From 'competitive depreciation' to 'competitive miscommunication'

Stephanie, I don't know if you read Edward Hugh's Spanish Economy blog but all the evidence he collates there plus the ongoing news from the other Euro problems suggest another crisis can only be a year or two away. The unit labour costs show that Spain, Greece, Ireland and Portugal are continuing to rise versus Germany ( ie their economies are becoming even less competitive). In Spain its clear that domestic consumption is rising but GDP and employment aren't. So what is the source of the goods they are buying and the money to pay from them? Why Germany of course, they have lent Spain their savings so the Spanish can spend them to buy German goods, thus boosting the German economy. So instead of using the Euro loans to reconstruct their economy Spain is essentially using it just funding further consumer spending. Apart from the bit that was used to improve the balance sheet of Spanish banks , by paying off loans from French banks.

But when this money runs out, in about a years time what then? Even greater unemployment, a further drop in tax revenue and the Spanish need a further bail out? And Greece and Ireland and probably Portugal and...

The Euro economies are diverging ever further apart. All it needs are a couple of elections of politicians, say in Germany, who aren't so emotionally trapped ( some may say blinded) by the Euro and it could still easily come tumbling down.

I think it is also important in trying to understand the approach by each member country to consider the nationalisty of banks that are owed money by the PIGS. There is a great graphic at the NYT -https://www.nytimes.com/interactive/2010/05/02/weekinreview/02marsh.html?ref=global

I have always thought it was a bit rich blaming "profligate" southern European countries. If these countries were so profligate why did the German, French and UK banks lend them so much money.

If EU banks are not going to buy PIGS bonds does it mean we are relying on the Chinese?

Off topic so will be brief. Does anyone else think it is oddd that Nick Robinson (BBC Political Editor) has not done a single comment/blog on the Coulson affair?

I was going to make this comment on his blog but it was closed half an hour before the most recent reveleations were reported by the BBC this evening.

Last Friday the BBC reported, again on Friday night, that Coulson had been interviewed by the police the previous Thursday. Is it just a co-incidence that news on Coulson is released on a Friday night - the night people are most likely to miss the news and too late to make it easy for the Saturday papers to analyse.

Seems to me someone is concerned. I know Mr Coulson is fantastic at his job and we do not want to offend Mr Murdoch but surely the time has come for him to at least stand aside pending completion of the police inquiry.

“Moral Hazard” is a rather interesting turn of phrase for this dilemma, as those effecting it most are incapable of recognizing the morality or the hazards of their actions. Even those able to grasp the rudiments of investor expectations, such as Merkel, must bow to the reality of those ideologues who’s rapine actions and policies cater to an ever growing caste who believe they are entitled to much more than they supply. How can we expect responsible fiscal policy from politicians elected by, representative of, and beholding to irresponsible constituencies? Even those politicians not directly in such a position feel threatened by the actions of those demanding much but contributing little.
This something-for-nothing attitude will not go by the wayside soon. I fear that the painful angst we saw in Greece and France will keep responsible governmental activity a act of final desperation as opposed to one of proactive consideration – let alone one that broaches the moral hazard their methods impose upon investors.
Then again, it could be a decided more depressing reality where governments are populated with very short-sighted and arrogant individuals who emulate the Italian fiscal policies of the 1970’s while crying “FOUL” and laboriously pointing their fingers at more booming economies and insisting that they cease their successful practices.

Cassandra, my comments may well not be pc but they are not racist. Major inventions now lets pick a few fields: Electricity, electromagnetism, nuclear physics, automobiles, aeroplanes, rocket propulsion, space shuttle, bicycle, combine harvesters, tractors, spinning wheels, jet engines, rotary engines, submarines, steel and iron bridges, steel and iron skyscrapers, string theory, evolution by natural selection, genetics, splitting the atom, chemistry and the table of elements, gravity, general and special relativity, organ transplants, the microbial theory of disease, need I go on? The list is the vast majority of modern technology and science.

Now we may well have significant contributions from other nations in the future and there is no intellectual reason why not. However, these emerging societies do need to level the playing field for their populations if they are to unleash and realise their true potential and benefit from it. They have more than enough work to do raising their own societies and this will be best achieved by cooperation internationally especially peace, but also by trading locally and spreading the surplus out fairly.

P..S the internet, computers, transistors, microprocessors, liquid crystal displays, hard disk drives, television, radio, lasers, DNA, human genome, nuclear power, hydro electric power, wind turbines, combined heat and power, oil refining, the Bessemer process for steel production, calculus, trigonometry, astronomy, telescopes, microscopes, electron microscopy, camera, video, film, Mozart, Beethoven, Bach, Elvis, the Beatles, are just a few more UK/US/ European inventions that spring to mind since writing the above.

"Could have been handled better", now that is an understatement. As the banks have never been held responsible for all that they have caused and now want to dictate national budgets to continue their greed, maybe, just maybe, the governments may wish to enact stronger controls over banking and fianancial services and actually protect themselves, as they have failed to protect their citizens.
Governments being extorted by banks....will sanity ever return to the policitcal process or will banking lobbyist be able to continue to purchase favors to the disadvantage to entire nations. Starting to look like Europe in the mid-1800's, and that might not be so bad.
German and Chinese alliance.....didn't they have such an alliance with Japan in the last century.

Fair enough Sage - I am sure the Chinese and the Indians hope all EU citizens hold similar views.

The next crisis will be when one or more countries change their strategy and raise their own interest rates sharply to attract inward cash investment ... possibly a BRIC country or somewhere more obscure, or much smaller in size.

