Beggar my neighbour - or merely browbeat him?

Stephanie Flanders.

the US of A is broke (and not just financially), has been for decades; when countries around the world stop using the Petrodollar (Iraq tried, Iran does, others will follow), the proverbial will hit the fan and the US of A will be reduced to open warfare to 'make a living'. can't wait.

Sadly, Dumas is taking a very-much-real-world view of matters. What Bernanke is doing flies in the face of game theory. He assumes that others will take the altruistic high road instead of looking out for their own best interests. What success he sees will be relatively short-lived (and he will see that fleeting success only because it takes time for the other players to react). What he is doing ignores the fact that others are in his position and what success he sees will only make competitive reaction in kind more likely (imagine a drowning pool filled with rats…this’ll be the same thing only bloodier).

Failing systems fail. It’s folly to try and support them once they do. It leads to a long, agonizing trail (one on which we are just beginning to walk). Eventually, the time to pay the fiddler comes due for all revelry (no matter how much fun it was). Even Europe has come to understand that checks bounce. Time America did, too.

Absorb the bad debt and restructure. Anything less is only a bombastic postponing of the inevitable.

This piece seems to express the phrase "The road to hell is paved by good intentions" but I am not sure the intentions are at best only confused. Your final remark sums it up "Let's hope it's not". Just how much does the dollar have to depreciate to enable its economy to 're-balance' and while this process was gathering pace the average American would have to face imported inflation putting pressure on interest rates which would.... Of course other countries will react and create uncertainty about outcomes. A period of low growth may actually be the least worse scenario to enable the internal changes to take place but that would demand active intervention in the economy which is heresy for the tea party religion.

Good blog Steph!

The other alternative might be that things (worldwide) go so bad (one way or another), that one-by-one countries will be forced to readopt fiscal policy over monetary policy, and gid rid of monetarism, and the artificial independence of the BoE. How long before the BoE and Treasury finally merge their balance sheets and pursue full employment?

Have you seen the silver and gold charts? Thank you Mr Bernanke you are on my Xmas card list. Skip a few trips to the barbers and you could be santa.

Bernanke is effectively playing 'Double or quits'.

Rather than taking the traditional route after a massive bubble burst, America is trying to keep it half inflated, in the hope they can avoid the really painful recession that would have followed a property price crash.

The ironic thing is that not only does QE look like failing, the end game will be all the worse for having tried to thwart economic gravity.

By tanking the US dollar both the Euro and sterling will appear relatively strong. That does not help us and what it could do to Ireland, Greece and the others makes me want to look away.

This has to be the last throw of the dice. After this there is nothing left in the locker.

I have said before that both USA, UK and Europe must restructure their economies back into manufacturing. This creates value, which creates wealth, which makes a resilient economy.

The fact that the prevailing economic elite are unable to perceive what is blindingly obvious reminds of the Bourbons in France and I don't mean the biscuits.

Mind you, perhaps this time round we might get some tea with our cake.

Bernanke has completely overlooked the effects on the US consumer of import inflation, namely energy. The US domestic consumer is acutely sensitive to oil prices, much more so than in any other country. He has actually reduced the ability of his own consumers to spend by reducing their disposable income.

He can only be acting on behalf of the banking lobby keen to shore up dodgy balance sheets stuffed with over priced housing loans. Why didn't he do something akin to the new deal and undertake some worthwhile infra structure funding? The US energy generation, distribution and road systems are pretty dire in many places.

If China has any sense it will run down it's mountain of dollars to buy the oil it needs for the next few years and not buy anymore US debt. Then push for oil to be priced in Euros once they have used up the dollars.

The US financial establishment is completely out of touch with reality, let's hope we don't follow suit. I fear we will though.

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

7 stanillic

I would suggest that there are clear rules to engaging in manufacturing in this environment and it requires more in the way of smarts than have been shown in the sort of mass manufacturing which has left these shores in the last few decades. Essentially it has to be high tech - or novel - or culture driven. So mass employment through manufacturing is not likley. For all its problems the financial sector remains important. As far as resilience goes large sections of UK manufacturing have not been resilient so recreating them is pointless. Sorry.

This looks to be all about poking a long term debt around with a stick and simply because it is long term it will linger with a bad smell for some considerable time. I have yet to have anybody explain to me what QE is other than apparently a way of shoving money into the relevent government coffers to keep them spending - or bunging something the banks way to stop them folding. The whole issue is the 'too big to fail' model and the desperation to try to avoid massive debt in the system crystalising - and amongst anything else collapsing the property market overnight.

Capitalist processes are designed to recursively increase efficiency which in turn increases redundancy unless consumption somehow rises faster. Redundancy is showing up in the system. To reduce redundancy you have to have novel developments or to allow things to become relatively more expensive. This is a lifestyle expectation and cultural problem and all the fudge in the world cannot conceal it.

If you reduce consumerism - whether by overhanging debt - or credit denial - or reduced wealth - then the only outcome can be a reduction in Captialism - and that cycle is in place.

The whole system is weakened because so much effort has gone into stripping asset and money out of the chain which reduces response flexibility.

When clever people have spent so much time being stupid it is going to take time to deconstruct.

QE seems to be a bizarre form of cannibalism where you dilute the pool of money to provide a bit which can be extractedin abig bucket. So the extracted amount can be used to keep the spending going to prop the system up a bit longer. This is the amazing shrinking economy where you start with a bigger economy and just wait and wallah - you will get a smaller one. The trick is apparently to keep the game going long enough to deal with the long term debt. At some point the debt is reduced to a level where consumerism can be provoked, providing cultural change, in the form of the populace dealing with the failing high priests, does not occur.

Regards

What is the point of society?
Exactly what are we endeavouring to do?

Well for me, (who for the avoidance of doubt is a complete nobody in the overall scheme of things), it’s this:
Primarily to provide for a family
Secondly to do that which is right by the next generation
And finally to hopefully enjoy life whilst undertaking the above.

There’s been more ‘armchair economists’ bleeting on about how things are, or are conversely not being done, than your average Joe could argue with in a lifetime.

And up to press the only thing that seems to have been missed in all this is: Exactly what can we do now, that will have a positive impact on those who come after us?

The main point of society is to create a future for the next generation, ultimately that’s all that there is, it’s all that there ever can be. And to not even consider it, beggars belief.

Until such time as those making the decisions open up discussion on the impacts of them on the next generation, there will be no hope of any reasoned or sensible outcome to the current financial debacle.

So far we have managed to prop up financial institutions, and evidence suggests to the detriment of all else.

Is there no one out there that can open up some discourse on what is best for the next generation, or are we to be saddled with continually bailing out the failed, to the detriment of those who have yet to attempt to succeed.

Wall Street will be delighted if the FED prints more money....More money to invest abroad. Obviously the USA agenda is to own the world...Print more dollars and buy/invest wherever there is profit to be made...China and the UK are doing the same, but they do not need to print more money.
These extra dollars will never reach main street USA and that is where the danger lies...If unemployment keeps on rising, there will be a point where social unrest is reached.
If main street USA is abandoned by Wall Street and it seems to be the case(Greed not social conscience is the order of the day), then unemployment will keep on rising.
Just exactly where are the jobs going to come from...There must be a limit to the number of people just employed to be chained to a desk...Millions are now just sitting in front of computer screens...This must be an attempt to have people occupied rather than sitting idly at home...Idle hands make the devil's work as they say....But putting faith in the free market to create sitting jobs is stretching belief a bit.
The biggest threat to the free world will be unemployment and the sooner this is realised the better. Wall Street and The City seem to be a huge barrier to the creation of jobs, in that these institutions which have grown so powerful (more powerful than the Governments of the day) only understand profit and the now Global Markets.
If Wall Street and The City do not provide jobs in their countries, then who will.?...The governments of the day?..Not at this time, with the governments we have at the moment. At least Gordon Brown atempted to keep the unemployment figures down.
We are still at a transition in human history with the advent of Computers, Internet, Technology, Peak Oil etc...What happened to the leisure society.?
It seems we are going backward or at least have gone into a cul-de-sac...

Or I could be wrong and the Free Market will be our saviour...Amen

https://www.youtube.com/watch?v=tGy6cP7sg5w

Ron Paul and "The Judge" discuss QE and the Fed on the "Evil" Fox News. I can't imagine any discussion like this on Newsnight.

The USA and indeed all Western democracies that thought it was smart to "offshore" manufacturing to China in particular must now reverse that policy.

12. At 9:59pm on 04 Nov 2010, coplani wrote:
"The biggest threat to the free world will be unemployment and the sooner this is realised the better."

I have to disagree. In communist Russia there was no shortage of employment, it was just the nobody was free.

11 dempster

The culture of consumerism is the device of capitalism to reduce the influence of society and therefore the family. Capitalism is primarily interested in consumers, society is of passing interest.

When in Rome.

