashes under Labour or drifts under the concservatives.
I woudl humbly suggest the question shoudl be who goes public first to declare they have created a substantial short exposure on UK plc.
We can forget the rhetoric with this governments out of control debt and the banks anything but safe with hundreds of billion in off balance sheet liabilities is there any wonder savings ratios have hit a high.
No one trusts the banks to do a good job and no one trusts the Labour party to have a clue what to do to get out of the mess they helped create.
Brown has been a major contributory factor in this fall out and his hounds of Campbell, Mandleson and Balls should know better than to support the economics of the lunatic asylum.
Under Labour, to quote Dad's Army we are doomed!!

What are the chances of Obama, or those who pull his strings, deliberately triggering a collapse of the dollar in 2010; thereupon, triggering a global economic lock-down...? In other words coercing the 'set-up' of the New World Order?

#9

The ratings agencies are irrelevent now, as Steph pointed out in an earlier post the markets are trading outside the range of AAA nations for UK debt, our debt it trading at levels expected of AA+ (or whatever, I dont do the details, thats where the devil lurks aparently).

As for the 4 questions for 2010 i think most normal people will have these in their mind

1)will I keep my job?
2) will i be able to pay my bills even if i keep my job?
3) Should I stop paying into a pension scheme and max out my credit card and refuse to pay the cc bill in order to to deal with item 2 above...(or maybe that is just me)..... :)

and finaly

4) Will I bother to vote for any of these jokers i have infront of me on the ballot paper because non of them look like they have a clue.


Merry hijacked pagan festival everyone..

#3. bryan mcgrath wrote:

"A double dip recession in 2010, can there be any doubt?"

Of course there is doubt. None of us can see the future.

#4. armagediontimes wrote:

"It is not correct to say, as the BBC does..."

You write as though the BBC were a single, monolithic entity that speaks with a single voice, whereas in fact it is more like a loose collection of journalists, presenters, commentators and bloggers, each with their own opinions and ideas. The BBC itself does not generally have an opinion on anything.

11. Meehan
I've wondered about this too, The USA have done this before, who are they going to annoy most, ? the ones holding dollars ?

It would seem plausible to ie the dollar as the world currency is worth a minute amount of what it used to, there are so many trillions of debt sloshing around that cant be repaid, so introduce the Amero and wipe the slate clean which would trigger the collapse of Sterling giving rise to the majority of countries using one currency.
Or would they keep the Euro to allow the forex people some fun
Whatever happens we will be the last to know and the ones to lose the most.

Very good point about the international bond markets. I do not believe that the UK's debt ratings could withstand the data that has to accompany a budget. Therefore, we need a March rather than a May election.

QE may have been necessary to keep the banks afloat but what good has it done the real economy? A quicker way out of recession is to put real spending power in the pockets of ordinary folk like a tax rebate uprating benefits in advance of future inflation levels, allow councils to liberate their considerable reserves and capital receipts to commission work schemes and building council houses advance bsf etc. Taxing those who can afford it and above all not to become obsessed with the 30's balance sheet view of public finances.

Actually Stephanie here's four more really crucial questions to ask:

1. Why are media analysts, economists and government still in denial about the economic situation and what is driving their myopia?

2. What is the case for not expecting a double dip recession to start in 2010 would be the easire question to ask (after all its what happened in the UK in both 80s and 90s)?

3. How much hidden unemployment is there once you take account of false recovery expectation (i.e. pipeline unemployement), push-driven subsidies/schemes/initiatives that will have to stop, the amount of people without a job but nor currently counted (e.g. include the new army of self-employed for at least the next 12 months) and the PS restructuring and what 'drag' effect this is likely to have on the wider economy?

4. What is the PS borrowing requirement if growth is around 1.5% for the next 3 years rather than the Goldilocks forecast of HM Treasury and what is the likely costs of servicing it given the various sovereign rating factors?

And there's about another 20 or so questions which are equally as important which haven't been asked either........That would be really good......

My question for 2010 is how long will it take for politicians to realise that you can't borrow your way out a recession?

17. At 3:48pm on 23 Dec 2009, watriler wrote:
'QE may have been necessary to keep the banks afloat'

I reckon Quantitative Easing is a method of funding Government without officially breaking the rules.

The Maastricht Treaty Article 104(1) forbids Governments borrowing directly from central banks, and the Bank of England has so far spent 99% on gilts and only 1% commercial debt.

Now when Robert Stheeman (The Chief Executive of the Debt Management Office) gave evidence to the Treasury Select Committee in early November, he confirmed that they were cooperating with the Bank of England in the gilt market, but that when Q.E. stops, there could be a problem selling gilts.

Now whilst the money eventually does feed into the economy because the Government spends it, it’s difficult to believe that its primary purpose is anything other than keeping Government funded.

The question then arises as to what happens when Quantitative Easing stops?

I am a republican, but I do have considerable respect for our Queen. She visited that hallowed institution (hallowed by economists that is) the London School of Economics and Political Science earlier this year and asked them how they had got it so wrong in failing to spot our troubles coming. They huffed and puffed and somehow produced a circumlocution for "the practioners of the dismal science are a bunch of incompetent twits".

Stephanie, your intriguing question are all valid, but I feel as if they emerge from the kind of navel gazing that let us down so badly as the disaster came charging towards us.

There is an elephant in the room. We are vastly overborrowed both nationally and personally. The British people have seen the elephant and are reining in. Retailers are doing their utmost to stop them, but the people are no longer borrowing to spend.

The Treasury has not seen the elephant and is continuing to spend. Disaster is certain if this crazy course is continued on and the disaster will be Mugabe style inflation. (I was not around in the 30s to hear the exchange with Keynes - "But Mr Keynes, what you are proposing is in the long run inflationary." "In the long run we are all dead")

RPI inflation did go positive in November (as predicted). I still say it will go to around 2% this month. Watch it go higher in the early months of next year and the Bank of England forced to put up interest rates and kill off any hope of recovery.

I am 68. I do not expect to live long enough to see us get out of the economic mess we are in. One of the sacred cows that will have to be sacrificed is the National Health Service. The next time I get ill, will I be able to afford the treatment? One day I won't be able.

John post 7 I fear that 1848 rather than 1870 might be the year.

In 2010 expect real unrest in Greece, Spain and Italy and even in Germany if they are asked to pick up the Euro bill.

Who put the Foot in the FTSE 100?
Who put the Tit in the Quantitative Easing?
Who was that clown?
Yes it was Gordon Brown...etc.. etc..etc..

Has anyone got a suggestion (possibly even better than this one) for finance-related songs to cheer us up during this festive period?

The problem with economics is that it focusses on the quantifiable. There has to be another set of factors which focus on the unquantifiable. Economist seem to believe that these vaguer, more psychological, factors are directly linked to money. I suspect that in the money trade this is substantially true, but when it comes to the millions of us who make financial decisions I am not so sure.

Our present situation was not created by bankers or even chancellors, but by the millions who decided to over borrow and now cannot repay their debts.. I did some debt work with one such person last week. He had had a loan from RBS of £10000, which he was paying off successfully so they ofered to loan him unsolicited £30000. He said he knew it was a bit risky and he didn't really need it. "They didn't force me to take it, but I hoped it would be OK." He was being optimistic - over optimistic with the benefit of hindsight. Trouble was that his landlord saw a newly fitted out restaurant with higher prices and decided to increase the rent by an enormous amount. The whole house of cards crumbled. Over-Optimism and greed leading to bankruptcy.

Those who want to use economics to help predict the future have to try and predict how the restauranteur and landlord will behave. It is the likes of them who will be influential in deciding our economic future. Will the small business owner think that he is doing quite nicely, why expand more and get saddled with debt even when credit becomes available. Will the home owner think that they could do a loft conversion or upgrade the kitchen rather than move? Will the 'I am therefore I shall have' attitude to life continue to be our driving force?

Economics needs to look at these and similar factors. It is the actions of the 'small people' as well as the actions of politicians and financiers that need to be considered. So my fifth question is: When will public optimism and level headedness return?

Those who answer - after the election - are putting more faith in David Cameron than even he would claim for himself. Unless he is talking about his hope for a second term.