This strategy is unlikely to be pursued by the ECB and is likely to cause mayhem economic depending on who has borrowed from whom and in what currency etc.

Having weaking exports and stronger domestic economy and strong currency to go out and buy in the world can be just as effective as having a weaker and weaker currency.

The question I think is not if ... but ... where and when?

5. At 7:02pm on 12 Nov 2010, Sage_of_Cromerarrh wrote:

But you must acknowledge China's contribution, also India.

Printing, gunpowder and most of all our number system. It came out of India via Baghdad, where some clever sod added the number zero, without which no digital age would be possible. Oh, and also the wheel and pornography (not sure which is the greatest gift :) ).

This explosion in European inventiveness is still in a very small time frame (and too a large extent fueled by Empire and theft) and will be emulated in many world areas over time.

And before you get too carried away with the UK / USA thing, Germany up to 1933 won more Nobel prizes in chemistry, biology and physics than those two countries put together. FACT. (with apologies to David Brent).

The point about globalisation / trade is that it will over time inject democracy in many countries that now lack it.

The Chineese now have a taste of real world power, through their economic might. Not through their army. Armies and wars do not create domination, trade does (a lesson that Hitler failed to grasp and why Germany has had a bit of a hiatus since 1933). They will develop a thirst for more and this will only be possible with human rights and proper democracy. It is obvious that the system there at present is a massive obstacle to innovation; it is a roadblock to the next level and they (the party) know it.

8. At 8:04pm on 12 Nov 2010, nautonier wrote:
This strategy is unlikely to be pursued by the ECB and is likely to cause mayhem economic depending on who has borrowed from whom and in what currency etc.

Flawed logic. Low interest rates encourage investment.

All these clever bankers will have hedged against currency movements.

Hows the NIX index coming along - are we there yet.

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

The issues raised in your analysis can but cause one to fear for the future of the Eurozone, and by extension the economy of the EU, when one factors in the remarks of Herman Van Rompuy (the president of the Council) as reported in Gavin Hewitt's recent blog entry "Battle-lines drawn over EU's future".

His view that "euroscepticism leads to war", and "a rising tide of nationalism is the EU's biggest enemy" must give one pause for thought when viewed in conjunction with Germany's stance on failing eurozone economies. Further, Van Rompuy's statment that "the time of the homogeneous nation state is over" is generations from becoming a reality, insofar as the EU is concerned. The UK may be more vocal in its playing of the eurosceptic card, but as GH argued "... when given the chance, Europe's voters show they see their identity tied to the nation state".

I can't imagine anything that is going to bring about a wholesale change in the views of the EU's electorate. It will need to be something of truly catastrophic proportions to breach the centuries old enmities that define Europe today. Trouble is, likely as not, we will have all passed caring.

@ Natunier

China is rising its interest rates and compulsory deposits...

European sovereign debt has sent bond yields on the periphery to new highs, and leaves the euro about two cents lower against the dollar than when the leaders got on a plane to Seoul.
So, is this reason to panic?
I suppose if Obama had explained the full consequences of Q.E. 2, there my not have been such a panic. Q.E.2 is just another of those darn American gambling games, like Blackjack.
It seems that the Americans may not understand that should their casinos get into financial trouble, they will NOT be bailed out - whether they call the casino SIFI, or by some other name. Of course, if the American citizen doesn't mind...
I doubt that Europe will need more bail-outs because they will adhere, except maybe for the UK, to the requirements re Bassel III as well as controlling SIFIs.
A future crisis?
I doubt it, except in the United States and possibly the UK.
Investors will not lose money holding Irish debt, or Greek debt, or Spanish debt, or Portuguese debt because China, at the China-EU Summit expressed its willingness to lend assistance to any of the EU countries that needed help. They see China and the EU as in the same economic boat.
China is willing and able to reinforce the safety net.

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

Pst. Eurosceptics.

My best friend's cleaner's cousin who is a warehouseman in Frankfurt says that the warehouse is full of freshly printed DMs.

Nudge, nudge. Wink, wink.

Richard I hope you are right about increasing liberalism in China, and yes Germany has certainly made major innovation contributions. In terms of technical and scientific innovations though the UK and US clearly outrank every other nation over the past 300 years. My point is that without liberalisation and freedom of thought innovation is stiffled. Being the cheapest doesn't deliver sustainable quality of life improvements and the Chinese realise this. The Chinese had gunpowder for centuries but adapted it to no more practical use than fireworks for parties. As for the wheel, the invention of that is lost in the mists of time.

We in the West need to think more about sustaining our communities and trading locally. This is the only way we will keep our societies able to afford the investment required in new technology and innovation. Either that or we will be forced to return to an existence of no welfare state or national health service. We rightly regard these as true achievements of our civilisation. The globalisation of trade without true consideration of the environmental impact and loss of local jobs has been a mistake. We are in danger of becoming a nation of bankers and economists rather than an innovative creative society that has benefitted the whole world immeasurably.

Competition needs to be modified by a bigger consideration, sustainability and cooperation. I agree with many others on this site that full employment is a primary requirement of a civilised society. JFH keeps making the valid point that the ever growing disparity between the very rich and everybody else is obscene and counter productive. Community and local solidarity must be rebuilt and this begins by trading locally wherever possible.

Richard,

Tuition fees could be met by the state if we sensibly rationalised how many of our population we send to university. The new system will only be expensive to the future graduates that gain financially from a degree. All the others who have a three year jolly on courses that do little more than manipulate the unemployment figures will in effect be paid for by the others. We will not benefit in any way from having 50% of our population with degrees. We need technicians and skilled workers instead of zillions of economics, business and management studies graduates.