Stephanie wrote:

"these developments ought to be net positive for the US economy"

I disagree with your assessment and I believe it is fundamentally flawed and based upon a faulty education in economics from Harvard that you share with Ben Bernanke and Mervyn King. None of you seem to understand the need to maintain the idea of the price of money and how vital this is to a functioning capitalist system. The really dreadful economics that does not seem to comprehend the apocalyptic consequences of ignoring the price of money and in particular the need for money to have a positive price or the system collapses.

Try to look at this way in all the normal economics of the last 300 years the price of money was arranged so that savers received less than borrowers paid - with base rate in between. What you and your fellow Harvard travellers have done is broken this paradigm of economic management and have base rate less than savers get and far less than borrowers pay. That is you and they simply do not understand that the economy has been pushed over a disastrous cliff and there is no going back until the over priced assets can be brought back into the market and the economy at substantially lower prices!

You and they are trapped in bubble economics and the inevitable is unavoidable! Your mindset is that of the drunk who thinks that the hair of the dog will cure him! Or of the Heroin addict - just one more fix and everything will be OK - it will not! We have to have economic cold turkey or everything is downhill!

Hey, Steph!

You think they're taking notice of us, Mervyn and the MPC members?

Us saying:

'QE is the rich people's route to affluence - affluence for them and them alone as they use it to bid up their assests'.

is not what's motivated them.

Us saying:

'Stop making the rich richer. You saved every last one during the credit crunch, as if thir erstwhile wealth was a measure of their value'

has left them cold.

Us saying:

'Your account 'QE lowers interest rates and so weakens the currency and so increases competitiveness as capital inflates the economies of Asian competitors' is nonsense. The currency is weak anyway and exports are unresponsive and imports booming. Anyway, the initial impact is inflationary at home'.

has gone unheeded.

What's motivated them to hold off from further QE (which WILL come) is the effect the US QE is having HERE, anyway.

Just on 2 percent on the Ftse in a day.

The rich get it all, the poor suffer.

JFH,
I think when Steph says "ought to be", she is probably reporting the fact that this is (normally) the mainstream logic, not necessarily her view.

As you know I don't think much of monetary policy, and I agree with you about the distorting affect QE might be (and probably is) having. Basically investors are running from the dollar, and investing in anything that generates a yield - gold, houses, foreign currencies, bonds - you name it - everything except the real economy.

They need to reverse their QE as much as possible, and focus on fiscal policy (with no corresponding government debt issuance). Although this is 'free-money' so-to-speak, if invested/spent correctly, it will generate demand and growth in the real economy. Due to the power of direct government spending to generate growth, you do not need to increase the money-supply very much to have a very large effect on output and income - so we would be talking about £10s of billions, not £100s of billions.

Foreign countries would not have a problem with this because, although we are increasing the money-supply and lowering (very slightly) the value of the £, we are spending it on increasing aggregate demand and therefore increasing imports.

As for the interest rate, it should be set at a sensible level and just left there! I think the over-night rate should be zero - but you probably disagree with that.

Kind Regards

re #17
Clearly and well put, sir!

Stephanie wrote: "Is that what is happening today? Is the US simply exporting its demand shortage to the rest of the world?"

Is it demand shortage the USA are exporting or is it watering down their debt and transferring it elsewhere? By creating more money through QE2 are the USA creating the situation where hot money will flow randomly to wherever assets are cheap and cause asset inflation in those countries.

I presume we can expect the Asian and other emerging markets to erect barriers or retaliate. In the meantime the Middle East will probably pencil in a rise in oil prices so are we getting a mini rerun of the seventies - i.e. worldwide inflation, which coincidentally will dilute USA debt - well done Bernanke.

In the meantime, the 80% of the US population, who have seen their incomes and prospects fall in the last decade, have expressed their disenchantment with Washington, so who gains from all this QE2. No doubt the 20% of Americans who have done nicely in the last 10 years and of course Wall Street!

This is somewhat disappointing as a piece of analysis and again veers towards politics with its assertions about US intentions.It is very weak to argue that "When you talk to people in the administration, they don't think they are trying to beggar anyone." To quote Christine Keeler they would say that wouldn't they? If you devalue your currency someone else has to revalue theirs. This is a fact however the US administration tries to spin it.

Also if you are going to make statements about US government bond yields please get them right. Some are up rather than down.

Coplani's point, that more money on investments abroad means more US ownership abroad is SO true!

Wanna know what it’s really all about?...then read this...

Why the U.S. Has Launched a New Financial World War -- and How the Rest of the World Will Fight Back

https://www.alternet.org/story/148481/why_the_u.s._has_launched_a_new_financial_world_war_--_and_how_the_rest_of_the_world_will_fight_back/

22 LadyEcon,
Steph's not talking about party politics though - It's valid to talk about how other nations might view the monetary policy of the US because all our economies are connected. You can't avoid politics in life - its all around us, but party-politics is another matter.

"The big problem in the 1930s was not so much the depreciation itself, as the way it took place: through domestic price levels, rather than the exchange rate. Because most of the countries "competing" were locked into the gold standard, the only way they could make their goods cheaper overseas was by forcing down domestic prices (and demand)."

So in the 30s countries had to borrow gold in order to maintain exchange rates if they had no reserves and wanted to run a deficit.
Now the floating exchange rate does the job, but we are still told that the Govt needs to borrow to finance deficits.

This is the neo-liberal lie that is designed to kill off the welfare state and transfer spending power from ordinary people to the wealthy.
This is the neo-liberal lie that is taking your jobs and your houses and kids education, training and your standard of living from under your noses.

Stop falling for it.

ps its not your neighbor who's being beggared

#19. Charles Jurcich wrote:

"As for the interest rate, it should be set at a sensible level and just left there! I think the over-night rate should be zero - but you probably disagree with that."

Too damn right I do!

What is the economic virtue of making money worthless? It is simply insanity. Even in the worst of times money must have some positive price or the prospect of some price. If this is not the case there is never any point in investing or saving or building anything for future benefit. It is an absolutely central tenet of money that it both is a means of exchange AND a store of value. When throughout the ages this fails then anarchy, hyperinflation is the inevitable consequence - we have to draw back form the cataclysm and that means money must always have a positive cost. Never in modern times (the last 300 - 1000 years) has money been free. It is the antithesis of money to make it free. Yet the idiots of economists charged with regulation (MK, BB etc) have done this and hope we haven't noticed - we have these appalling idiots are destroying a thousand years of civilisation and they are doing it deliberately - they will reap the economic armageddon that will come down on them (and us) like the wrath of God (for those that believe in such things - for the rest of us just imagine the worst possible combination of bad things and multiply them ten fold.)

Yes, Charles, I disagree with you! and fortunately so do the markets!

#26. MetalGasket wrote:

"...we are still told that the Govt needs to borrow to finance deficits. This is the neo-liberal lie that is designed to kill off the welfare state and transfer spending power from ordinary people to the wealthy. This is the neo-liberal lie that is taking your jobs and your houses and kids education, training and your standard of living from under your noses."

I am not suggesting that we should wait to the end of this Depression to assess the impact of policy (as many of us will most probably not live that long) but the test of success must surely be that the present inequality in society is dramatically reduced. We must I think campaign for policy options that will directly bring this about. In this Depression it must be the chief aim of policy to reduce inequality even before engendering a capitalist recovery where the policies are in contradiction. Hence we need a National Maximum Income set at 20 times the National Minimum Wage as was suggested by David Cameron. The good and the great said that a National Minimum Wages would destroy the country and they were wrong and they are wrong now when they pooh pooh a National Maximum Income. Listen the the Prime Minister not the banker or the football agent! If David Cameron sticks to his words he will become on of the greatest socialist and one-nation tory leaders we have even had.

Enjoy the strike guys. That program on birdwatching this morning was more relaxing than the Today program.

At least you won't be accused of hypocrisy on your reporting as you guys write like everyone should have a massive gold-plated pension.

I can see Stephanie now shouting "scum, scum" as Wogan crosses the picket line...

John
I've no problem with successful people hoarding cash if it makes them feel good.

What we can't have is them bringing about job cuts and austerity on real people as a by-product of their trying to hoard more of the stuff

Govt has to stop rewarding the hoarding via the gilt market which underpins the whole useless financial economy.

It also needs to stop lying about the need to reduce the deficit by imposing austerity. It's either pure ideology or plain ignorance.

@25 Charles Jurcich

When you talk about the US administration it is currently Democrat led and advances a set of policies accordingly. For example I cannot see the Tea Party supporting any of this. Accordingly it is a political line.

• 11. At 9:58pm on 04 Nov 2010, Dempster wrote:
What is the point of society?
Exactly what are we endeavouring to do?

Well for me, (who for the avoidance of doubt is a complete nobody in the overall scheme of things), it’s this:
Primarily to provide for a family
Secondly to do that which is right by the next generation
And finally to hopefully enjoy life whilst undertaking the above.