I haven't thought this question out, but I hope the more charitable thinkers will understand what I am getting at.

I am thinking of a graph. On the vertical axis is standard of living. The horizontal axis is thime (the years). Up to 2006 the line of the graph goes up steadily from 1945 with the odd dip during periods of recession. The line is now moving down. Are we getting to levels last seen in the 1950's? If not how far down are we? Look at your home, transport, life expentancy, potential social mobility. Forget party political comments (they are for blinkered thinkers) what do you notice?

Gordon Brown has lead this country down the cul de sac of the european model of high levels of public sector expenditure.
It was always doomed to failure. If the UK had to balance the books and match expenditure to tax income , approx 4,000,000 public sector jobs would have to go under existing terms and conditions.
The general public have been duped over "Sustainable growth" / "Investment in public services". Say what you like about the USA but their more flexible economy will be the winner in the medium to long term .

14 rbs_temp

''You write as though the BBC were a single, monolithic entity that speaks with a single voice, whereas in fact it is more like a loose collection of journalists, presenters, commentators and bloggers, each with their own opinions and ideas. The BBC itself does not generally have an opinion on anything.''

No, there is line management and editor control, just like a newspaper. You sue a newspaper not a journalist. The responsibility is managerial. Structure and responsibility is the same. It is a monolithic entity which collects its income under statute.

"At the Treasury and the Bank, they're still crossing their fingers and hoping that QE will have more impact on lending throughout the broader economy in the first half of 2010 - just as all the economic models suggest it should."

This is the part that worries me most and frankly sounds like supreme optimism om Stephs part. Can anyone really tell me what was the objective of QE, I always assumed, obvioubly wrongly, that the idea was for money to filter to the broader economy , but it has'nt. So why would we assume that all of a sudden it will becuase the city have had their fill of easy money and feel the need to pass it on...it makes no sense to think this will happen.

25 Boilerbill

''Our present situation was not created by bankers or even chancellors, but by the millions who decided to over borrow and now cannot repay their debts''

Strangely enough two at least have to be party to a deal. Crazy borrowers need crazy lenders and a government with its brain on tineshare with bankers.

You dont leave people wandering around drunk as a lord, or high on legal or illegal highs. Or loan sharks. You seek interevntion devices such as police, absos, social workers, the courts, commonsense. Or are you suggesting the reforms in progress are not valid, and if so why have they been implemented.

To look on these boards you'd be expecting the World to end. Fortunately these experts didnt see this financial disaster coming, it [and its eventual outcomes] was, is and will be completely left to chance.

Some of these posters are truly depressing, I just turned on the telly and ... do you know the world is still turning, the sun will still rise tommorrow and we and our governments will continue to make the same mistakes with the same chances of 'these experts on this boards' predicting the outcomes.

Happy christmas.

I agree with post 1 inflation will rise into 2010 forcing the Bank of England into a position where it should raise interest rates before the next election (assuming Gordon doesn't call it in Feb to happen at the end of March).

The big question is will it raise interest nrates

If it doesn't then we can kiss a AAA rating goodbye.

24. wix4ever:

"Has anyone got a suggestion (possibly even better than this one) for finance-related songs to cheer us up during this festive period?"

Not sure it'll cheer you up, but you might try this - to the tune of "Nothing Ever Happens":

"Gentlemen time please, you know we can't spend anymore
Our screens change to red when gilt yields soar
And by March next year everything's dead
And every third quid is a debt
And ignorant people sleep in the Lords
Like the doped white mice in the cabinet

"Nothing ever happens, nothing happens at all
The needle returns to the start of the song
And we all go bust like before

"And we'll all be bankrupt tonight and bankrupt tomorrow"

25. At 5:29pm on 23 Dec 2009, Boilerbill wrote:
The problem with economics is that it focusses on the quantifiable
=============
One thing ignored, unless of course I'm the only person to suffer it, is the failure of income to match inflation (the real inflation not the fiddled figures used by this Government). I am on the same income as I was 10 years ago when I can get work, but everything I pay for has rocketed in price & taxes have balloned. 10 years ago I could save and live comfortably on my income, and now I can't. Some of my long term committments to children etc have meant that I've run down my savings and yes, I've released equity in my house. Not because I felt rich, but because I've been impoversihed by a Government of Truth Economists. I honestly do not think I can think of a single thing that they have not spun over the past decade.

18 Rugbyprof

Sorry prof, there is only one question and that is how deep are the cuts. It is fairly easy to work out. Deep enough to restore the 46% total direct and indirect tax take that has been in place for donkeys years. So you just look at the size of the economy and work back, take out the overhang from the public sector employment which should not be there to achieve this. Bigger than the drop in the economy then because debt servicing has risen and the social welfare bill has zomped. Opps. Please let me know if this is basically wrong because I cannot see how it is. You dont need a computer or polynomials, or buildings fuill of people, you can do it with what used to be called mathematical low cunning and bits of paper and reiteration. You will not see growth until the public spending is cut. Public spending cuts will be held back as long as possible because of the political implications so growth will be held back. Only a very small percentage of businesses are in strong growth, not enough to pull the slow ones out of the mud and float the national boat. Growth is entirely possible but it means doing something differently and that seems to be difficult for many, most seem to wish for restitution which is simply not going to happen. The implications are quite stark. LGAs recieve 2/3rds of their money from Central Office. 1/3rd is collected via rates. But 1/3rd of LGA income is committed to funding LGA pension liabilities, so cuts will be amplified will they not. I suspect similar on other budget accounts at Central Office. The Fat Controller will have trouble running his trainset I guess. Meanwhile we slide at 20 odd billion per month.

Now the way I see it - it is likley we are looking at a minimum of 5 years to taper public spending cuts and implement the means testing needed to throttle costs yet provide access to services. It will be driven by perpetual crisis and fought every step by the majority who work or recieve services in this arena. By which time we will be moving towards the next recession because recessions are driven by the global theatre in a global market and other nations will not be mired as much. So they will cycle onwards. As no man is an island the UK too will get caught up in the next recession. 11 year economic cycle I believe.

But please let me know if I have it wildly wrong.

My guess is a absolute minimum of 10 percent cuts across the board, up to 20 percent on some budgets if some services are 'protected' whatever that means.

All strategies other than cuts demand strong growth.

My questions for 2010 and indeed the next decade would be as follows:

1. Will the debtor nations (US, UK...) de-leverage sufficiently enough to restore greater balance between consumption and production?

2. Will China respond to growing international concerns over the strength of the Yuan?

3. Post-Dubai, UK property etc, will India be the next big bubble to pop, suffering from an unsustainable increase in asset prices relative to incomes...?

31 red_yuli:

''Some of these posters are truly depressing, I just turned on the telly and ... do you know the world is still turning, the sun will still rise tommorrow''

Well I turned on the telly and I was back in the 70s, endless repeats of stuff that was bad tenth time around. To repeatedly go where no man has gone before. Are you also thinking you are in the 70s by any chance. personally I dont see things as depressing at all. It is a matter of outlook. However the longer is taken before balance is restored the greater the acumulation of imbalance consequences which have to be sorted out. That is how we got where we are.

if all there is are zombie banks no one will believe in them one has to create new ones that people do believe in.

which is probably where tesco and virgin [and possibly the post office with a 'people's bank] come in. maybe even one on the john lewis model which seems the new big model of how to construct vital services.

making the uk tread water for 12 months for an election during which the pound can only go one way is just a labour/gordon ego trip?

because mps do not have to demonstrate any level in skill or qualification of good government uk democracy institutionalises incompetence.

nation building is something the uk cannot do abroad because there is no such science. if there were why is the uk a mess?

Well one thing's clear - it's going to get worse before it gets better (and strong growth in the UK is a loooooong way off).

On a random note, can I just say it's good to see people debating the issues here like sensible adults and actually (gasp!) knowing some facts about the subject. I send some time on the environment forum and if half the people there were on here, this forum would be full of insults and people denying the existance of 'the dollar' or 'so-called economics' (as well as accusing Stephanie & the BBC of trying to bring about a Marxist world government).