Quality not quantity should be the aim and we should be elitist by intellectual merit when it comes to selection for university graduates and they should be state funded. Others who want a degree but don't make the grade academically can work to a degree oart time via initiatives such as the Open University and correspondence degrees.

17. At 8:51pm on 12 Nov 2010, Sage_of_Cromerarrh wrote:
My point is that without liberalisation and freedom of thought innovation is stiffled.

Agreed. I think this was the point I was making about China and India.

In terms of technical and scientific innovations though the UK and US clearly outrank every other nation over the past 300 years.


Disagree. Though many British contributions were massive.

The defining scientific and intellectual achievement event of the last century was quantum mechanics. The hot spots were Copenhagen, Munich and Gottingen. The chief players Niels Boerh (a Dane) and his main acolytes, a host of German scientists. I know science is international and major contributions were made by British (Paul Dirac) and French scientists, curiously none by Americans (ready to be corrected on this). Incidentally, note that I define German as culture and language not passport or flag, so other great contributors to German culture were Freud and Kafka (whose manuscripts Israel is trying to pirloin no doubt in their myth building aim that you cannot be Jewish unless you are a Zionist).

JFH keeps making the valid point that the ever growing disparity between the very rich and everybody else is obscene and counter productive.

And long may he continue to do so. Something needs to done on this front and quick. I favour making having offshore accounts and a British passport mutually exclusive. Threaten them with statelessness. It is the not paying tax bit that offends me the most; nothing wrong with wealth and ambition.

The excuse trotted out by the ConDem and their ilk is that these people will go abroad if treated harshly; let them, they do not represent the nations true talent.

Richard,

It would be nice to find a use for quantum mechanics to justify the claim of invention of the century. So far the computer, internet, transistor, microprocessor, airplanes, nuclear power, DNA, human genome, must all outrank it and they are all UK/USA. Anyway we're splitting hairs.

Energy shortages and all that flows from it require us to come up with a new economics. This new economics will require massive development of substitution technologies and innovations and reorganising and withdrawing from globalisation of most current day to day trade.

The rise of BRIC nations due to globalisation has brought forward the date that economic growth runs up against resource limits and environmental degradation to right now. We are ill prepared and as yet politically unaware of the problem. Hence we assume that if we can fix the current crisis we can get back to normal. However, normal was in fact abnormal. A window of a century or so provided by cheap stored energy from fossil fuels that took millions of years to accumulate. A brief bonanza for mankind.

Now the biggest challenge our species has faced confronts us. How to survive and prosper without output growth? I suggest we need to begin with planning for local trade and sustainable communities, and funding the state to mobilise our science and engineering base to mitigate the circumstances.

The militaries of Germany, the UK, and the USA have all recognised the problem in recent months. Now we need politicians to do likewise.

18. At 9:01pm on 12 Nov 2010, Sage_of_Cromerarrh wrote:
Richard,

Tuition fees could be met by the state if we sensibly rationalised how many of our population we send to university. The new system will only be expensive to the future graduates that gain financially from a degree. All the others who have a three year jolly on courses that do little more than manipulate the unemployment figures will in effect be paid for by the others.

Agree with the general thrust,especially the 'We need technicians and skilled workers' bit.

However, who decides what is a three year jolly, some state planning department. Going where your mind takes can have positive spin-offs. sensibly rationalised hmmm. (Shades of Yes Minister, "we an extra 221.7 biologists in 2021/2 according to the latest planning data").

Would add that Thatcher turning the polytechnics into universities was a wrong turning.

20. At 9:44pm on 12 Nov 2010, Sage_of_Cromerarrh wrote:
Richard,

It would be nice to find a use for quantum mechanics to justify the claim of invention of the century. So far the computer, internet, transistor, microprocessor, airplanes, nuclear power, DNA, human genome, must all outrank it and they are all UK/USA.

Time travel. Would enable us to go back and correct a post. :)

Seriously, I believe QM is fundamental to the laser, microchip, and the modern world as we know it.

And did'nt Einstein have something to do with the nuclear thingy; he did profess to feeling very guilty at some point.

Computer. Lets give that one to the pasta makers. Old Leonardo.

Yes we are splitting hairs but it is fun.

Personally my vote for second greatest scientist after Einstein goes to Darwin. Though sometimes I am tempted to reverse the order.

20. At 9:44pm on 12 Nov 2010, Sage_of_Cromerarrh wrote:

I suggest we need to begin with planning for local trade and sustainable communities

And how would you do that. A Ministry of Planning. It has been tried and failed.

But show me how you would do it.

Planning. Protectionism (cue FDD stage left). (I wont add rude words beginning with P as I am in Polite mode tonight).

Please buy my UK made TV (it is locally made, even it is Poorly made). Pretty Please. P...

Reverse the order, a kind of unnatural selection?

Yes Darwin was a genius of the highest magnitude. His great gift though can be learned by us all that evidence doesn't lie and points the way to all that are curious enough, imaginative enough, and industrious enough, and open minded enough to follow.

Shame about Einstein's wasted talent post 1917 though. The brilliance of his ideas unfortunately seemed to make him feel anything he did thereafter had to be miraculous. Hence he chased rainbows scientifically and worked in isolation from many brilliant compatriots whom his initial genius enabled.

The lesson to learn there is that pragmatism is just as much a required skill as inventiveness and we can draw many parallels with our current situation from that.