There’s been more ‘armchair economists’ bleeting on about how things are, or are conversely not being done, than your average Joe could argue with in a lifetime.

And up to press the only thing that seems to have been missed in all this is: Exactly what can we do now, that will have a positive impact on those who come after us?

The main point of society is to create a future for the next generation, ultimately that’s all that there is, it’s all that there ever can be. And to not even consider it, beggars belief.

Until such time as those making the decisions open up discussion on the impacts of them on the next generation, there will be no hope of any reasoned or sensible outcome to the current financial debacle.

So far we have managed to prop up financial institutions, and evidence suggests to the detriment of all else.

Is there no one out there that can open up some discourse on what is best for the next generation, or are we to be saddled with continually bailing out the failed, to the detriment of those who have yet to attempt to succeed.
………….
Great point Dempster. We are being led down the path of self interest by the lords and masters of money, as they make desperate attempts to preserve their fake monetary wealth by propping up a failed system, a system which is nothing more than a man made construct. Personally I think they are scared, as most are, of change. But change will come anyway, the system is failing, and the masses will be effected first, and they will see their standard of living erode very quickly, and then they will get angry, and then WOTW may be right afterall. I’m optimist, there are plenty of us who can see things for what they are. Hopefully we will get a chance to make the necessary changes, to find a way forward

17. At 10:35pm on 04 Nov 2010, John_from_Hendon wrote:
Stephanie wrote:

"these developments ought to be net positive for the US economy"

I disagree with your assessment and I believe it is fundamentally flawed and based upon a faulty education in economics from Harvard that you share with Ben Bernanke and Mervyn King. None of you seem to understand the need to maintain the idea of the price of money and how vital this is to a functioning capitalist system. The really dreadful economics that does not seem to comprehend the apocalyptic consequences of ignoring the price of money and in particular the need for money to have a positive price or the system collapses.

Try to look at this way in all the normal economics of the last 300 years the price of money was arranged so that savers received less than borrowers paid - with base rate in between. What you and your fellow Harvard travellers have done is broken this paradigm of economic management and have base rate less than savers get and far less than borrowers pay. That is you and they simply do not understand that the economy has been pushed over a disastrous cliff and there is no going back until the over priced assets can be brought back into the market and the economy at substantially lower prices!

You and they are trapped in bubble economics and the inevitable is unavoidable! Your mindset is that of the drunk who thinks that the hair of the dog will cure him! Or of the Heroin addict - just one more fix and everything will be OK - it will not! We have to have economic cold turkey or everything is downhill!
..........
Hi John. I agree that obsession with neo-classical economic theory, is whats leading these fools down the wrong path. I urge you to have a read of an excellent article by Steve Keen on this issue. https://www.debtdeflation.com/blogs/2009/01/31/therovingcavaliersofcredit/

There is only one point that keeps on coming back to me and that is what if Kinsey was wrong and the only reason the US came out of the depression was the second world war. After all they had experienced a mini boom leading up to the first world war prior to their late entry only to let all they had made slip away. They did not make the same mistake during the second world war. Once again their late entry enabled them to make a considerable amount for the nation as a whole by way of supplying arms and equipment to those nations engaged in the war. Is it a fact that was it a net gain for them while leaving the rest of the World to pick up the tab.

So does QE work, well there are little in the way of examples to support it. In fact if you look at Japan it points to delaying the issue rather than rectifying it. Japan since embarking on its epic QE programme has bumbled along and never quite got over the downturn.

After pumping in Billions we along with the US and others are still not out of the woods. So will QE bring us out or will it be trading. My bet is on the latter for we will still have to pay the Piper at some point if we take the first.

"Hence we need a National Maximum Income set at 20 times the National Minimum Wage as was suggested by David Cameron. The good and the great said that a National Minimum Wages would destroy the country and they were wrong and they are wrong now when they pooh pooh a National Maximum Income."

Yes - far too good an idea to confine to the public sector. But people at the top need incentives...

https://bit.ly/91lbGz

24. At 11:58pm on 04 Nov 2010, DebtJuggler wrote:
Wanna know what it’s really all about?...then read this...

Why the U.S. Has Launched a New Financial World War -- and How the Rest of the World Will Fight Back
=========================================================================
One small problem with this is that China holds vast amounts of US Debt and could pull the plug at any time which in turn would cause a global economic crash.

28. At 08:07am on 05 Nov 2010, John_from_Hendon wrote:
What is the economic virtue of making money worthless? It is simply insanity. Even in the worst of times money must have some positive price or the prospect of some price. If this is not the case there is never any point in investing or saving or building anything for future benefit. It is an absolutely central tenet of money that it both is a means of exchange AND a store of value. When throughout the ages this fails then anarchy, hyperinflation is the inevitable consequence - we have to draw back form the cataclysm and that means money must always have a positive cost. Never in modern times (the last 300 - 1000 years) has money been free. It is the antithesis of money to make it free.
……………
The problem we have in society today is that money is issued as credit, or debt. In fact 97% of money in the economy was issued by private banks as debt. To pay the interest on the debt the money (issued as debt) supply must constantly expand and the interest on it is compounding causing debt to grow exponentially. If it does not due to defaults there is simply not enough money to service the interest and you get a banking crisis, or more correctly put a monetary crisis. The purpose of money is a medium of exchange and a temporary store of value, to allow real items of wealth to be exchanged, eg your labour for food on your table. This medium of exchange could be issued, interest free by the state, and therefore itneffect it would be worthless. Banks would no longer be able to create money through fractional reserve banking, which would stop the perpetual expansion of debt/credit based money supply. Banks would still offer interest on savings, as you favour, as they would need to attract savings, in order to lend, akin to credit unions. This way forward is the only solution to the current banking crisis, anything less will fail as it will not stop the debt growing. Money supply would grow in a stable maner to service the needs of a growing economy, but no further. So my point is money can be issued free, but that does not mean it would not result in interest occurring. https://www.positivemoney.org.uk/

12. At 9:59pm on 04 Nov 2010, coplani wrote:
Wall Street will be delighted if the FED prints more money....More money to invest abroad. Obviously the USA agenda is to own the world...Print more dollars and buy/invest wherever there is profit to be made...China and the UK are doing the same, but they do not need to print more money.
=========================================================================
Two points, a vast amount of US debt is held by China so there may be US owned but are they just in proxy.
Secondly the UK has had the same policy so you could say are on the same path. Unfortunately I disagree with your outcome, I fear that it will be a path to ruin rather than that of victory. Also China has to grow by at least 10% PA to stand still, IE just to pay for its development. If it does not there could be civil unrest as was the case when the slide occurred in 2008 / 09. Now they are manipulating their currency value which is annoying the rest of the world and have committed to stop this. However this will for the first time open them up to the full market forces which may well see their economy start to falter. If so they could start calling in their markers which in turn would effect the global economy.

We have to be carefull in what we pray for.

Cominisum does not work? Capitalisum does not work? So what next?

Creating more socks reduces the price of socks
Creating more money increases the price of socks
Creating more money will not increase the production of socks

Writing off unsustainable debt increases the demand for socks
Writing off unsustainable debt increases the production of socks
Writing off unsustainable debt increases employment

So for those needing new socks, writing off debt is the answer.

17 JFH and Snuffie @20

You are well intentioned misguided in this. The objective curently is to avoid foreclosure on the economy. If long term debt is brought to book overnight then the system fails, it can do nothing else. All efforts are being made to secure deferrment of the overnight crystalisation of debt. Quite how you think triggering collapse helps is beyond me. Long term debt can only be dealt with in a practical timescale. The outcome can only be what you want in time, asset price dropping and real interest rates rising. The rules for operating in adminstration are not free market rules and effectively things are in administration. It is all very well talking about what you want but in this we are all creditors and creditors usually only get a fraction of what is due following a collapse. At present you are simply one of a few noisy creditors in a huge crowd of creditors. Most of the creditors are unhappy. The solution is getting credit back into the system at a reasonable price and that is going to take time when the banks are unilaterally setting the price to pad their bottom line. Most business, ie trading activities do not fail due to a lack of profit they fail due to a cashflow problem. That is the symptom that is in place at present on a wide scale. The issue of cashflow is why my business is set up to demand payment before goods and services are supplied and before goods and service provision is initated. To do this you have to be supplying something which is in high demand or hold a monopoly. Most cannot operate like this so most are having problems. It is quite clear to me that you are detatched from trade and trade is the only solution. The only quick solution is to break the monopoly on the supply of credit, ie break the banks and the government either does not have the money to do it or does not want the job so the route we are on will have to be followed.

Incidentally as positive cashflow is clearly essential to maintain trading independence, ie control of your activity my opinion is prepayment for any goods or services before any meaningful resource is committed to supply is essential but most businesses cannot operate this way simply because they are not supplying anything distinctive, unique, or do not hold a monopoly. So most businesses are locked in the thrall of cashflow, ie working for the banks. This was their choice.