Anyway...in the face of economic stickiness I'm off to open a bottle of wine

Happy Yule

32. At 6:21pm on 23 Dec 2009, Ian_the_chopper wrote:
'The big question is will it raise interest nrates
If it doesn't then we can kiss a AAA rating goodbye'

As regards the UK’s AAA rating:
The first is A is given because you pay back the capital.
The second A is given because you honour the interest payments
The third A is given because you don’t water down the value of the gilt by printing more money.

The third ‘A’ is likely long gone but not admitted to.

And there is now evidence that they’re planning more QE next year as well.

My question is this...

When will the "re-built" bubble burst again. My guess is three weeks after the general election.

34. At 6:31pm on 23 Dec 2009, DevilsAdvocate wrote:
'I am on the same income as I was 10 years ago when I can get work, but everything I pay for has rocketed in price & taxes have ballooned'

Well it probably won't help, but I'm the same, in fact so are quite a few of my friends who are also self employed.

But why?

Red_yuli (post 31) you are right in that the sun will rise tomorrow and set tomorrow night and life will go on. On a positive note we have just gone past the shortest day so it will be getting lighter earlier in the morning and staying lighter later on in the evening as each new day comes.

We don't expect the World to end it is just that we realise as TinyColanger (post 39) says we expect it to get worse before it gets better.

I can't speak for others but in 2010 I expect that I will

1) pay more income tax and Naional insurance than I have this year on a similar or marginally less income.
2) See prices rise by more than the VAT rise from 1st of January.
3) I expect inflation in 2010 to be higher than my pay rise which I hope to get in April 2010. In the light of this and point 1) I expect to be worse off at the end of 2010 than I am now.
4) Interest rates will rise considerably in 2010 to try to stem what will become run away inflation (certainly by recent standards).
5) Oh and to cap it all off I received a letter from Barclays Bank my mortgage provider confirming that going forward their standard variable rate (SVR) for mortgages will be 4.49% on top of bank base rate. When I took out the mortgage two and a half years ago their SVR was less than 2% above bank base rate. So come September when my mortgage gets reviewed I will be paying a lot more even if interest rates don't shoot up as much as I expect.

Like most I will muddle through and hope that I will still have a job this time next year.

My girlfriend who is self employed has been working seven days a week for the last month because she has been able to find work leading up to Christmas. The only problem is that she is earning less working seven days than she did for five days work a year ago.

She is hoping to have more than two days work a week in January but isn't hopeful of getting any more than that.

If you ask most self employed people they are taking almost any work they can when they can get it as they don't know whether there will be any work a month or three months ahead.

It may well be underway (and behind closed doors)
The Balance of Trade defecit must be addressed, nothing, but nothing, will be solved until we start to earn our own keep.
The Trades Unions are far more imminent danger than global warming and must be confronted.

12 Jericoa #9

The ratings agencies are irrelevent now, as Steph pointed out in an earlier post the markets are trading outside the range of AAA nations for UK debt, our debt it trading at levels expected of AA+ (or whatever, I dont do the details, thats where the devil lurks aparently).

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


The government /treasury intends that banks [in order to appear more substantial and secure lol]hold a higher ammount of base capital to inklude british government guilts ,therefore a formal downgrade of gilts by rating agencies would prevent the banks and other institutions from holding them.....unless the goalposts get repotted again and again...within the rereconstructed potemkin villainage

Dempster

''But why?''

Could it be that you are very broadly doing what you were doing 10 years ago in a declining environment. Protest will not restore the staus quo you seek in what is generally a dynamic and declining environment. Ultimately it is highly unlikely anybody will engage on your behalf despite what you appear to think. The voluntary or involuntary cessession of your competitiors trading may give you a reprieve, but if decline resumes you will remorelessly move to revisit the quandary you currently have. Maybe not, perhaps things will move slowly enough for you to prosper. But I have seen this situation before. Have experienced it before. So really the only long term improvement is to change what you do. But you appear to rebel against that as an idea because of the emnotional, financial and experience you have in your current role. You need to find something that has growth and follow it. It is up to you to find it because you have to engage with it and it has to fit you. I would suggest you have yet to understand the British system and what it does to people. It previously has exploited other peoples via the Empire. The Empire is lost, the flywheel of Empire stored wealth run down. So the system will move onto the domestic natives. There is nowhere else to contract to. And historically parliament has been very good at talking the talk when needed. Words are cheap.

I reckon we’re in for Quantitative Easing next year.

I struggle to believe that Government can raise the amount of money it needs in conventional fixed interest gilt sales.

Oddly enough I’m not against Quantitative Easing, providing that the Government actually endeavoured to get its expenditure under control (which sadly it is not prepared to do with an election coming). Ultimately sterling will suffer, but there is the side effect of external debt being reduced.

You see I don’t think that the BOE will release the gilts it’s bought back onto the market, primarily because there is little hope of us ever being able to service that level of debt.

There is a case for government expenditure being dramatically reduced whilst the BOE accelerates its QE programme of buying gilts.

Short term sterling will fall sharply, but long term the country will not be servicing massive debt, and it will be able to spend more on services.

In fact the BOE could wipe out Government debt if it wanted to. Sterling would get nailed in the process. But it would recover if Government then lived within its internal tax receipts, instead of for ever feeding the debt monster.

There is and only ever has been ONE QUESTION since The Bank of England was established in 1694:

Why do governments choose to borrow "money" from private banks when government could create all the interest-free money it needs itself, saving vast amounts of interest?

The "money" borrowed is in fact created out of nothing but the promise to re-pay with interest, which then becomes compound interest.

Thomas Edison said, "If our nation (USA) can issue a dollar bond, it can issue a dollar bill."

This is quite simply highly organised crime against the people of the World.

#42 Dempster The answer to your question is that real wages have been in constant decline since the mid 1970´s. This trend is accelerating over time. It is a necessary requirement if you are to create a society whereby a tiny proportion of individuals can "earn" $ billions per year.

There will be no voluntary cessation to this trend. If you do not like it you will need to fight to change it. If you do like it, it is likely that you shortly be unable to sell your labour for a sufficient amount to allow you to provide the basic reqirements in life - food, clothing, shelter, warmth, that kind of thing.

Both the trend and the consequences are understood and both are uncontested by any rational analysis. This is why you have a man of the cloth confirming that under certain circumstancs shoplifting is permisible.

48. At 8:16pm on 23 Dec 2009, thomas_paine wrote:
'This is quite simply highly organised crime against the people of the World'

Interesting point.

In one way or another the people of this country seem always to be slaves to the debt monster.

As I’ve said before, and say again, unless we (the state) have the primary control of the creation of money, then we (the state), will be at the mercy of those who do.

49. At 8:28pm on 23 Dec 2009, armagediontimes

Based on the assumption that you are right, and I'm struggling to find an argument against what you've said, then it more reinforces my belief that unless we (the state) have the primary control of the creation of money, then we (the state), will be ultimately destroyed by those who do.

43 Ian_the_chopper

''2) See prices rise by more than the VAT rise from 1st of January.''

This is because businesses held prices as much as possible to encourage volume - that was the reflex, no manufacturer or service provider usually wishes to dismantle what they have built in size.

Reduced volume resulted from holding prices for many so prices have to rise. If the public wanted low prices to continue they had to continue to buy at some reasonable level not stick their hands in their pockets.

They did not buy at all in many cases by the account of some businesses. Reduced volumes reduce the efficiency of the distributiuon chain so costs have to rise, and that is without any currency effects. Big retailers squeeze some suppliers and have some success doing this sort of harm short term, in many cases however they kill the supplier. We refuse to play in the chain because of this behaviour.

I dont see ANY risk of deflation generally until the reset in the distribution chain occurs, prices will continue to rise. And in many cases people will still buy, because there is no option on some supply. The public is destroying supply. The public is still leading itself up the path by the nose. The next step is those businesses surviving amongst the fallen will say prices go up because competition has dropped. Just wait. Middle of next year is my guess.

If you dont use it you lose it. Whether you are bothered by the loss - in the short or long term - is another matter. You being general, not you individually.

I am afraid I have very very little sympathy with the collective abuse of supply chains. You abuse them and you cannot expect the benefits they give. This is one of the reasons manufacturing has declined in this country. It is always easier to import from another country with a facility than restart production here.