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

Tv's made in the UK can be and were better quality than most of those of today. Our first family colour TV lasted 15 years bought in the 1970's and made in the UK. The tube went eventually as can only be expected after such a length of time. Our second then lasted 12 years agian made in the UK. Same failure as the first.

There is no reason (other than cost of manufacture due to virtual slave labour and no environmental laws, health and safety laws, and no welfare state in current production countries) why TV's can't be made in the UK. We make some of the finest high technology electronic and other products in the world for industries such as aerospace, military, and medical. Consumer products require much lower levels of quality and precision and are hence easy to manufacture by comparison.

Central planning of our economy will have to happen much more in the near future. Again I point to the energy crisis which is upon us without our generally knowing it and which precipitated the current financial collapse of our ponzi banking and economic system based on the outdated economics of continual growth.

One way to accurately reflect the true cost of production overseas would be to factor the carbon produced offshore in the transport and manufacture of the goods provided. Secondly a charge for the welfare payments required and loss of taxation income from a UK worker and company making the product.

I'm not completely against long distance trade, but as I stated earlier it has grown out of all proportion and can not be sustained from an energy, environmental, local community cohesion, and local skill loss perspective.

Evening Stephanie,
thank you for an explanation of the sum total of the G20 conference, discord, misunderstanding and fudge.
I was not impressed at the end of the conference when that nice Mr Obama thanked his hosts for a fine job and then proceeded to answer questions about himself, his re-election, and the role that the US was playing to increase jobs and bring about a global financial recovery. I said that this meeting would be pointless, and so it proved, with no agreement about anything apart from trying to drag the IMF into a policing role (with what authority, since it is largely US funded).
Whilst all of our economic commentators were secreted in Seoul, things have been moving on apace in the rest of the world. The first buy of QE2 resulted in long term gilt rates GOING UP (contrary to design). The bonds bought by the FED had been hanging around the market for some time as they were vastly overpriced, however the FED bought them, making the holders very rich indeed. Perhaps, Stephanie, when you return to our windy and rain drenched shores, you could investigate who owned these instruments and why the FED offered such an outrageous price using taxpayers money? Seems to me like shades of the AIG debt repurchase which seems to have gone quiet now that the Senate have looked into it (paying 100 cents on the dollar to GS).
Still, I suppose the airlines and hotels did well out of the G20, shame about the rest of us.

Stephanie wrote:

"They say it's difficult to prevent the next crisis while the last one is still going on. Eurozone leaders have been learning that one the hard way"

The very simple reason for this is that the current crisis is not over - the idiotically ignorant economists and the perfidious bankers have ensured that the credit crunch will inevitably reverberate for decades. That has been quite obvious from the start - even before the start as the daft ill-educated economists didn't see that what they were doing in the early noughties had to, and would inescapably lead to, the economic cataclysm of 2008 and this in turn must inevitably lead to a prolonged collapse, stagflation and global depression lasting decades.

"Funny thing about financial markets - it doesn't take much to turn a long-term solution into a short-term fiasco"

Rather, it does not take much to turn a short term solution into a long term fiasco. QE = a disaster! Anyone why says it will not is woefully ignorant of economic history.

Afterthought:-

The mist is clearing and I am seeing two poppets one called Mervyn and the other Ben. There are some other characters too - John Maynard, John Kenneth and a gang of noisy Chicago professors discernible among them. The mist is swirling and Ben and Mervyn now look just like hedgehogs, but inverted ones, covered in reversed spines.

John Maynard has his head in his hands and is rocking slowly in his chair moaning and almost inaudibly heard to say "you idiots you got it wrong - deficit spending only works when it takes places AFTER the bubbles have burst and ONLY THEN when it directly creates work and builds necessary infrastructure. What you two fools have done is to try to re-inflate the busted bubbles and that can only ever lead to a deeper and more terrible economic disaster!"

Roll up, Roll up, and get your Ben and Mervyn dolls (poppets) here each accompanied with a thousand pins for you to stick where you please - watch them squirm and fail as you stick in the pins!

25. At 10:14pm on 12 Nov 2010, Sage_of_Cromerarrh wrote:
This comment was removed because the moderators found it broke the House Rules.

Naughty Sage. A Stuffing for Sage.

Extra ten points for me. Null points for you.

Goodnight.

#27. splendidhashbrowns : précis QE/bond purchase is always over generous!

The over generosity is also very apparent in Eire! Bonds were/are being purchased with far too little of a haircut - it just bails out bankers and restore busted banks' balance sheets - it can do nothing for the real economy as it has proved. This is the insanity of the way that QE is being done - absolute lunacy by Ben and Mervyn!

26. At 10:29pm on 12 Nov 2010, Sage_of_Cromerarrh wrote:
Tv's made in the UK can be and were better quality than most of those of today.

They were up to a point (the science bit, all clever science inside and then the knob fell off). They were never the finished article, something always went wrong or fell off, and if you complained you got the Basil Faulty treatment. No after sales ethic.

World trade is good. It is a leveller and makes the world a safer place for reasons I gave earlier; it promotes democracy (watch China over the next 5-10 years), democracy denies the breeding ground for extremism.

Growth is good. More.

Sage & Richard,

When it comes to education I cannot agree with either of you (Oh! how unusual!! :))

Sage said that it was about quality and not volume. I just cannot accept that the two are exclusive. The true value of any economy lies in the ability of its people. To limit that is just plain stupidity. The more of our students that can experience Higher Education the better. That won't stop the truly exceptional from achieving their goals but it will assist in raising the general level of knowledge and understanding (well at least it should if it were funded properly).