It is all about strategy and postions taken prior to conflict. Which looks to have been poor.

Essentially this is a picnic at Pascchendaele. Merv King has as far as I am concerned acknowledged the situation from what I see of his comments.

Regards

39. At 09:24am on 05 Nov 2010, Chris London wrote:
‘We have to be careful in what we pray for.
Communism does not work? Capitalism does not work? So what next?’

Commonsense ‘ism’?

40 Dempster

You assume people need socks

Writing off 'unsustainable' debt is a form of subsidy.

The socks are not produced here.

Next stop people asking for active subsidy of UK socks

Look up the UK textile trade post WW2, or perhaps the UK knitting trade 19th century. Supply and demand, unit price, wage levels. Growth, oversupply, ineffieciency failure to modernise, profit taking. Strategy. Imports.

You have to produce something people want that can be made competitively.

Put a sock in it. Where have I heard that.

Employment follows trade not the other way around.

#41. Not Buzz Windrip wrote:

"The objective currently is to avoid foreclosure on the economy"

But it has already happened - it is just the buffoons don't realise it. The real key is put in place the conditions where the economy can return to a condition where trade and employment can return not impeded by the catastrophic existing debt without destroying exiting property rights.

What King and his cronies are now doing is making things worse - this was exactly what the authorities did in the 20s so it is to be expected - but the rest of us will be hugely in error if we think that what they are doing is fixing anything - it is in reality making the crash and depression far worse.

10 Not Buzz Windrip

Mass employment through manufacturing might not be likely under prevailing arrangements but it is very necessary and long overdue.

To say we can't do it is not an argument, we simply have to find a way we can.

A CEO once said `don't give me problems, give me answers'. Well, I am now saying this back to all the CEOs. I might even enjoin them to get on a bike or even a bus so that they can see what is actually going on in Britain today.

Welfare is no longer an option; it is an expensive cruelty we can ill afford.

40. At 09:31am on 05 Nov 2010, Dempster wrote:
Creating more socks reduces the price of socks
Creating more money increases the price of socks
Creating more money will not increase the production of socks

Writing off unsustainable debt increases the demand for socks
Writing off unsustainable debt increases the production of socks
Writing off unsustainable debt increases employment

So for those needing new socks, writing off debt is the answer


Good point, also if we all grew a lot more pears that would help, then we could all invest our money in ....Socks and Pears....sorry about that, just trying to lighten the mood.

The dream ticket would be a form of QE which I call Quantitative Release, where every G8 or G20 country's central bank is permitted to QE say a year's public spending at zero interest.But some in the G20 are trying to curtail their own boom by raising interest rates while others are slumping, so there could be no uniformity.
As for stimulating our economy to export more....I used to buy nice English Clark's shoes .....now I go there and find cheaply made foreign rubbish ....... I wouldn't mind paying one hundred quid, even one hundred and fifty ..... but they don't have the ones I used to buy two pairs at a time.
The young pay massive premiums for trashy design labels rather than well-made things .......so why do we not concentrate on quality and design and originality rather than on trying to be bargain-basement?
Because we all love buying fifty pence socks from Primark.
Can we not be a bit more Continental?
A five Euro cafe au lait stops Pierre buying nine pairs of socks from China.

A friend of mine had his heart set on a diesel Mercedes estate but when he drove it he thought it was crude and noisy, so he bought a new Discovery 4 and it was quieter,nicer, better made and much roomier than the Merc.
Let's do a survey of what our MPs drive.

The other subject which is taboo is how Greenism has been at the heart of our recent financial decline...... for sure.
THE TRAGEDY IS NO-ONE HAS THE GUTS TO DITCH THIS ENVIRONMENTAL OBSESSIONALISM ....... THE COALITION , LABOUR, NO-ONE HAS INTELLECTUAL RIGOUR TO ADMIT THAT THE CLIMATE CHANGE AND CARBON TAX PALAVER IS POINTLESS .

There is mention above of the need to restructure the economy and effectively start again by getting the debt into a form that can be 'handled'. Perhaps I am being a bit slow on the uptake here, but what does restructure mean in this case?

If there were a company with too much debt, the creditors may agree to a re-structuring that involved current shareholders effectively loosing some or all of their investment in the company. The creditors would become owners [in whole or part] of the company. There are real assets in the company that the creditors can see.

What's the equivalent process for a whole economy?
Or is this a meaningless question?

If the economy is re-structured in some way, how can we the citizens ensure that the aim is to re-structure for everyone's benefit? It should not, and must not, benefit just one section of the community. [But I fear it could and will benefit the money men first and last]. To me the basics are full employment, help for those that need it and ensuring that society is inclusive by removing deprivation. I do not mean everyone is equal.

I struggle to see how the Fed's move will have a positive effect on job creation - more downside than upside - for two reasons - wealth effect and exporting jobs.
a) Wealth Effect - The Fed's move may have a positive effect on the stock market but could be more detrimental to housing - an American families largest asset. Rising inflation will take more away from already shrinking paychecks to pay for essentials, which leaves less for house payment. Houses become less affordable lowering already depressed prices and leaving American families feeling less wealthy!!!
b) Exporting jobs - The lower cost of borrowing entices large corporations to borrow more in the U.S. and invest abroad exporting more jobs overseas. With some smart accounting gimmicks they can lower effective tax rates as well - claim interest charges in the U.S. and not repatriate profits. Net effect - fewer dollars coming into U.S. treasury, larger deficits down the road, and fewer jobs!!!

A much better alternative to job creation - reduce taxes. We would all be much better off - the world needs the American consumer and the American consumer needs the world.

45. At 11:00am on 05 Nov 2010, stanilic wrote:

................. Welfare is no longer an option; it is an expensive cruelty we can ill afford.
------------------------

So we are back in the victorian era of extreme poverty, cruelty and deprivation are we or do I misunderstand your point?
For me welfare is an essential aspect of our society wherever and whenever it is needed. To me its a sign of a civil and moral society.

I think this guy’s got it right when he calls it one big experiment. https://www.mindfulmoney.co.uk/2219/economic-impact/qe2-is-a-big-experiment.html And a worrying one at that. Yes it’s done great things for the markets etc for now, but what about the longer-term impact? You’ve got the shift onto emerging markets and then that’s bad news for everyone.

45. At 11:00am on 05 Nov 2010, stanilic
'Welfare is no longer an option; it is an expensive cruelty we can ill afford.'

Are you suggesting that we abandon capitalism or did you have something else in mind? Is there some specific model you think we should be following here or are you refering to specific aspects of welfare rather than welfare state capitalism in general?

Staphanie

'Let's hope it's not.'

Yes, this is what we are all reduced to - crossing our fingers!

Why doesn't he ju get down on his knees and pray - would achieve about as much!

What really grates is when it all falls apart, Merv and Ben will retire to (by then) their Quintillion dollar pensions - whilst the rest of us join the queues for the soup kitchen.

Currency war, here we come.

I refer you, Stefanie, to the BBC site at

https://bbc.kongjiang.org/www.bbc.co.uk/news/business-11697483

There is the response. No one is happy with Bernanke's attempt to cheat his way out of American debt. If Britain tries it, the UK will be toast within a fortnight.

52 squarepeg

This is an argument for work as it is good for people.

How society chooses to organise itself is another matter, the psychological benefits of work have been well known for a long time.

Sure we then get into debates as to the quality or the work, how it is organised and so on but let us at least establish the principle that work is better than welfare. Leaving people to rot on welfare is just a waste of people and money.

In that I appreciate that there are some people who may be too frail to work which is another matter but they are a responsibility of us all in one way or another.