Because of excessive boom and bust cycle, decade on decade - gross short term mismanagement of the economy - this is what you get. The switch off arbitarily of consumer buying leads in short order to the switch off of manufacturing infrastructure and queasy imports. Followed by a boom and excessive consumption which cannot be met by home production, as it takes time to ramp up prodcution, investment, so imports are recruited to fill the gap.

Any expectation that manufacturing, of the traditional type, will rescue the UK is wholely and utterly misplaced.

As for marketing your way out of this situation - the usual ridiculous cry - it is not possible. Because by definition the public are not consistent in their behaviour. The only way is inherent flexibility in structure.

Nota Bene - When importer cartels get volumes to certain level and they consider the home production weakened they will exploit the situation and up prices. It is a war game. Enjoy.

A little ditty to cheer us all up. To be sung to the tune of "Who put the colours in the rainbow?" (If you don't know it, ask any child)

Who loaned out dollars on the sub-prime?
Who followed the States right into debt?
Who leads the UK's fiscal policy?
You ain't seen nothin' yet!

Who sold the gold a lowest prices?
Who gave the bankers lots of ca$h?
Who put their eggs in a fiscal basket?
Who leaves recession last?

It's Brown and co that lead the way
After the bankers all have had their say
Ordinary folk can't get a say
But let's see after after May!

Hey Stephanie - please sort out your "its" from your "it's". In the last line of the first para of your Q4. Remember "it's" means "it is" !!

35. At 6:40pm riverside wrote: "So you just look at the size of the economy and work back...."

Spot on Riverside, as the Meerkat dot com would say .."simple"....

The Public Sector spend and Government borrowing are still predicated on an economic situation that existed from third quarter 2007. Since then the economy has shrunk by 5% plus and the tax take ... who knows. But we are still spending in the Public sector as though nothing has happened i.e. growth over the last 6 quarters of some 3-4%! When we get a Government that will take the hard decisions we are really going to hurt. Five years is an optimistic prediction of us sorting out this clarty.

Here are some ideas:
- Cut public sector borrowing by 10% in the next three years.
- Freeze personal tax relief for the next three years.
- Up the 20% tax rate to 22%
- Abolish the tax credits system
- Limit a families welfare total to £20000 max.
- Abolish the 50% tax rate.
- Reduce Corporation tax to 15%
- Restore the BofE to monitor the economy.
- Have a clear strategy for industry

Oh and kick out the Clown's Government toute de suite.

49 armagediontimes:

You refuse to accept that the matter is two way street. That rich people can also go bust and have done. That rebalances can occur. The trend in the reduction in wealth since the 70s relates to the reduction in stopping producing anything of wealth. That if something such as vegetables become relatively more expensive, ie valuable, that production increases. There is such a thing as a supply and demand curve. Your entire mantra is meltdown and nothing much else. If that is your outlook that is what you personally probably will get. But you also claim to be comfortable, so how do the two square.

Hi Riverside #35

No problem with your assessment....

Incidentally, my post was a riposte to Steph who seems to be focused on a very narrow channel of thought.

Incidentally, public sector 'cuts' may come through outsourcing see IBM's new deal with Essex CC announced yesterday - though the cuts are fairly illusory in many ways as direct taxpayer costs become indirect but it sounds good and a vast army of public sector clerical do become private sector.

However this has its limits if you look at the likes of BT and BA re their pension problems (legacy at privatisation) as you mention pensions in your post.

What people don't realise generally is that a considerable amount of your council tax goes towards current pension provision e.g. teachers, police etc.

The real battleground is the private/public sector provision. I would suggest that this may spark off riots at some point once the truth is known sufficiently across the populace. Never mind everything else.

I only have one question on which pretty much everything else hinges:

Will the political party that gets elected in the UK in 2010 actually have the guts to do the difficult (ie unpopular) measures that are needed (ref See Ireland Budget) as well as share the public sector pain among the MPs (I wonder what pay rise they will vote for themselves?)

Here's my question. Why is orange jam called marmalade?

From the "Great Fall" - Published 2050

2009 closed with a sense of relief. The worst was over and 2010 would be a new dawn. Little was the world to know that 2010 was the year Nations would fall. The Banks were a grievous blow, but this would be fatal.

The revolutionary government of Greece started the ball rolling in March by reneging on its debts three days after seizing power in a bloody coup. The effect in what was then the UK was immediate. Interest rates raced up to 5 then 10 then 15% as confidence any debt would ever be repaid evaporated.

Gordon Brown at last had the opportunity he needed to stay in power and declared martial law that was only repealed in 2018 as Brown fled to his only friend in the world Mugabe...

The government can't afford to let interest rates rise or it, and every other borrower (i.e. a vast proportion of the electorate) will be royally stuffed. But what can it do about it?

Sooner or later those hundreds of billions of pounds will find their way into something. That means either inflation or another asset price bubble. Inflation will ultimately mean higher interest rates, and an asset price bubble will ultimately mean another asset price bubble bursting and leaving thousands if not millions of voters nursing their financial wounds (again).

The only option I can see is a steady devaluation of the currency. It will hurt those on a fixed income but the current government clearly doesn't care about pensioners. It will hurt those with savings, but the current government clearly doesn't care about people who try to look after themselves. It will help the people who borrowed recklessly (including a certain Mr G. Brown of Downing Street) as they will be able to repay loans using currency that's easier to come by. The people who lose out are used to being kicked by this government so won't be surprised.

#55 riverside. I always try to avoid narcisstic ego driven comments: But maybe the answer to your posed question is that I know what I am doing.

Speaking of which you appear confused (or at least you are confusing me) with regard to your thoughts on deflation. You see no deflation, but you you do see a destruction in the supply base.

If you define deflation as "a net contraction in the money supply and the availability of credit (where credit is marked to market)" then it is a given that we are experiencing deflation. An expected consequence of deflation would be a destruction of the supply base. An expected consequence of a destruction to the supply base would be rising prices.

You may prefer another definiton of deflation, but the one I have offered sounds reasonable to me. Does it not strike you as odd that no generally accepted definition of deflation exists? How do expect to avoid meltdown when, by definition, no-one can agree as to exactly what form todays enemy is taking. Hence no one will know, because no-one can know, whether the enemy is at the gates or not.

Didn´t William Golding have something to say on this aspect of the human condition? Do you recall the fate that befell Simon, and the extraneous influence that allowed Ralph to be rescued? Do you really think there is someone coming to save us?

"At the Treasury and the Bank, they're still crossing their fingers and hoping that QE will have more impact on lending throughout the broader economy in the first half of 2010 - just as all the economic models suggest it should."

Wait....are these the same economic models and bankers that didn't see this coming? The ones that got us in a mess? If so, why do they all agree and why do you have such faith? They were all so wrong before and obviously don't have a clue what's going on in reality.......... never mind what'll happen in the future?!

Also, if the banks are busy stockpiling the cash we gave them and paying themselves massive amounts of our money (which in my opinion should be returning to the lending market), where's this new cash ('value') being generated? As far as I'm aware, the number unemployed is still on it's way up, repossessions up, many companies are still living on a knife edge and our public spending is set to take a big drop.

The banks have been being a bit tight with their beloved beans lately, and although I don't know the figures, I'm guessing the number of start-ups is down. Businesses and banks won't be risking cash on R&D and new products.......ergo....to me it looks like there'll be less value created......and much less in the banks pot to lend going forward.

I would prefer UK PLC not to go bust in the process of reform but it's the last of my worries, as is our credit rating. The outgoings first must be taken into check. Trade deficit and debt sorted out. Average house prices returned to a realistic level in proportion to average earnings. Real jobs and value created, a pot for a rainy day built up..... and then hopefully there might be some money, natural resources or others in the world left willing to take a chance and lend us the bits or cash we need for our new UK PLC products!

#27
"It was always doomed to failure. If the UK had to balance the books and match expenditure to tax income , approx 4,000,000 public sector jobs would have to go under existing terms and conditions."