It has been said before on this blog that we should "ban any degree with Studies in its title". This is the attitude of dinausuars. What is the difference between the value of Studies students any say a Classics student? Whilst Higher Education is specialist, the process was originally designed to be comprehensive (the mixing of students from differing disciplines, the whole process of maturing, etc.)

When it comes to funding that provision then I have to admitt that I recieved a grant (not a full grant as both of my parents worked). During my studies I was also able to gain sponsorship from a company (that made me 'the rich kid on the block'! Now the expenses of both the State and the firm were undertaken as an act of faith that I would ultimately be a better and more useful person. I cannot accept that students should now be made to pay for that experience. This is a cost that the State should take responsibility for - students who go on to earn high salaries will more than repay the cost in their taxes.

If we look at Further Education we find a system that is truly failing its students, lecturers and society at large. The issues here are bigger here than Higher Education and are not even being publically addressed.

Richard,

major disagreement here. World trade must be reduced for reasons of expensive energy in short supply, environmental issues of excessive transportation emissions and emissions from coal burning power stations in China, local community cohesion from the loss of jobs in manufacturing the very products we consume, and the commensurate loss of skills that go with the loss of such jobs.

We should all already know that with the technology we have today, the world would be unable to support everyone having the current standard of living of the well-off west. I choose my words carefully, there are many in US who have little and live in poverty. The same is true of other western nations. The west is not a haven of well-being as some seem to think. I hope we would all like the standard of living of the poor to be raised. But given the current state of the economies, it isn't likely to happen. Our debt-based economy would appear to be in severe difficulty and may not survive. I suggest, however, you should not underestimate the ability those in power to manipulate things to their advantage and to keep things going so they have a good life, possibly at the majority's expense. It won't change quickly.

Probably, the answer will emerge gradually if it comes at all. The world's standard of living could just gradually sink from what we each have as our natural resources that we can afford decline, [even if this is a long time in the future]. Evolution is the natural way. Humans can cause things to happen more quickly, usually by economic conflict or war. We have this now at a lowish level with now obvious end. It absorbs resources we should be spending on technology development to reduce our dependence on raw materials.

I believe that the trend to globalisation has increased our rate of raw material consumption. To reverse this prolific consumption, maybe the global markets need to be curtailed. There is no political will for this yet. The events that started in 2007 could be the start of a long term change in the way we think.

Personally, I would like to see each country and region in Europe start the process of becoming as self-sufficient as possible. It would seem a sensible political measure as it will probably take decades of change and require long term political consensus. Diversification will also help our country should the current terrorism spread into the UK. It needs leadership and vision.

The economic system must also change so that it isn't dependent on continual expansion and growth. The Costs of Economic Growth are becoming too high. Expectations will need to change and our continuing thirst for the new will need to be curbed. The question is; 'how should this be achieved?' There is no correct answer in my view; we need to evolve it towards this. Some objectives may not work, but if we don't start the process, it will be our children and grandchildren that will be affected. But this is never discussed within G20. They can only see the short-term view of their next election. Will it ever change?

32. At 11:21pm on 12 Nov 2010, foredeckdave wrote:
Sage & Richard,

The true value of any economy lies in the ability of its people. To limit that is just plain stupidity. The more of our students that can experience Higher Education the better.

I agree, We agree. Whats the problem.

What I said...

Agree with the general thrust,especially the 'We need technicians and skilled workers' bit.

However, who decides what is a three year jolly, some state planning department. Going where your mind takes can have positive spin-offs. sensibly rationalised hmmm. (Shades of Yes Minister, "we an extra 221.7 biologists in 2021/2 according to the latest planning data").

Would add that Thatcher turning the polytechnics into universities was a wrong turning.


We disagree on the P word not education.

FDD you have to decide how valuable a degree is to society and how many of them are required. I don't believe that a degree is the be all and end all when it comes to ability. We need far more technicians who do not require degrees but quality technical hands-on work place training. For this we need work places to send them to. (Local trade and manufacture)

Again pragmatism is required. We will have even less surplus to invest in full time education in the future so it has to be spent wisely. We should have learned the lesson that assuming future earnings will pay for current borrowings can be a mistake.

I argue that future earnings will be very constrained due to our diminishing surplus of net energy and hence the ability to sustain the degree of job specialisation and length of full time education we can provide to our citizenry.

Richard:

"Would add that Thatcher turning the polytechnics into universities was a wrong turning."

While I would agree, that is not one to leave at Thatcher's door. That piece of legislation came in via John Patten (arguably the worst SoS for education the Tories have ever had) who came up with this, and a wide range of other stupid ideas, under John Major.

Okay, not quite as stupid as the 50% target for children going to university - or many more that Labour gave us - but the destruction of a set of institutions that were designed to provide practical and technical courses, and which had a centralised and well-respected quality control system (the CNAA), was absurd and showed a wilful lack of understanding about what universities are (or should be) for.

33. At 11:27pm on 12 Nov 2010, Sage_of_Cromerarrh wrote:
--------------------
I agree [ see my previous post]

It needs to start with a change in our attitude and our way of life in a small way. We need to individually want less, to consume less. To me consumption is just another bubble that will collapse and consume us. Debt is having a go at us now. If we survive this, resources will be next on the list. Sadly, I suspect the result will be conflict in one form or another.

34. At 11:28pm on 12 Nov 2010, SleepyDormouse wrote:
We should all already know that with the technology we have today,


Sleepy, 'technology we have today' very different from 'technology we had yesterday' and very different from 'technology we will have tomorrow'.