Beggar thy neighbour is right on!
American achievements: stocks up (artificially), dollar down (artificially), and so too US bond yields (artifically).
This latest American Q.E. hasn't a snowball's chance in Hell.
Since when can you balance a real economy on artificial legs?
It won't work for the global economy, and it won't work for the American economy, though the Wall-Street Boys will make yet another killing with their stock-profitting toys: front-ending loading, beating trades and accumulating profits for bonuses.
This Q.E.2 was meant to "beggar thy neighbour". It will definitely not be expansionary for the global economy; nothing ARTIFICIAL can be expansionary for the global economy because when the ARTIFICIALTY ends, when the Wall-Street Boys have sucked out billion more in stock profits, who do you think will be left filthy rich, the common folk?
Is the US simply exporting its demand shortage to the rest of the world?
The critical piece is missing: What is the motivation of the United States? I'm not sure, but history speaks for itself: American bundled derivatives (hiding worthless bad debt) are still causing havoc, negative credit default swaps, betting against soverign debt are still causing havoc - when was the last time the United States of America did anything economically that was not, plain and simple, for the benefit of the Wall-Stree Boys.
So, look for an American-elitist motive.
Look for the negative consequences on other countries.
As far as possible STOP DEALING FINANCIALLY WITH THE US.
The crux is, as you say, dependant on how other countries respond, and if I could control the world, I would slam the financial door on the United States. Go and play with your FALSE money, and do it by yourselves!
The United States has set in motion
- completely ARTIFICIAL inflation on commodities,
- completely ARTIFICIAL delation on the dollar and
- when the dust settles, the United States common folk will be poorer, for the most part pensionless, homeless, unemployed and ready for rebellion. Obama's ready too. There is already signed the legislation needed for the declaration of Marchall Law.
Ask yourself: "What value do the American bonds have? Do you think China should not be irate? They bought American bonds on good faith, and this is how the Americans repay them. Do you think Germany should not be irate; it's already on to the American shenanigans; this is why it outlawed negative credit default swaps.
We are watching history: the death throes of the United States of America.
All will be roses for a very short while. The stock market will climb; but suddenly and without warning, the stock market will tank. And their will be worldwide consternation!
How can the American economy grow? What does it produce? All the production has been exported to countries like China and India. American manufacturing is dead. Lending is dead.
I put great hope in the G20 where I expect the United States of America to be lambasted.
The US sees competitive depreciation as a win-win for them.
Oh?
I hope they are prepared to buy all those bonds themselves because any country that comes near these bonds is damned fool. Lowering US interest rates? How much lower can you go than zero, and still the banks just aren't lending.
Good on Charles Dumas: In the Dumas view, the negative impact of QE2 on the US will be significant, and operate much more quickly. A weaker dollar will hit real incomes by raising the cost of food and energy; he also thinks that rising inflation expectations at the 30-year end of the US bond market could actually push mortgage rates up as a result of the Fed's move.
As I said, the American economy is in its death throes.

50. At 12:20pm on 05 Nov 2010, SleepyDormouse wrote:

So we are back in the victorian era of extreme poverty, cruelty and deprivation are we or do I misunderstand your point?
For me welfare is an essential aspect of our society wherever and whenever it is needed. To me its a sign of a civil and moral society.

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

Welfare has to be paid out of the value created by the economy. My question is how can you compete with 2 billion Asians who can outproduce you, undercut you and do everything at a third of the cost.

Welfare has to be earned before it can be paid.

It's not good enough to say, 'a civilised society' etc, etc

Economic reality says, party over, start working and make things.

56. At 1:13pm on 05 Nov 2010, BluesBerry wrote:
As I said, the American economy is in its death throes.

Don't think so. Its merely defaulting on its paper.
It still has a big economy.

These mods are good.
If this is asa result of the strike, any chance we can keep the newbies?

First the crash

Then the bank failures

Then the bail-out

Then the mass unemployment

Then the Quantitative Easing

Then the Trade Wars

Then the rising inflation

Then the unrest begins

No, I'm not talking about the Credit Crunch, but the Great Depression of the 1930's. And we all know where that path leads. History is repeating itself.

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

China and Germany are just miffed that their exports to the US will be more expencive, which will in turn affect their economies.

Maybe the US ultimatly wants to get to 1 to 1 exchange rate with China which means US citizens will not buy Chinese goods because they are too expencive, then said goods are manufactured in the US creating jobs.

At the end of the day the only reason for job outsourcing to the China's and India's of the world is the cost of labour, something which is partly decided by exchange rates. Housing costs also have a huge influence on your labour costs which is why they need to be significantly reduced in the UK, Europe and the US.

Exactly twelve months ago this was posted on the BBC blogs under the article ‘Boxed in’ @ 4:31pm on 05 Nov 2009

I note that the UK treasury issues gilts via the Debt Management office, only to have the Bank of England buy them back.

Why one would ask is this the case, why can’t the treasury borrow directly from the Bank of England?

Well oddly enough the Maastricht Treaty Article 104(1) forbids this, the purpose being to prevent debt happy governments causing inflation in the Euro Zone.

Given that so far the Bank of England has spent £173 billion buying gilts and only £2 billion buying commercial paper, it is now abundantly clear that Quantitative Easing is a method of funding Government without officially breaking the rules.

When Quantitative Easing pauses, (I say pauses as opposed to stops, because if it has been done once it can be done again), how will the government fund its debt?

I find it difficult to believe that any investor would buy fixed interest Government debt, predominantly because there is a significant risk in the Bank of England watering down the real value of such an investment by more quantitative easing.

But of all the things that have surprised me the most, is why the above has not been voiced by the various economic and political commentators.

Can a conspiracy of silence on this issue, actually convince institutional investors that all is still well in the world of funding government debt?

Smog in Warsaw (61) dismissed China and Germany's concerns as being 'miffed'.

Well, judging from the most recent G20 communique, it looks as if 19 out of the 20 will be miffed.

From the communique:

"Advanced economies, including those with reserve currencies, will be vigilant against excess volatility and disorderly movements in exchange rates."

https://www.bloomberg.com/news/2010-10-23/g-20-communiqu-on-currencies-financial-supervision-imf-full-text.html

The QE Devaluation was a unilateral American move in the face of all the world's leading economies.

They are all entitled to be miffed.

So should each and every one of us.

#50 & #52 SleepyDormouse & Squarepeg,

Whilst stanilic will have to explain his true meaning, I think you have to take the quotes that you highlighted in the context of the rest of his post. I believe that stanilic was saying that you have have to find a way of putting people back to meaningful and valuable work rather than exapnd welfare provision. I totally agree with that proposition.

It is not just a question of cost. We desperately need to give people far more than income. We need to give our population the ability to create some true pride in their efforts and thereby promote their self-esteem. We need to rollback the need for welfare (NB that does not mean rollbacking the State). We need a whole new view of both politics and capitalism.

45 stanillic

I'm sorry but you are the one who has to come up with the answers. There are only two types of work. The first is where you provide something that people value and are prepared to pay for. The second is in the provision of services by the state judged best provided by the state. The second is based on the fitness of the first. The first has to operate in a competitive marketplace. The objective of the Henry Ford production approach is to de-skill operations wherever possible. That means you do not need as many skills available in the economy to produce goods. However once that is in place as a process then the production unit moves to a low cost labour area. There are clear pointers from this as to what area people should seek to work in. They are either high tech - or specialised skill - or protected by Health and Safety or professional criteria (You dont want a DIY surgeon do you, anymore than you want a unqualified Thatcher doing your roof) - the specialised skill can be high or low tech related it does not matter the key word is skill. Mass manufacturing has gone and relatively low skill high paid jobs have gone with that movement. You are not looking at history. The EU put substantial grant money ie subsidy into Spain to establish car plants in direct opposition to UK facilities. Auotmakers, unnamed to avoid moderation then gratefully trained grateful locals to work at less than 1/2 the UK rate. Ford has now moved some Transit van production to Turkey. What rate do you think the grateful locals get in Turkey. That work is not coming back. I could spend all day saying why you are wrong, example after example. century after century. If anybody wants to operate in an environment they have to adapt to the environment. There are rules and in most cases people simply do not want to know the facts.

There are great opportunities at present, right here right now. Change brings opportunity. But if you dont look for it then it is not there.

The blog basically splits into 3 types. 1 Doomsters, 2 Wheres-the-reset-button-hit-it-please, and 3 Pragmatists, then Miscellaneous Others. As I am operating in this economic environment I consider I am a Pragmatist.

I am quite happy to leave the East to mass producing stuff with low cost labour. They are remote from market with a cumbersome supply chain. They are also by-and-large very good at what they do, it is just they are self-limiting due to their strategy. If you reallty want to worry then the time to do so is when they get smarter but by then we will have had a chance, at least some of us, to get smarter again.

As for your CEO. I dont take any notice of conventional corporates. Lobotomy jobs in suits or bit-part actors selling a corporate line.

@55

Stanillic my man, as you must be acutely aware as AVO sector there is no shortage of work. I seem to think you are in that area. The issue is paying for it. If people want to work they can do. If this thing called work is so beneficial that is a good thing surely. Therapeutical even. No? Then the issue is pay and expectations. Arh. So how do you expect to compete with countries that do not have these luxuries called UK minimum wage(in the top band in the world) and welfare (developed country standard). Only by being smart and keeping it local or cultural or skilled. Guess there must be cultural problem then or just not smart enough or wrong skills.

Sorry I have to go.

Regards

If assets are overvalued the longer they are prevented from reaching their new true value the longer any real recovery is put off. QE is just an attempt to delay the inevitable.
As Merv said the money from QE seems to get stuck in the system. By the time ordinary folks get to see it - if they ever do - its value has diminished.
One economist was asking even if elements of QE worked, what is the exit strategy? Sounds familiar?
As has been previously quoted from Albert Einstein
Insanity: doing the same thing over and over again and expecting different results.