Agree, needs to come down, at least for a start. But is that based on GDP? If so, how much of that is made up of profit from the few lucky individuals that 'own' the banks and the dreaded bankers bonuses...o wait, you're figures probably are right then as these guys generally don't pay much in the way of tax! If they did, we might be able to support our public sector and pension schemes! At least with a 50% tax we'll be half way there this year! :)

#5.....I haven't read up on too much on Marx but I think I might as I like some of this and your post.
"This conception of value (although near impossible to put into quantifiable terms) provides good reason to believe that the recession (devaluation of capital) has been no where near large enough to restore a true positive productive rate of profit."

At the moment there is very little real new value being created, certainly not in this country! It seems those at the top and with the money have basically decided relying on share holding and guessing what things are worth was the best way forward. Push prices up and down in their various sectors and not really caring about the real world implications as long as they get their slice of the profits or profits from losses?!!!?! As the economy grew we got more reliant on the income from this and taxing the ridiculous profits available to fund our public sector.

It's a global phenomenon partly our fault so we could be the ones to start the engineering of our way out of this mess using real science, numbers and data, not just numbers on a spreadsheet but numbers with actual meaning! In engineering we have a saying...KISS, Keep it Simple Stupid.....history has added layer after layer of half baked ideas that worked on 'ideal models' and under 'certain' assumptions. We've ended up with a complex load of p!ddle. Time for a brand new sheet on the flipchart. We have much more data and tools at our disposal now and I'm sure with a Blank Slate we could make a much more efficient, fairer system.

Americans come up with wacky some ideas, Germans engineer solutions, most of both get made in China......Japan, well they are just Japan and come up with genius ideas in their own unique fashion! We had oil for a bit but now we import energy..... should we be profiteering from pharmaceuticals? Motoring all but gone, we've sold our gold and steel. Computer Science still doing not bad-ish in some areas.

We've relied on the past fortunes for a bit but we need to get back in the shed and come up with something new, we sold the rest of the last ones or they are outdated. The shares are good when the going is good but we are one of the worst hit for a reason! We've been getting a bit hooked on investment, oil profits and as we've ran out of easy options, selling our national souls, stocks and resources and our historical investments are either gone, running out fast or just bad during economic downturns.

Then there was a wee episode of stupidity involving the banks and the leaders of this country involving the value of shelter, a basic human need! It's also worldwide. How many of the worlds homeless are living on a could of dollars a day that could easily be housed in the empty places in dubai...albeit I would't have built low cost housing in a desert with no resources!

The free market currently promotes greed and stupidity, recently I said the bail out money, bankers bonuses offshore havens etc should be put back into R&D, renewables and helping fix some of the problems and investing in the future. I was told that the public sector has a history of being bad at dishing out money. THis is true and I agree but the public sector is worse. It's like all the bad bits of the Selfish Gene without any hope.

We used to be the world leaders in both conception and manufacture......yet we are still sliding down the table. We've focused on banking so lets take the lead and redesign that system! Those who do the hard work should be rewarded fairly but at the same time we need to diversify our output!

So far, my opinion is that this should be how real value and wealth are created and measured in this country. By real improvement, real innovation and improvements for our lives and humanity, especially equality and the environment! Or if you can't come up with something, good old hard work implementing someone else's good ideas.

I find it funny that the government and the BBC are busy debating the latest outcome of the last sticky plasters while debating which one to add next. Then you look at the blogs and it's really back to basics and discussions about the failed system and new ones we should try. Take a hint....this is what we want, what we need to discuss and take action on, not another iteration of a failed system.

I suggest the question should be what are the 4 most important features of the new system and suggestions for how we implement it.

Oh and while we're getting it sorted...freeze the markets and lets see what happens! It might help provoke the discussions and inject some urgency when the supposed experts can't get their easy fix of cheap profits.

Merry Xmas folks

Nice questions, and the answers are already well known apart from for question 4, which has no answer.

Well, I am going to be a little PREscriptive for a change. PLEASE, stop describing the inevitable as obvious answers to questions, be truly positive and start to talk about things that we will ALL HAVE TO do eventually. These will be the things that get us all out of the mess we have constructed for ourselves.

A change in mindset is coming. People will look at adverts for debt, cars and the latest plasma TV as madnesses of a bygone zeitgeist. Think out of the box, as they say.

https://www.debtdeflation.com/blogs/2009/12/23/mish-on-the-fictional-reserve-system/

Why is Obama ticking of banks for hoarding deposits?

It is ironic - he made the mistake of issuing them with new reserves in the naive belief that it would via the multiplier effect result in large amounts of new deposit money.

It was their mainstream preconceptions that led them to act that way, but the truth is nobody wants to borrow.

Obama, like those who have gone before him, are making the fatal error of working within the system to change the system, but fail to recognise that it is well and truly "game over".

It's a shame. I liked Obama. He failed before he started and it is too late to change.

61 armagediontimes

What I do see is damage and exposure of limitations. There will inevitably be consequences.

I also expect survival unless the planet is pushed too far. I reasonably expect the restablishment of value in things that are basic. I dont see any harm in this. It is overdue.

I am using the defination of deflation as follows ----- In economics, deflation is a decrease in the general price level of goods and services -------

That seems reasonable to me. It is also made clear that is the basis of some BBC comments. It is a generally accepted definition.

As far as the supply base is concerned it is by and large already destroyed. It is the near tenfold collapse in manufacturing in under 4 decades that is the problem. In particular some of the recent supply base was not sustainable, it was bubble supply. As I have pointed out much has been based on imports. The consumer cannot expect the efficiency of a large scale supply system with reduced volumes. The consumer also does not have to buy imports. They make these choices. They have to bear the consequences. They did not shirk their import hunger did they.

The problem I have with your basic argument is that you major on the negative all the time when it is entirely obvious that posititve things will result from a change of landscape. That the balance point will shift. You frequently refer to food shortages. If we stop eating meat the quantiy of food will increase as animal production is relatively inefficient, about 10:1.

If you set out to pick bad fruit you can find it.

In terms of wealth generation I doubt much further substantial damage can be done to the private sector. It has been sacrified. The problem is that the public sector has to contract. Therefore the issue is working in the environment. Which is possible.

The problem for many is, I would suggest, that what they do adds little in value if anything, therefore they can be dispensed with if need be. Quite easily. More easily thay they dispensed with manufacturing I would say.

I doubt meltdown in the form you propose will come. The main thing to come is that the definiton of work will change. That those unemployed will find they have still to work. That those expecting a quiet affluent life will not get it. That is not meltdown.

I dont see what William Golding has to do with anything, he wrote fiction and I never thought it was that good. Fiction usually has a happy ending. often the story is a moral parable. History also contains some fiction. The survivors - or winners - seldom commit crimes do they, if they have the chance to write otherwise. History does not often carry a moral parable. More rabble than parable.

I find your position very sterile I am afraid.

The situation will be bad for a relative minority, that is the way these things work. Having been one of the minority previously I have no intention of being in that position again if I can possibly help it. I have no illusions as to process. I operate ethically.

If others want to slide down the decline that is up to them. Some will find their agitation about their potential future lack of wealth will not stop them having assets removed. Only action will in all probabilty.

If the courts cannot cope then the process will slow, that is all, or other processes will be implemented. The LGAs have already moved to mass depositing paperwork in default anticipation and the courts rubber stamp the lot. The LGA then returns with confirmation and paperwork is waved through. Those left working have to pay for this and other actions. There are limits to the money available so something has to give.

The only thing that will save some is making the right moves or being lucky. They are still currently protected at some level by statute, food and housing, unlike the 3rd World. This is not meltdown. This type of outcome has happened in every recession. I cannot remember the hue and cry when it happend then. Perhaps more people feel exposed this time. So it is an matter of perspective.

The problem is cultural.

Steph and fellow bloggers

For the latest related to some of your questions read some hot off the press scary stuff at:

https://www.telegraph.co.uk/finance/financetopics/recession/6874992/Gilts-sell-off-as-Britain-joins-Italy-in-debt-house.html

It seems as though the truth is out there for those interested in reality....

Re Question two...2. ..."Everyone thinks that the markets will politely wait until Britain has gone to the polls to draw its verdict on the UK. Well, maybe."