Sleepy, I agree with you almost entirely. You are saying what I said in an earlier post today that the globalisation and emergence of the BRIC's has bought forward the day of reckoning when constant growth bumps up against finite resources to right now.
However, our small disagreement must be that slow evolution is not an option due to our unpreparedness for the rising cost and lower availability of usable energy, and our capital and technological constraints preventing mitigation of the situation anything like quickly enough.

39. At 11:39pm on 12 Nov 2010, Richard Dingle wrote:

-----------------
Yes I know, but technology can develop in different directions. I have indicated a very broad-brush way I would like to see it develop so we have a lower dependence on resources and the rest of the world. From your posts, I guess you just want expansion as fast as possible and in any direction. Do that, and it will have the same effect as splitting the atom in a greater than critical mass mass - a great big explosion consuming all in range. This is not a sensible thing to do.

Richard,

technology can not create energy all it can do is raise our efficiency in the use of it. We are a very long way from being able to achieve the efficiency savings required to avoid energy surplus issues from now on. Net energy is the key and replacing oil with other sources of energy suffers very badly from a reduction in the energy yielded and the usefulness of this energy.

Additionally huge funding is required to transform our economy away from oil. Funds we don't have.

Stephanie, I look forward to your next blog "And PIIGS might fly".
"Funny thing about financial markets - it doesn't take much to turn a long-term solution into a short-term fiasco."
P.St. For Richard - My best friend's butler's cousin's great-uncle has a $.

33. At 11:27pm on 12 Nov 2010, Sage_of_Cromerarrh wrote:
Richard,

major disagreement here....environmental issues of excessive transportation..

Not sure about this.

The metrics of transporting by container ship,say, Shanghai to Southampton, compared to the many many lorries from, say London to Newcastle, might be revealing. I did read somewhere that 'environmental issues of excessive transportation' is a myth; before I would have agreed with you that being one of the few negatives of long distance trade.

How self contained should we be. The UK as a self-contained unit. What about Ohio (would it be allowed to trade with Texas). All this trading within self contained units. Oh, the duplication.

40. At 11:40pm on 12 Nov 2010, Sage_of_Cromerarrh wrote:

We are agreeing. I didn't use the word slow; I didn't think I implied it. I just suggest that evolution is the best way forward. I too am concerned about timescales, just as you obviously are. {Sorry, I didn't read all the previous posts, I rather came in at the end].

37. At 11:36pm on 12 Nov 2010, John Birch wrote:
Richard:

"Would add that Thatcher turning the polytechnics into universities was a wrong turning."

While I would agree, that is not one to leave at Thatcher's door.

I stand corrected.

44. At 11:48pm on 12 Nov 2010, Richard Dingle wrote:
-----------------------------

Current prices do not reflect real costs.

May I suggest that the words 'cost' and 'price' are too often seen as interchangeable. They mean different things. Comparinging prices for transporting goods reflects current demand only and that will be misleading. We should be comparing the long term costs

Richard,

As self contained as possible. There will be major advantages to close relationships with Europe and significant trade and the establishment of centres of excellence but we should all look to local first where possible. On the energy of transport issue think of how the goods get to the ship in China and from the ship to consumers in the UK. This together with the ship journey itself add up to a lot more than a lorry or van journey in the UK alone.

40. At 11:40pm on 12 Nov 2010, Sage_of_Cromerarrh wrote:
Sleepy, I agree with you almost entirely. You are saying what I said in an earlier post today that the globalisation and emergence of the BRIC's

This is so unfair to those that want a better life just like we have.

Over the past 8 years the improvement in outlook for the poor of Brazil, just one example, is a stunning endorsement of globalisation / trade.

The next one will be the gradual democratisation of China.

Richard,

Sorry not going to happen in the short term. It can happen in the medium term if they are sensible and look inward rather than outward for trade, spread their wealth more fairly, and in the case of Brazil and India take urgent steps to turn around their roller coaster population growths. China has done this (perhaps too draconianly with one child limit and the problems of an excessively ageing population this brings).

Anyhow I'm off to Bedfordshire. Good-night and have a great weekend.

40. At 11:40pm on 12 Nov 2010, Sage_of_Cromerarrh wrote:
------------------------------
Your point about energy is well made and it is a theme you return to often. Would it really cost so much [how many bankers bounus's? lets invent a new measure!]

There is a lot of work going on now to find new ways of exploiting the sun's energy - Germany is investing heavily, and I don't see why we cannot in this country. We have high unemployment but could produce the scientists and engineers to do the research and development. If the government would only realise that you cannot identify the student who will produce the idea or make an idea work in advance. All teriary education for native Brits should be free. Then we might get somewhere. Its this penny pinching attitude we seem obsessed with that will be our downfall.

41. At 11:45pm on 12 Nov 2010, SleepyDormouse wrote:
39. At 11:39pm on 12 Nov 2010, Richard Dingle wrote:

-----------------
Yes I know, but technology can develop in different directions. I have indicated a very broad-brush way I would like to see it develop so we have a lower dependence on resources and the rest of the world.

I agree with the above except for ' and the rest of the world'

Trading with the rest of the world is more like to make the first bit (lower dependence on resources) happen.

Just suppose the Chinnese come up with very advanced solar energy panels (happenning already) - would it not make sense to trade. I suppose you would buy just one and reverse engineer and copy in our nice little Engerlander factories. This really might cause political grief. It really would cause your 'great big explosion consuming all in range.'

I am all in favour of using science to give the human animal a smaller and cleaner footprint but this more likely to happen through trade.

You are familiar with the expression, two brains are better than one.