63. blefuscu

I didn-t 'dismiss' them as simply being miffed, just stated that they obviously were, and as you say 19 out of the 20 will be miffed.

The US seems to be putting its own intrest first but is it doing anything that, say, China hasn't been doing for a long time?

Not read the blogs for a few days.

Very glad to see Fathom get it although they can't get over that "bank bond holders must be protected at all costs" BoE nonsense.

House prices are holding back the recovery not protecting jobs. There are millions with jobs who want to buy but can't afford these prices or won't invest in a loser. A million new homes are needed today and the builders, suppliers, etc want the work. The whole east coast is crying out for development, for new commercial ports, railways, roads, factories, homes. Liverpool and Wales are ripe for the creative and research industries, for academia at a cost we can afford. There isn't a UK MBS worth the name at the moment but there could be a 100s of billions of new ones to get the city flying on real banking business.

The banks and negative equity mortgages need to be handled. I suggest doing the above, house prices will collapse, Use QE to buy the poor mortgages for huge discounts and turn them in to BoE mortgages fixed for term at the current gilt rate.
I don't like it because it is buying votes with our money. But Labour put us in hock to the poor mortgages and we have to get out and get as much of our money back as possible.
But not for BTLs. They wrote off income against tax like a business, they can fail like a business.

Cameron, do the above and you will unleash us.

As for the FED. Consumer capitalism needs efficient business' with a well paid workforce and canny investors. The US economy has a serious structural problem. It's income differential has lowered the living standards of the workforce, created a proportion of investors who aren't canny, and it's political decision making is dominated by corruption.

Healthcare and progressive taxation are the correct policies but not enough on their own. It's a 1-2 generation project for the US and they don't have the will.

US QE is pointless, it just reinforces the same structural problems. Old fashioned fiscal infrastructure stimulus would work better but the corrupt politics won't allow it.

As for the currency manipulation problem, just add a tariff across all imports that reflects the difference between the real currency value and the manipulated one. Make it public. Set it everyday based on a basket of non-manipulated developing economy currencies. China will fold very quickly because Europe will do the same.

The euro problem can't get around the fact that it's not the fault of Greece, Italy and Spain that their trading partners of 4-5,000 years in the eastern and southern Med are subject to EU exclusions and tariffs, are the playground of US and UK military adventures and strategic posturing for UK and US domestic political reasons. Northern Europe needs to drop the tariffs, exclusions and military adventures or make transfer payments of 100s of billions pa in compensation to the Med members.

You want honesty, there you go.

Unless surplus countries (particularly China, but also Germany which clearly has a structural surplus)do something to address their surpluses then deficit countries are going to take actions like this QE2. The effectiveness of such policies is questionable because you soon lose track of the channels of effect -especially as I no longer have faith that current asset prices bear any resemblance to what might be termed long term values. It is hard to know what the (income) redistributive effects of these policies are (beyond short term gains for some in finance sector, and losses for those holding lots of dollars)but I imagine long term they will be significant, but I would bet Bernanke has no very clear estimates of what they will be, and there is a lot of anger in the US already about dispossession (Germany was there in 1920s).
US can try this because it is big and can still borrow but I fear that some small economies like Ireland already in death spiral beyond their own control -perhaps Germany will buy a lot of their stuff -not holding my breath!

QE1 and QE2 can have no impact on the American Economy, neither can it create jobs. Ben Bernanke knows this or he is a fool. The honest truth is that Bankers have created and marketed products like CDO's, CDS's and other hybrid cocktails that can be terribly disruptive and destructive. The premise for their creation is that asset prices will only rise and never fall. Central Bankers know that a lot of Banks Assets is junk so while they cannot create jobs they are doing what they can - sterilize the junk, make money cheap and inflate Asset values in the hope of changing social mood thereby stemming an eventual run on the banks.
What this does is postpone the inevitable from today to tomorrow, rest is left to hope and prayer. In any business cycle the strong survive and the weak fail, from the rubble will come rejuvenation. There is a major moral hazard in the US strategy as it protects the wealth of the wealthy with the earnings of low wage Taxpayers. Catastrophic financial failures are a natural feature in Economics history - natures way of pauperising speculative rich and redistribution of wealth. Massive failures are always welcomed by the poor as it is Gods way of leveling the playing field. When we tamper with the natural course of events we pay a price. This price is now going to be huge whenever it comes due. I foresee either hyper inflation or total deflation, maybe both but I am not sure which comes first.

64. At 2:36pm on 05 Nov 2010, foredeckdave

I would certainly agree. Welfare as an intentional political alternative to work (I don't mean the life-style choice nonsense) seems to have very little to recommend it. It seems the difficulty is creating any kind of meaningful work in the context of the current form of globalization (free international capital markets).

I find some of the ideas of neo-chartalism quite interesting in terms of full employment and job guarantees but can't claim to really understand it clearly yet.

I do feel (at heart) that we live a privileged lifestyle in this country which is generally under-appreciated and unsustainable in the long term (even without the current financial crisis). So, yes, a new view of both politics and capitalism and also a new cultural view point. That last one might prove even more difficult than the other two.

64. At 2:36pm on 05 Nov 2010, foredeckdave wrote:

"#50 & #52 SleepyDormouse & Squarepeg,

........... We need to rollback the need for welfare (NB that does not mean rollbacking the State). We need a whole new view of both politics and capitalism."

-------------------------
Yes, I think you have summarised much of what I have been writing in these two sentences. I cannot dispute this. However, it is easy to state the need, far less easy to define where we are going now and what any new 'stability' might look like [or what we all want to see]. This is where the problems start.

The aims need to be clearly defined as they set the framework for this new 'stability'. The objectives would be recognisable stages along the way and when each is achieved it would show that we are progressing. [The alternative of a humungous revolution to achieve all in one go is not an acceptable/tolerable way forward].

At the moment the aims and objectives [A&O] are not even on the table. We are definitely morphing into something different - but what? Is this a random walk, or do some people actually have a controlling vision [a set of A&O that they are keeping to themselves]? I do hope not. The implications would be horrifying.

So what should our country become?

At 3:04pm on 05 Nov 2010, TSArthur wrote:

Unless surplus countries (particularly China, but also Germany which clearly has a structural surplus)do something to address their surpluses then deficit countries are going to take actions like this QE2.

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

Germany's surplus re the Dollar is irrelevant in that the currency is the Euro and the Euro is running a deficit itself. Think of Germany as the Black Country of 80 or 90 years ago.....it produced goods but was esconced within Sterling which was in deficit.

China is, of course, different (as is Asia inc Korea and Japan).

The 'war' is between US and Asia as a whole. China is clearly the biggest single player.

The American QE is very damaging to UK real prospects (except the City who will play the currencies for the banks to cream more profit)

Germany's exports are, of course, not so good within the EU Eurozone...see Ireland, Greece and Co. But that's another story.

Western countries could restore competitiveness and trade balance with China and India through investing in the automated mass-production of mature consumer and other tradeable goods.

Ford had advanced plans many years ago to fully automate car production so totally liberating manual labour from repetitive tasks.

The labour released would, when reemployed and retrained, facilitate the development and manufacture of novel products and services.

I am always amazed at how one part of a post is seized upon out of context so that a heap of damoclean filth can be dumped on the head of the poster.

My comments on welfare have been made in the context of trying to create a sustainable economy based on manufacturing in this country which provides full employment. This is the world in which I grew up and which this country should seek to revive in principle.

I know it won't quite work like it used to but it is a model to which we need to aspire. Yes: forward to the past, if you like. Sure, there was a lot wrong with it but there was at least the basics: a job, social housing, public transport, good music and decent beer.

For my part I have put all ideologies to one side for fear that they only serve to confuse. I can understand that a lot has gone wrong but we need to put in into a context so that we can go forward to a better future.

I can't see that better future yet but I certainly know what I don't want and that is what we have had this last few decades. Decent people have been dumped on the scrap-heap and abandoned because the economy can afford the welfare payments: it wasn't right then and it is even less right now as we are having to borrow the welfare money. The whole this is mad: utterly barking. The only way we are going to turn this round is with work for everyone.

On the subject of forward to the past and the uttery barking we were brain-storming the Tea Party in the office this morning. Did you know there might be a fruit cake faction, a sponge cake faction and the madiera group which is split between cherry and plain? Those who go to protestant churches will of course be drinking Orange Pekoe whilst the nationalists will stick with green tea as always. There is a militant faction that drinks black tea and a travelling group that it partial to Russian Caravan tea. The debate broke up over cucumber sandwiches in that there are those who cut the rind off the cucumber whilst others leave the crust on the bread. Once you add in the different sorts of bread and the option of margarine and butter, we have more versions of the Tea Party than Mr Trotsky's 57 varieties.

Dean Swift is not dead: his spirit lives on! There is hope.

Dempster :
"I find it difficult to believe that any investor would buy fixed interest Government debt, predominantly because there is a significant risk in the Bank of England watering down the real value of such an investment by more quantitative easing."