Just the possibility of the markets calling the shots at any moment should prompt the current leadership to call an election as soon as possible - so the next government can get on with the job, with a clear mandate (or not) from the electorate. To hang on to the last vestiges of power is irresponsible at best, and if we totally go to the dogs as a result, may be deemed criminal by the ensuing military junta!

riverside,

Please come off the soapbox! For days we have read your comments that the public are fickle, they they didn't have to buy imports (untrue when you look at say TVs). This all leads to your final comment tonight that "the problem is cultural".

Are you not part of that culture? Do you not recieve benefits from oprating within that culture? Have you not had the opportunity to change the culture?

Hi Stephanie

Thanks for the update. This QE business is somewhat disturbing. I have been reading about it and inflation on notayesmanseconomics and there are a lot of questions. It would appear that the MPC have doubts and disagreements.

A Merry Xmas to you.

42. At 7:30pm on 23 Dec 2009, Dempster wrote:
34. At 6:31pm on 23 Dec 2009, DevilsAdvocate wrote:
'I am on the same income as I was 10 years ago when I can get work, but everything I pay for has rocketed in price & taxes have ballooned'

Well it probably won't help, but I'm the same, in fact so are quite a few of my friends who are also self employed.

But why?


-------------
In my case I have been a bit like someone running before the waves on a beach, I've been moving ahead of outsourcing for the last 7 years, sadly it has now ceased to be offshoring and is intra-company transfers. I do have a couple of plans to diversify, but got caught, I needed another 12 months to see my kids off. Still, I've got some work at the moment, earning the same as a decade ago plus business knowledge does give a little advantage against the tide, but as long as we elect Lib-Lab-Con politicians, I see no way out, as I say, once the kids have flown (and I hope they fly abroad) I'll be battening down hatches and maybe even joining some colleagues on the Allotments.

I think the David Attenborough Horizon program on world population hinted at a new social taboo.
I think everybody knows we need to reduce the headcount, but nobody dares to raise the issue, because any target group for reduction will bring backlash: old (euthanasia), disabled (eugenics), fat (body fascists), race (genicide). So we can only skirt around the issue until the food/water wars come.

There is one aspect which might be less controversial, and the BBC might have the courage to do a Horizon program on: the economic impact of a shrinking world population.

Scenario 1

Everyone is unselfish, and stick to a one child policy per couple. The world population reduces in an orderly fashion. The shrinking economy could be a disaster in itself.

Scenario 2

Disease/meteor disaster wiping out 6 billion in the space of one year, leaving a random distribution of one billion people with immunity to the disease. A growth story of people rebuilding.

Scenario 3

Food/Water War. War industry booms, of course.

Scenario 4

Legalise the Death Industry, which will be a growth industry for decades until the population comes down.

Wide spectrum encouragement of deaths. Aggressive death penalty on lesser crimes, including having extra babies. UN funding for euthanasia programs for the old, AIDs victims, etc. Not for profit charities can advertise for people who need to end it all, and help them to do so. Manufacturer of suicide booths, devices and pills can advertise and sell legally. Adventure holidays with no safety net, where one in ten survives. Corpse disposal will be big business, too.

Death pensions (a finacial product) where you receive an implant that will kill you at the agreed age, but you receive an annuity until that time. The shorter the remainder life span, the higher the annuity. If you have an accident or get executed for a crime, you lose the rest of the annuity, similar to traditional life pensions.

I look forward to see this episode of Horizon.

Well I think the whole world is in one serious mess, few governments care about industry and business, unless they themselves own and manage it. Whats happened is exactly the opposite of what we need. We are taxed to death to pay their HUGE GOVERNMENT wage/bonus bills and there is nothing left to spend on goods from the private sector.

But then thats against Political Policy so the BBC nor any other government controlled institution would tell us the truth - we only get their propoganda of lies lies and more lies - only what they want us to believe and know - not what we should really be getting told.

As for the Banks and FSA - con artists and there should be a legal investigation as to why Basel2 and their governance did not control them. It was ofcourse government policy - why should we pay for their incompetence or damn right greed. The FBI were told in 2005 the subprime market was a fraud so Im sure we (the FSA)knew too............

There's lots of reasons to be cheerful.
Underlying GDP growth seems to have returned in September. Certainly the UK's non-oil GDP was stationary in the whole third quarter and implying fractional growth since then.
The bad outlook is still our excessive debt repayments that are destroying the money supply - thank goodness for government borrowing and QE just when we needed them!!
British employment and inflation rates continue to be higher than the EU averages. Business investment was up too in the third quarter, indicating that businesses are sufficently flush and confident to be investing.
Only the media industry's income is in the dumps.

https://news.bbc.co.uk/1/hi/business/1032126.stm

Remember this happy days!

From The Great Fall - Published 2050

In 2028 a new Capital Offence was introduced by the English Republican Parliament. Financial Genocide was defined as acting in a Criminally Negligent manner in order to cause mass disruption to the financal affairs of the People.

In 2030 the law was put to the test once Fred Godwin had been extradited from Cornwall. Tony Blair's lawyer training was put to its greatest test as he defended the team of bankers, lawyers and politicians who the state accused of the heinous crime of bankrupting the nation through their own greed.

In his famous summing up Blair delivered his famous plea for mercy:

"Actually, we're a pretty straight bunch of guys."

But it was to no avail as the Judge reached for his Black Cap.

Has anyone read post 74 and thought the same as me?

Leftie says the problem holding us back is excessive debt repayments and the answer is form us to stop repaying debt and to have more government borrowing to help reflate the economy!

Its the macro economic version of putting all your bills in a drawer hoping they will go away and then going out and spending a load more on your credit cards.

People are repaying debts as quickly as they can because.

1) Interest rates are at an all time low which means that for every pound you pay back more is going on reducing the amount you owe than merely paying the interest. Interests rates will rise and some believe they will have to rise considerably in the next year or so and as such anything repaid now will be rewarded later.

2) Despite what leftie may believe many people expect 2010 to be a long slow drawn out recovery and possibly we may face a double dip recession. At the moment cash is king and debts that cannot be serviced can cause disaster.

Having read what the Greek parliament has voted for I wonder how long before we have to take similar steps in the UK?

https://news.bbc.co.uk/1/hi/business/8428180.stm

I suppose we can now add Greece to the list of countries the bankers can't leave to go to either.

Despite this I wish everyone a safe, warm and happy christmas and a healthy and prosperous new year.

78. At 09:48am on 24 Dec 2009, Ian_the_chopper wrote:

"Having read what the Greek parliament has voted for I wonder how long before we have to take similar steps in the UK?

https://news.bbc.co.uk/1/hi/business/8428180.stm

...a number of measures to reduce debt levels, including a 10% cut in social security spending.
He also announced a 90% tax on the bonuses of senior bank workers.
Other proposals included a cut in defence spending, pay and hiring freezes for public sector workers"

Yup, that's exactly what we need here - and sooner, rather than later.

2010 needs to see banks lending again to businesses and individuals at rates linked to base rate rather than extortionate levels of interest, without rip-off arrangement fees and charges. Despite all their hype banks are STILL calling in loans and using the mantra "repair our balance sheet" to blatantly profiteer and kick the economy when it's down. Their selfish, greedy, unsupportive stance has been a disgrace and has caused the unnecessary collapse of many a good company, with attendant unemployment. Caledonian Comment

78. At 09:48am on 24 Dec 2009, Ian_the_chopper

The funny thing is that Mervyn King’s QE is working but at the same time isn’t working.

It is working on two fronts, firstly it is reducing Government debt, because he’s paid out on all gilts that were redeemable this year.

And secondly and more importantly he’s kept Government funded this year.

The price of course is the value of sterling, which oddly enough has not reacted quite as most thought it would.

Now let’s say Government and more importantly Mr King decide to get a little more ambitious and keep QE going to the tune of another £150 billion next year, £100 billion the year after that and finally £50 billion in the last year.

Now sterling will fall, but if the Government cuts its expenditure to equate to tax receipts, the net result would be a fall of £300 billion in overall Government debt (the above being based on the assumption that the gilts are written off or never come back on the open market.

And if they decided to get very ambitious, why not create £500 billion buy all the gilts back, and simply run Government on its tax receipts.

The difference between Ireland/Greece and the UK, is we can print our own money to pay of our debts, they can’t.