Well trade is really about two (or several) countries being better than one.

The trouble is deep down you have made your mind up on this and it is closed to business.

Richard Just a ps before I go the rise of the living standards of Brazil in the past 8 years is almost entirely due to them being a net exporter of oil and oil going through the roof in price. This should continue for some time so Brazil should continue to do well. If only they could stop having babies at such a crazy rate.

43. At 11:47pm on 12 Nov 2010, KnaveOfHerts wrote:
P.St. For Richard - My best friend's butler's cousin's great-uncle has a $.

LOL

So have I. Unfortunately just the one.

49. At 11:57pm on 12 Nov 2010, Richard Dingle wrote:
---------------------
Yes, many have benefitted I agree. But my point is that it will all end in tears. It must as resources are limited. We need to be smarter about how we use resources. Its just like being at the beginning of this last bubble, say the year 2000 [but don't get hung up on a date chosen pretty much at random]. Some can see this is just another bubble that will burst. I don't want to deny the citizens of Brazil or anywhere else, but we are showing them a false way forward that must end badly.

The smart move is to find a way forward that is not based on rampant, thoughtless consumption.

Sleepy,

definitely my last post of the night but the suns energy still won't do it I'm afraid. Even if we could harness thousands of times more of it than we know how to now we would still not get the energy yield required. Oil is effectively millions of years of suns energy concentrated into liquid form. We have used most of the high energy yield varieties of it I'm afraid.

Solar technology can help as can other technologies. I agree a shift in economic thinking away from superfluous bankers bonus' to investment in science and technology is a must to lessen the blow as much as we can.

#36 Sage,

NO NO NO NO NO NO NO NO NO!!!!!

When it comes to education and in particular Higher edcuation, the more students that can avail themselves of it the better.

Go back and look at the very basis that universities were formed. Their very basis was the acquisition of knowledge and the engendering the ablity to THINK (ie not merely accept what you are told/taught). If our society is to continue to develop we need more and not less students who experience.

I do not argue with you regarding vocational education. I would add that they need to be more prized than they currently are. However, three things need to be stated regarding vocational education. Firstly, it cannot and should not merely be limited to the workplace. Secondly, vocational education has to be funded by the State but also by employers. In the UK we have a very poor record of private sector training when State funding is not available. Thirdly, vocational training should not merely be limited to the technicalities of the job itself, it has to be developmental.

55. At 00:11am on 13 Nov 2010, SleepyDormouse wrote:
49. At 11:57pm on 12 Nov 2010, Richard Dingle wrote:
---------------------

The smart move is to find a way forward that is not based on rampant, thoughtless consumption.

I certainly agree on that as an outcome and it is slowly happenning.

We disagree on the means.

I mean who is to decide what is 'rampant, thoughtless consumption'.

One mans 'rampant, thoughtless consumption' is another man's search for a better standard of living.

56. At 00:15am on 13 Nov 2010, Sage_of_Cromerarrh wrote:
---------------------------------------
Maybe not, but I am suggesting that we need to change our way of life in a significant way also. We need to adapted to lower energy living

In response to
52. At 00:08am on 13 Nov 2010, Richard Dingle wrote:

Of course we use what is developed elsewhere just like I hope the world would use our products when it makes sense. I am suggesting we adapt our way of life to reduce dependency, not to become totally independent. BTW I will accept ideas wherever they come from, the UK doesn't have the monopoly on brains; we were stupid enough to land our present crop of politicians and economists. I'd happily swap them for nothing to get some who actually understand the economic system and basic economics for the type of currency we now have.

56. At 00:15am on 13 Nov 2010, Sage_of_Cromerarrh wrote:
-------------------------
Oil is a form of energy that we have the technology to exploit for our way of life and our needs have adapted to its existence. The energy from oil is wonderfully transportable, which makes it easy for us. We need a new way of life that uses the sun's energy, which is considerable per sq m, if only we had the right technology. We need to evolve what we do and how we live to live within the energy available from the sun in the form we can use. My biggest concern is the dependence of agriculture on oil - it could be the death of us, literally.

53. At 00:10am on 13 Nov 2010, Sage_of_Cromerarrh wrote:
Richard Just a ps before I go the rise of the living standards of Brazil in the past 8 years is almost entirely due to them being a net exporter of oil and oil going through the roof in price.

Also, German cars being made there.

Good for Brazillians. Good for Germans.

57. At 00:29am on 13 Nov 2010, foredeckdave wrote:

--------------------------------
Thinking should/must be taught and expected from an early age. You don't suddenly learn to think at university, its too late by then. Uni should build on the ability to think developed from an early age. My daughter had demonstrated the power to reason before the age of 5 - OK it was simple, but she developed conclusions drawn from a few facts. Schools should be expecting pupils at all ages to develop reasoning - Why isn't there a GCSE in it, made mandatory and living along side english and maths.

G20 Is nothing more than a fantasy parade of morons trying to make their job look significant.
Whether we do something or not wont matter, the East will not let go of their position and frankly i hope they dont, we are the ones who have let this happen, blaming the Far East is a cop-out.

The UK has an extremely bad situation that if we just let west-minister "try" and run things, it will be a disaster and we will not get the same treatment as Greece did.
Lower the taxes, cut Public sector down to Victorian levels and start being hard-line about government size.

Just because its hard, doesn't mean its not worth trying...

58. At 00:31am on 13 Nov 2010, Richard Dingle wrote:
"One mans 'rampant, thoughtless consumption' is another man's search for a better standard of living."
------------------------------------
I am sure you know what I mean and have the ability to judge the difference. I'd be disappointed in you if you cannot!