I'd buy sterling fixed interest govt debt. Can't you see that QE drives bond rates down. Too many reserves whilst they are removing their own long term debt. Its a license to print money. Oops.. wrong phrase there but you know what I mean.

The average intelligent investor - what is he to make of all this?
The reason I ask is because the key to the success of this QE policy lies within the brain of investors and what they decide to do. You can see that the printing of money does not do anything if the QE money released is spent in buying bonds or finanacial assets. It merely pumps up the prices of these assets. The cash released does not go into consumption or increase demand, because out there we have western economies who are in hock up to their eyeballs and are making cuts to try to rebalance the books. These cuts effect public spending and public sector jobs. No one who thinks their jobs are at risk is going to run out and buy a new car or make any major purchases in these circumstances. Lets not forget there are a huge number of public employees who are likely to be unemployed shortly. This will also have a negative effect on some jobs in the private sector. In Britain the banks are not anxious to make mortgage offers unless there is a very stiff deposit available, the only reason for this I can see is that they think that in the longer term houses are likely to depreciate substantialy. So in a world of the bubble, low interest rates and low consumer demand where is that QE money likely to go? Just look at the stockmarket.... BOOMING. Gold.... BOOMING Emerging markets both sovereign bonds and equities...... BOOMING. And why not? after all there seems to be a constant demand from very well healed investors (governments) and it is keen buyers who pump up prices.
Everyone is jumping on the bandwagon - how can they go wrong?? That is where all your QE money is going. This can go on for a long time, but beware, for as soon as investors observe a possibility of change of policy and the QE/easy money falters, then they will bail out with such speed that the deflationary results and the hot bubble money looking for another target may cause another crisis.
This policy is not going to make jobs or increase demand which is what western economies need to maintain growth.
The only thing that could help would be the invention of some new 'must have' thing similar in scope to the internal combustion engine.
Anyone for another tulip buying bubble??

75 stanilic:

'My comments on welfare have been made in the context of trying to create a sustainable economy based on manufacturing in this country which provides full employment. This is the world in which I grew up and which this country should seek to revive in principle.'

Sounds like a living museum. This happy land was after WW2 I presume, just after rationing stopped, yellow things called lemons were suddenly available, and following a cull of manpower in the war, and when infrastructure development like the National Grid, National Gas a strange new thing called Motorways and not many had a novel device called a car. Oh yes water mains were often made of lead and outside privvies existed. Guess the only way was up. I'm sorry dude I've just gotta build me a time machine.

Is Dean Swift related to Jonathan.

You will definately be disappointed if you put your faith in everyone.

There are Sunrise industries and Sunset industries. You cannot turn a Sunset into a Sunrise. They are in different directions.

We would all like to stay forever young, except maybe some - eg perhaps the Australian Aborigines who where classified as wildlife in the Austalian 1969 Wildlife census and listed as population figures alongside kangaroos and suchlike. Like most things it depends where you are in the scheme of things.

You're still are not looking at the facts. 'If you dont know where you are going any road will take you there.' Lewis Carroll (aka Deacon Dodgson)

Enjoy your weekend.

Regards

#62 demptser

Thanks for the explanation regarding the Maastricht treaty. That certainly helps clarify things. So QE (at least in the UK) is simply the Government printing money by another name. Which of course means that all the arguments about needing public spending cuts because of the unaffordable cost of servicing public sector debt are pretty bogus - but that's another matter...

Personally I think QE2 is absolutely necessary. The financial sector had effectively been printing money in vast quantities throughout the past decade by using CDOs etc to work round the constraints on FRB. That form of money creation is now more restricted, so the Government is creating it instead. This is better I think. The interesting question is how has all this money creation happened without causing inflation (answer - it hasn't, it's just that the inflation has been limited to asset prices rather than consumer prices).

What QE doesn't do is address the main underlying faults in the system.
1. a highly uneven distribution of wealth (both internationally and individually)
2. far too much money being saved at least by some people/countries (partly caused by 1, also through mis-designed pensions systems)
3. vast asset bubbles (particularly in housing) - largely caused by 1 and 2.

We need QE2 just to keep the system ticking over, but we also need to redistribute wealth (though taxation, or through letting banks fail - take you pick), discourage excessive saving (abolish ISAs, tax relief on pensions, etc?) and to burst the housing bubble (abolish planning constraints on land use except where land has specific environmental/recreational/scenic value?)

It's the likely failure to address these underlying issues which may cause this recession to last a decade or more.

76. At 4:16pm on 05 Nov 2010, MetalGasket wrote:
'I'd buy sterling fixed interest govt debt. Can't you see that QE drives bond rates down. Too many reserves whilst they are removing their own long term debt. Its a license to print money. Oops.. wrong phrase there but you know what I mean'

Fixed interest gilts are giving a 3% yield
RPI is 4.6%
Index linked government debt pays RPI + 1% = 5.6%.

If you're buying it as an investment as opposed to trade it, long term the fixed interest debt must be devalued by QE.

I reckon sooner or later if there is more QE you will see overseas investors off-loading fixed interest gilts.

#77 DemoDave
"The only thing that could help would be the invention of some new 'must have' thing similar in scope to the internal combustion engine."

Surely we have had a succession of these already?

Foreign holidays for one. How many people are employed at the airports and the aircraft manufacturers etc?

Then there is health care.

Call centers briefly took up the flame before they were moved offshore.

The governments hope that Green energy will be the next big thing. Employing millions.

Me? I think I will invest in some thermals..

#75 Stanilic
Will the Tea Party realise that Earl Grey (with apologies to Viscount Grey) enhances forward thinking..."The jobs are going out all over Europe. We shall not see them filled again in our time". Then again they could drink Chinese gunpowder tea for a taste of the future.

"That, in a sense, is why the US sees competitive depreciation as a win-win for them. If other countries, with flexible countries, don't respond with QE2 of their own, then their currencies will strengthen, and demand for US goods in those economies will (theoretically) go up. If they do respond, with more easing to counteract the rise in the currency, then global demand goes up, and the US is once again better off."

That doesn't add up. Ignoring the possibility of countries giving up on a reserve that loses value overnight, cutting their losses and demanding a solid global reserve, there is a flaw in the second part of this paragraph

Mutual devaluation isn't a victimless crime. There is a reason the whole world hasn't stuck an extra zero on their currency and celebrated a 90% reduction in debt. Two, in fact. It would take more than one zero to rid ourselves of this millstone, and the people who lose the zeroes have an advantage. To wipe out the debt is to deconstruct the value of money. No-one is prepared to do that.

You can't see-saw the world currencies out of debt. The debt is of labour owed. One way or another that will be repaid.

78 Not Buzz Windrip

Deaning is what Jonathan Swift did.

Yes, I am looking back from where we are, asking myself what went wrong. It wasn't just Thatcher nor the Unions. It was also because we failed to adapt to changing conditions.

We are doing the same thing all over again being pulled along by events in the hope that something will turn up. The vision has gone: the attitude seems to be that so long as most are getting by nicely what does it matter if life is bad for someone else. This wasn't right in 1970 and it isn't right now.

I am trying to find the right vision so that we can start to move forward. My old fellow puritan Oliver Cromwell was asked in 1640 what he wished to see. He replied that he did not know what he wanted but he certainly knew what he did not want. This is where I am now.

All the ideologies have failed in one way or another so we have to start over and find our own solution. We must begin to build our own Sunrise otherwise there is no future. For that we must first get those fields, factories and workshops back into producing things. This is the only way we will generate the value to clear down our debts and give the kids a better tomorrow. How are we to marshall our resources?

47. At 12:14pm on 05 Nov 2010, onward-ho wrote:
I used to buy nice English Clark's shoes .....now I go there and find cheaply made foreign rubbish ....... I wouldn't mind paying one hundred quid, even one hundred and fifty ..... but they don't have the ones I used to buy two pairs at a time.
==================
I suggest that you get some Loake's shoes. They are mostly made in England, except the slip-ons and last for a long time. And they cost less than £100.

82 tonyparksrun

Thanks: you have given me a good chuckle after a day with HMRC.

I must confess to being a bit partial to gunpowder tea: it has a nice strong flavour that boosts the brain.

72. At 3:37pm on 05 Nov 2010, SleepyDormouse wrote:
64. At 2:36pm on 05 Nov 2010, foredeckdave wrote:

"#50 & #52 SleepyDormouse & Squarepeg,

........... We need to rollback the need for welfare (NB that does not mean rollbacking the State).
=========================================================================
We should remember that the state is there to serve the people and not the other way around. The same goes for our politicans. I fear that is where we have been going wrong for the last decade or so. The state is becoming all encompassing while our politicans acted as if they were above the law.

The state should be there to provide a safety net and not a way of life. We have now in the UK a state that is almost dictatorial in the way it tells us what to do. It also allows people to make a life style choice and live off the state.