The price we have to pay is the devaluation of our currency.

If you are a saver, you may as well have spent it, if you are a borrower, then its good news.

#66 riverside. Your definition of deflation does not appear useful. Taking your definition and applying it to the IT sector then we would discover that IT has been in almost constant defation since its inception. Simultaneously the industry has experienced near exponential growth and its products and applications have come to impact on all aspects of life.

So, your kind of deflation would appear beneficial and supportive of growth - so what is the problem? and why are polcy makers so afraid of deflation, and why did deflaion cause such economic harm in the 1930´s?

Could it be that your definition is in manifest error? Whether it is generally accepted or not is irelevant. Not so long ago it was generally accepted that the earth was flat. General acceptance did not make it true.

It remains the case that policy makers have no generally agreed definition of deflation. How then can you develop a policy to fight something, if you do not know what that something is. You see a similar problem with foreign policy. What are we doing in Afghanistan? No-one can enunciate a sensible answer to this question. Why did we allow AQ Khan to develop nuclear weapons and then on sell the technlogy? Why is this not news, and why is no-one interested in the answers?

Reason has been abandoned, and those who seek reliance on reason are habitually smeared and marginalsed. The abandonment of reason is a necessary condition for a decent into barbarism, and this is the point Golding was seeking to make.

From you writing style it is clear that you have some education. That you feel able to describe reason as "very sterile" (can anything be "very" sterile?) more or less proves my point. Reasoning may be in error but that is an entirely different matter.

69 foredeckdave:

''For days we have read your comments that the public are fickle, they they didn't have to buy imports (untrue when you look at say TVs). This all leads to your final comment tonight that "the problem is cultural".''

You still cannot grasp the fact that manufacturing is all but destroyed. And how it was destroyed. You quote TVs. Yes, you now cannot buy a TV made here. Oddly enough they were made here at one point. If the consumer and the government do not support manufacturing then manufacturing ceases. This happens with all products that the consumer stops buying and the results are all around you. Other countries do not play the game the way this country does. Why else are millionons and millions of wheelie bins imported inot this country bought by the LGAs. None are made here. Why is that.

The public is fickle, how else can you have a boom in housing prices. I see that there are to be few bargians this year by the news item posted today. What was I saying about the supply chain.

If you feel uncomfortable about this that is your problem not mine.

''Are you not part of that culture? Do you not recieve benefits from oprating within that culture? Have you not had the opportunity to change the culture?''

I am not part of that culture. I have changed the culture in the area we operate in, by definition what we do is different. We have a strong ethical trading policy. The only way we found we could operate was to be outside the culture, operating within it was impossible because it is a cultural problem and those within a culture resist cultural change. Have you ever sat down with a director of a big business and asked themn to fundimentally change the way they work because the forecast is decline. What happens is they defend what they are doing. So they decline.

There are too many false belief in this culture. One is that there will always be somebody making or doing something that you want at some point. Whether that is good sort services.

It is not where you end up it is where you start and what route you take. That is why you cannot buy locally produced TVs and local people are not employed making them.

So it will end up being sorted the hard way I guess

Fear not! I hear the sound of hooves over the horizon. No, not the cavalry. It's galloping inflation and it's coming to rescue us. How so? I hear you cry. Simple. Wages rise. Prices rise. Debt stands still. Your house doubles in value. Your mortgage shrinks. Negative equity vanishes. The only losers are those with capital invested. The savings ratio will fall back again. Money will be put back into circulation in the real economy. Don't imagine you have any choice over this. It has already happened. Vast billions of pounds have been added to the economy and the unavoidable consequence is to dilute the value of money. Today's manifestation of this phenomenon is Quantitative Easing. Previously it has appeared as "Inflation" or "Devaluation". It worked in the seventies. It can work again. It may be in the final analysis the only way the British economy can work. We all move forward to stand still. Happy New Year.

82 armagediontimes:

Computer price deflation eh. Thats technology for you. There is a price - product(technology) maturity curve but I won't bore you with it as it would upset your argument. How contorted a defintion of deflation do you want. How long a defintion do you want. If I post caveats you will simply move the goalposts. You can expect a price reduction on a technologically fast moving product. You dont really expect it on furniture or food stuffs because by and large technology makes much less impact.

I said I saw your position as very sterile. If you dont like the very take it out. There are in fact classifications of sterility, as all is statistical. I worked in something related to pharmaceutical production technology at one stage. I hold patents on process technology. However the marketing failed, not a quick enough return. Nothing to do with me, technology was novel and worked. Something about highly respected and very expensive marketing consultants asking corporate nillionaires leading questions. Some of the assumptions where wrong.

You are far too attatched to meltdown. There is nothing wrong with your reasoning just its context and editing. You are ingenious in it. You appear to have an objective which is simply to promote meltdown and you select and argue and reason towards that. You have even said you are interested in peoples reaction to your proposition. I can look up the post if you want. The straightforward fact is a hundred years ago people consumed nothing like what they do now. The fact consuming has to ease does not mean there is a meltdown.

Education? that doesnt save anybody. The simple fact is many have been conditioned, or educated, into being a cog in a machine. Break the machine and the cogs do not fit well into another machine. As to being a new cog in another machine requires reconditioning it is easier to start afresh with a new individual. That is how you get highly skilled and educated long term unemployment. Which will result whatever is done.

Its a great shame you do not look at the dynamics and the change in balance points.

Manfacturing has been decimated. Finance has risen, unfortunately some of that may well go overseas as the Chinese will want it.

We have growth but our approach is not to do things conventionally. Hence we are considering what is the way forward unconventionally.

#84 Remember the hell we went through to tame the beast of inflation that is the natural inheritance of a Labour Government.

The answer to these problems are simple - do not allow Governments to affect the economy for their own interests.

1. QE must be banned.
2. Interest rates must be a minimum of 1% above the rate of inflation.

Ironically the Euro goes some way towards this where each of the partners have to behave. It is the way forward but we dont want to be controlled by the Burgomeisters of Brussels (I am a Little Englander and Daily Mail reader btw!)

I advocate a common currency with another country where each checks the other is playing by the rules.

I reckon that:

The only way deflation can occur is if the level of defaults exceeds the interest being paid by those not in default.

On balance such is unlikley as long as QE continues to fund the government.

#84 Fear not! I hear the sound of hooves over the horizon. No, not the cavalry. It's galloping inflation and it's coming to rescue us.

I hope so. This is one potential outcome and to me it seems it'll at least go some way to solving some of the issues in our country. For the reasons you mention, in theory this should be the outcome, housing will become affordable etc. The gap between those at the top and those at the bottom should in theory shrink etc. About bloomin time!

But will it really happen?

As far as we're told, the banks are stockpiling the money we throw at them to protect there/our existing investments.....fair enough the bonuses have returned so a small amount will be released back into the economy but for the most part I fear it won't be enough and will be too slow a process.

Also, if inflation goes mad, what happens to joe public real worker? His pay no doubt takes time to catch up with the higher prices, so each month while we play catchup, the cost of living grows, and debt continues to build and strangle those in lower paid professions!

Brown has pumped loads of money into this economy and I'd like to see the results as you explain but I just can't see it....that money won't come back out, at least anytime soon.....the profits won't be there so the firms will be forced to put prices up to cover OPEX, cut staff or hope that a price drop will help sales enough to negate the drop in unit cost.

Eventually when they start to make profit again and pay themselves, the bankers and the stock holders there share.....there will be very little left for pay rises.......the next year the prices will have go up again and if there's any profit left after the bonuses and divedends that year, there might be some left to increase pay...in the mean time, the majority suffer.

I hope you are right, I'd like to see inflation levels things out....but only if those at the bottom are assured pay rises in line with inflation...real inflation and preferably not 2 years after the debts have built up! To do that first we need to reduce trade deficit, cut public spending, fix the economic leaks and tax the hell out of those at the top.

Not pretty and I will be one of the ones suffering.....If I stay in the country that is!

If we hadn't wasted that QE cash by putting straight in the vault and forgetting about it, we could already be seeing a return on the investmaent, instead we wait til we have filled the banks up before we actually see any trickling into what is needed!