Should we go back to the work house, NO, but neither can we stay the way we are. The big question is how do you break the cycle.

84. At 5:40pm on 05 Nov 2010, stanilic

I would suggest the vision should be of democratic equality. You may have read (and been bored by) my posts before on this subject. A totally free market is where we fight each other for what we want but, in choosing democracy, we have decided to put down our weapons, both physical and mental, and to live together peacefully on the understanding that we will all get our fair share. It is the duty of the government that we vote in to design and run a form of capitalism in which each and every individual can work using his/her talents to obtain his/her fair share.

With referece to the post by PrudeBoy at 5.15p.m. today 05/11/2010, I regret that he has completely misunderstood my meaning of the phrase of 'inventing some new must have idea' (sic)
By 'must have' I gave the example of the internal combustion engine. That is 'must have' because it transformed whole transport sytems worldwide. In effect 'must have' meant exactly that - evey country, every person had to have it to continue to belong to the modern world. Indeed countries which were third world were able in some cases to transform their fortunes by being able to access import and export as well as produce oil, minerals, agricuture products etc. etc. The impact of the internal combustion engine created hundreds of millions of jobs and wealth beyond comprehension both directly and indirectly.
The nonsense of trying to compare a 'must have' item to foreign holidays health care and green energy schemes should now be transparent. (I hope)
You invent something transformational and it has exactly that effect.
We don't need more foreign holidays, flat screen tv's or ipods for these purposes also I would add.
So if you could let me know your ideas I promise not to copy them.
I think I'll go out now to play with the fireworks.

Trains and Property Prices.... (indications)

The High Speed Link cost 6bn - sold for 2bn - a 67% write down - about right for all of UK property! The tragedy is that the fools of Threadneedle Street don't understand! (or are unwilling to admit that they do!) Get the right-down into the market, do the repossession, bail out the banks and then and only then can the country recover.

We need to take steps to get the country working again at, making and selling things - the only way that this can happen is that the debt is deleveraged and property assets repriced to make us internationally competitive again. Our biggest resource is our talented and hard working workforce and nothing else, and especially not, the dead weight of overvalued property. Up with interest rates and use QE to fund rebuild infrastructure - whatever we do we must not seek to inflate property again just to rescue the stupid lenders and the members of the council of mortgage lenders. They have strangled the country at the behest, and with the connivance, of the Bank of England and it must stop!

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

I'm so immensely happy with Europe at the moment. They've basically managed to fend off every attack so far: speculative attacks on Greek bonds, media attacks on the Euro, US attacks on banking stability, frauds from rating agencies and so on. Now all that's left is to deal with the mess in Belgium. Those guys are about to get reverse eaten by CEE. What a gore-fest that's gonna be.

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

Why don't we collectively throw off the millstone, the albatross of debt off our necks? Why?

Because there is no representation of the collective that exists outside of that debt. Society has chosen to organise itself in a way that limits itself, inhibits itself, freezes itself, kills itself. Everyone, in the name of freedom, has adopted debt - and thus shackled itself.

This self organising society has basically achieved for itself something far worse than any totalitarian authority could have hoped for.

So, welcome to the end of neoliberalism.

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

85 AnotherEngineer
Thanks for the suggestion, which I will try.
My feet are needing Qualitative Real Ease!
I will report back on how they get on.

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

84 stanilic:

'All the ideologies have failed in one way or another so we have to start over and find our own solution. We must begin to build our own Sunrise otherwise there is no future. For that we must first get those fields, factories and workshops back into producing things. This is the only way we will generate the value to clear down our debts and give the kids a better tomorrow. How are we to marshall our resources?'

A typical UK made product will end up on the high street between x3 and x4 on the hourly rate paid pre tax to the guy making it. It does not take a rocket scientist to work out that shipping something around the world is currently not that expensive and if the guy elswhere is prepared to work for considerably less than the UK worker that there is considerable opportunity to import. Nearer to home in Europe wages are also lower than in the UK. If something is to be grown - food or otherwise - it usually grows faster if it is warmer. Japanese maples grow x2 in Italy compared with the UK. So you have to look at what is left. There is actually a great deal left. But it usually needs some smarts to make it work. It doesnt have to be high tech though high tech helps. There is a big advantage in being local to market. It will take time simply because new skills and some lost skills will have to be learnt. The fact some are adversely affected is very hard for them but overall things still move on.

I am not quite sure what you mean by getting the fields producing things. They are producing things. Unfortunately there is some evidence that locals do not want to work in them, it all seems to rely on immigrant labour. Farms are under the squeeze of the supermarkets but this is the fault of the farmers, there is nothing stopping them getting together and organising their own distribution, but oddly enough they get a subsidy and that tends to change the dynamic.

You have to have the situation that there is some benefit from being in work rather than it works to be on benefit. Much of the problems are related to the stupid encouragement of the UK property market. That has fed through into everything including housing benefit, and the cost of living. What motivation is there to work when you get a subsidised house which you could not afford if you had to earn the money to pay for it. Sounds good to me, all the advantages of ownership with none of the downside of ownership. And if you are the right type and trash it you get a refit handout.

It is government which has failed, not ideas. It is big business that has failed, not the customers. The customers are still there. This is still a consumer society.

A great many corporate suit people think that they are the reason things work. Actually the reason they generally work is because the corporation has a dominant market position and the customer likes the reassurance of dealing with a corporation. In many cases the suit is pretty much irrelevent. Take these so called achievers out of the corporate environment and they often flop. That is one of the reasons unemployment will remain a problem. Corporations are leaving or downsizing. Suits are being shed, Ex corporate suits are not a lot of use, they need a corporation to carry them. I knew one unemployed corporate director who applied for a job and asked how many staff he would have, he expected 8 or 9 to do his work for him, 6 minimum. So he wasnt applying for a salary he was applying for a departments salary. He didnt get the job.

My guess is you talk to far to many corporate types. BTW LAs are corporations, amongst the worst because they dont see locals as customers, just a monoploy income opportunity, no market force in play. There is no need to marshall anything. It is marshalling that is part of the problem, marshalling prescribes outcomes and proscribes flexibility.

I'm not trying to shoot you down but it is actually quite simple. People have to fit the opportunities. If they dont want to it doesnt matter how much they bellyache the world will move on and they will sit on their hands moaning how unjust it is. Being ill is a different matter. People who are ill need support.

You only add value to something if the result is valued by the potential purchaser and sought after. However in a world of bland this is not exactly hard. Perhaps we should start a corporation support scheme, just 3 pounds a weeek will help a bland corporate near you, it could be called BlandAid. Opps its being done already and at more than 3 quid a week - QE and scrappage schemes and grant handouts.

Blandtastic

But none of this is new really is it. Some people say I wonder how it works, some say I wonder why the universe works and some say would you like fries with that.

My thought of the day, the US is looking after itself in the same way as the EU is carrying out protectionism on imported goods and China is re foreign ownership.

The all for one ethos always disappears in the thick of it. We are now going to enter into the me phase.....

87. At 7:13pm on 05 Nov 2010, Chris London wrote:

...................... Should we go back to the work house, NO, but neither can we stay the way we are. The big question is how do you break the cycle.

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

How to break the cycle, I don't know; but here is a suggestion for you all to decry and shout down ......

Much of the developed world has used debt as the basis for economic expansion for many years. Now, this particular chicken is coming home to roost. The level of debt in the non-government sector is just too high. QE seems just to be allowing the banks and other financial institutions to be the main beneficiaries by re-working their balance sheets. But is this altering the total debt on their books? I have no figures, does anyone really know? I suspect the answer is really that not a lot has changed for them if there were a major downturn in the economy. They can cover more losses, yes, but will it be enough? This seems to be the gamble. The UK government is kicking the economy down with its austerity measures. They seem confident of avoiding a double dip recession, but it does seem to rely on the private sector investing and selling.

Government debt is only a part of the problem, private sector debt needs to be reduced. This doesn't change the system; it only allows for a restart in the game. Really we need to be moving away from a debt based economy. There isn't a figure at which one can say can be handled and, go above it, and its not OK. Its a multi-variable problem and its dynamic; the answer will alter continuously. Debt needs to cost more, the more you borrow. For someone to borrow £100 when they have no debt is likely to be sustainable. Borrow the same amount when debt is already absorbing a significant percentage of income would be foolish.

So, how about, in the non-government sector, debt is taxed at a rate which increases with the total debt to income ratio and is also proportional to it. If a private individual looses his job, the increased tax costs fall on the lender, not the borrower. This is to encourage more responsible lending by raising the costs. It will cut demand and reduce the size of the economy, yes, but maybe our economy would be more stable.

As government debt need to work in the same way, there should be no need for the same restrictions. Other ways are needed to control public sector spendthrifts.

Re-reading, do I believe this? Not sure, but what do you think?