#85 riverside. I have provided an 18 word non-contorted definition of deflation which requires neither caveats nor "exception from the rule" explanation. So, your question has already been attended to.

There is no moving of the goalposts on my part - just an attempt to identify their location.

Why would anyone have an objective to "promote meltdown"? That would be insane. Perhaps you think I am insane - why not just come out with it?

I do not seek to consciously select context and edit anything - although we all do it, and at least I recognise that. Nothing I am saying is remotely new. I could provide a quote from Von Mises which basically says exactly the same thing.

You are correct when you postulate that there is no problem per se with a decline in consumption. In respect to the human condition an aggregate decrease in consumption would be beneficial.

Equally there is no problem with unemployment. I recall a possible apocryphal story of an investment banker in Kenya. Kenyan asks how many hours you need to work in a bank, the guy says 18 hours a day and the Kenyan offers him food saying you must be very poor I only need to work 4 hours a day to provide for myself and my family.

Education facilitates adaptation and allows for discernment between what is, and is not, important. You seem to be in danger of confusing education with indoctrination. The two are radically different.

It is easy to adapt to changing circumstances - superior adaptation is one of the things that has given man mastery of his environment. You have adapted, and you will not be alone.

The problem comes from a small kleptocratic clique who have control of the levers of power and are absolutely unwilling to contemplate adaptation. The economy is in decline and they will not accept this simple fact. This road leads to madness.

How can anyone think that printing money is a viable strategy. If it is, then why not just issue a prsonal printing press along with a birth certificate and allow each person the freedom to just print up money sufficient to satisfy their wants - whatever they may be.

Why are we in Afghanistan and why did we allow AQ Khan to develop and sell nuclear technology? These are not selective questions, these are key questions the answers to which can serve to inform a likely view of the future.

If people can come to understand what is going on then they can do something about it. After all: "The future is unwritten"

...and finally furniture prices have decreased in real terms on a more or less straight line path throughout the post war period. Not that much hi tech about the chairs I sit on.

Hurt banks PERMANENTLY, dont EVER take a loan out EVER AGAIN!

Lets all just hope and pray that Christ's second coming is as a bank regulator. We now need a real saviour of the world...not some charlaton.

I may be a bit of a simpleton, but I had always understood the most basic law of economics to be that money flows away from poor people and towards rich people. So QE will simply direct more and more money towards the already rich and eventually be paid for with taxes from the poorest people.

Am I wrong?

The solution to these problems is technically simple:

a) Banks are either already nationalised or need to be. In either case they need to be made to serve the public interest.
b) The banks should be made to fix loan repayment amounts at say 90% of what they are at the moment, while decreasing interest rates to almost zero on new and existing loans.
c) This would have the effect of killing bank profit and hoarding, while the population would de-leverage quickly, also killing the root of debt-deflation: debt.
d) This would also give everyone a small hike in monthly income (10% of debt obligation) and serve as a large economic stimulus, not only because of the income increase but because of the disappearance of debt burden as loans become rapidly cleared.
e) The additional income would become the basis of income tax rises, which would be used to clear government debt and help fund banks.

The problem of "intellectual capital" leaving the banks is a non-issue. I can say from first hand experience that:
a) The bank investment department want to see a radical change anyway
b) The investors motivated by short term greed and bonuses probably need to be encouraged to leave anyway
c) People want long term stability in general, not short term bonuses

The four questions posed by Stephanie are all about trying to get our global economic system back on track. The real problem is that we don't need to fix our system, we need to replace it with a strong dose of reality.
Earlier this year the government sponsored "Sustainable Development Commission" published a report called "Prosperity Without Growth".I would be amazed if any of our politicians even looked at the opening remarks because it treats seriously the irrefutable conclusion that the pursuit of GDP growth and the pretence that it can go on forever is utter nonsense.
The opening remarks of the Forword say it all.

Every society clings to a myth by which it lives. Ours
is the myth of economic growth. For the last five
decades the pursuit of growth has been the single
most important policy goal across the world. The
global economy is almost five times the size it was
half a century ago. If it continues to grow at the
same rate the economy will be 80 times that size
by the year 2100.
This extraordinary ramping up of global economic
activity has no historical precedent. It’s totally at
odds with our scientific knowledge of the finite
resource base and the fragile ecology on which
we depend for survival. And it has already been
accompanied by the degradation of an estimated
60% of the world’s ecosystems.
For the most part, we avoid the stark reality
of these numbers. The default assumption is that
– financial crises aside – growth will continue
indefinitely. Not just for the poorest countries, where
a better quality of life is undeniably needed, but
even for the richest nations where the cornucopia
of material wealth adds little to happiness and
is beginning to threaten the foundations of our
wellbeing.
The reasons for this collective blindness are easy
enough to find. The modern economy is structurally
reliant on economic growth for its stability. When
growth falters – as it has done recently – politicians
panic. Businesses struggle to survive. People lose
their jobs and sometimes their homes. A spiral of
recession looms. Questioning growth is deemed to
be the act of lunatics, idealists and revolutionaries.
But question it we must. The myth of growth
has failed us. It has failed the two billion people
who still live on less than $2 a day. It has failed
the fragile ecological systems on which we depend
for survival. It has failed, spectacularly, in its own
terms, to provide economic stability and secure
people’s livelihoods.
I hope this whets your appetite to look at the full report. If I could have sent a Christmas present to our leaders on both sides of the political fence this would have been it!
My one criticism of the report is that it studiously avoided the question of unchecked population growth, which is equally unsustainable in a finite planet.
It is a sobering lesson, but one which if we don't learn and change our tune, will condemn our children and grandchildren to a miserble time when survival will be the number one priority.

Happy Christmas to all.

Angloscotty's essay on economic growth is absolutely spot on. But we need to ask ourselves why is the current economic model based on the notion of ever expanding economic growth?

In my opinion, it is to fill the vacuum created by money lending for interest and especially the the gap created by the interest charged to governments on the money creation by the central banks. The money they lend is not borrowed but generated out of thin air and thus it creates a hole in the system which can only be filled by unfair exploitation of labour or natural resources through overproduction and overspending and indebtedness.

Unfortunately, I do not see how the system will reform itself as even the media, in this case the BBC, is totally usurped by the financial oligarchs. They control almost everything these days. The only source for true information are blogs like this one and other independent website.

The system can only be changed by a revolution, but they are counter-productive as it is always the opportunists that take advantage during unsettled times.

We are fast heading in the wrong direction and the breaks don't work.

94. angloscotty

Well put. I have been dismissed as foolish for suggesting you can have prosperity without growth. I think we need to move the economy towards sustainability, by definition that means zero growth since enless growth is impossible. A stable, balanced econonmy is good for the environment, jobs ans standard of living since excess GDP is not simply being mopped up by an increasing population.

Politicians just do not get it though. "Growth" is the yardstick they use to measure their own progress. It is short sigthed in the extreme.

I wish you all a very merry Christmas and a happy new year.

The question many of us are interested in is:

"How quickly will interest rates climb?"

"Also, how soon before inflation takes off?"

Having recently invested a lot of my savings in a 3 year fixed rate bond at 5%pa, I wonder whether this will turn out to be a good bet or a dead loss.

Any comments?

Growth?

Is economics a branch of politics or a branch of philosophy..or something else?

In my opinion, it has to be a branch of philosophy, and each economic approach is its own branch. If modern, mainstream economics in the West says that we have "free will" and we make "choices" and we ara "rational", then we have a conceptual model that is very much at odds with very many others.

For this reason, we have to acknowledge that economics is commonly taken to mean the prevailing philosophy of resource distribution, and it really is a philosophy and it really depends on the times.

Growth is just one concept in one philosophy, here and now.

53 Hey Stephanie - please sort out your "its" from your "it's". In the last line of the first para of your Q4. Remember "it's" means "it is" !!


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CURIOUSMAN [HOW APT] you seem to have developed a fetiche narcisum of small differences with the presentation of Stephanies "its" if you were a gentleman you would have averted your gaize[as it says in the Koran gaize needs seeing two]



Your poem was very apt

Merry Christmas everyone! Goodwill tidings to all.

My question. The considered wisdom is that the UK will be in a recovery of some sort from 2010. What/who is going drive this recovery and how?