Goodnight

62 Sleepy,

Accepted that thinking should start before schooling even begins. Higher education should however provide the environment to challenge the 'facts' that they have previously been taught.


Sleep Tight

'It's diificult to prevent .. etc'. Looks like we're all in the ____ then.

Have I misunderstood something?
Germany pays a lower interest rate to borrow money than does say Greece. This supposedly reflects the greater risk that Greece might default. However, both are effectively underwritten by the German taxpayer, and the mere suggestion that he/she won't accept unlimited liability leads to a further hike in interest rates.
Can anyone tell me what risk the lender takes when lending to the Greek government, which justifies charging the higher rate? More interestingly, what would the effect be on the Greek deficit, if their loans were charged at a rate which reflected the true risk of default (ie by the Germans)?

65. At 01:23am on 13 Nov 2010, foredeckdave wrote:
----------------------
Yes agreed, but I am suggesting that the process you suggest should be part of the teaching process at primary scool, albeit in a small way. Parents should talk with their children asking 'why do you say/think etc'. Its the habit that needs to be formed. If formed early, they will have it for life.

Reading this, I think we agree. Some politicians clearly didn't have this taught to them other than 'think about survival' which is probably innate anyway, so do they think? If so, why is the world such a mess?

FDD I agree with your views on vocational education and the funding of it. As for full tim university education I don't disagree with your ideal. However, pragmatism and what can be justified and afforded will have to be taken into account and so for this reason I would sooner have 20% of the population going full time fully funded by the state than 40 - 50% on loans that will be a millstone around their future success and that of the nation.

Richard German factories employing and generating spin off supplier employment in Brazil/China/ India is great. Just in the same way that Japanese car factories doing the same in the UK is great. Admittedly not as good as UK car companies doing the same here and in other countries but the next best thing. There could be British car companies again if we invest in alternative energy engine technologies and the brains to design them rather than ponzi financial schemes.

Sleepy and FDD critical thinking should be and in a way is taught at school it's called religion and philosophy. The problem is it gets hijacked by the religion bit and all the pc that goes with that. Philosophy is unfortunately viewed by most students and parents as a waste of time and irrelevant. This is wrong but symptomatic of a society that has become somewhat blinkered and short-sighted in it's outlook.

DINOSAUR :

My understanding of the problem is that the underwriting of Greek debt by Germany is only guaranteed for a short period (I think 3 years). So if you buy longer term securities which most are then you are potentially on your own. In addition Angela Merkel has stated that if a default on debt were to be necessary then bond holders should expect to shoulder some of the losses.

70. At 08:47am on 13 Nov 2010, Sage_of_Cromerarrh wrote:
DINOSAUR :

My understanding of the problem is that the underwriting of Greek debt by Germany is only guaranteed for a short period (I think 3 years). So if you buy longer term securities which most are then you are potentially on your own. In addition Angela Merkel has stated that if a default on debt were to be necessary then bond holders should expect to shoulder some of the losses.

The lead weight of debt will go away if it paid back or deafaulted on. A third way would be rampant inflation.

Someone needs to bite the bullet on this.

Time for the mother of all 'haircuts'. Merkel was hinting at this a few weeks ago when she talked about 'controlled defaults'.

This has to happen before we can move on.

The Euro is dead as a duck

https://news.bbc.co.uk/today/hi/today/newsid_9182000/9182818.stm

The concept of the collective is the same as the idea of safety in numbers. Safety in numbers is not a mechanism to protect all, some the herd still will be caught. It just improves the outcome for some individuals, usually for the stronger ones who become less likely to be caught unaware. Why else would somebody who is strong associate with someone who is weak. You cannot protect against major inherent weakness. You cannot ameliorate imbalance with out rebablancing. Parties in a weak position cannot dictate to the cost of those in a stronger position. It is not hard to see who is in a relatively weak position in the G20 or in the eurozone. The interaction of pre-existing liabilities and dependencies drags some into aiding the weak but their participation is reluctant and strictly motivated by their own interests and will be withdrawn at the first opportunity.

Germany is worried about the exposure of German banks to the Greeks. The highest dilution of this problem for Germany is the EU prop. A prop that continues becomes an open ended subsidy. Subsidies are difficult to end and feed the fantasy. The Greeks have to pay their own bill. Others with fantasy accounts and lifestyles based on others paying have to pay their own bills. if the Greeks do not pay their own bills then the default becomes a German bank problem, which becomes a German taxpayer problem.

Any so called common interest group which is not founded on true underlying common interest will fall apart internally, not due to external forces. The commonality is mutual abuse.

Whenever group like the G20 declares a mutual victory it is a recipe for disaster. Its just a politcial sop for back home.

If you do not judge the risk of actions taken in fair weather then in most cases they come back to haunt you in a bad weather. It is difficult to have sympathy. Nor should the markets expect their risk to be carried by others. It would however be rather amusing if borrowing didnt occur for a period, they would soon be cutting one anothers throats to find somewhere to put the money.

The UK should stay well away from the eurozone until some rebalancing occurs. The Germans swerved away from supporting the pound on Black Wednesday to the UKs cost, they can sort their own problem.

The G20 is simply a trade group at the end of the day, big boys saying stop me and buy one, or stop me because I can't stop myself and dont let me buy one.

I'm sorry I missed this string last night, because it is getting down to some of the really core issues - those which will help us to build a future rather than trying to prop up the falling past.

On education, I agree with two points that have already been well made. First, our young need to be taught to reason. At the moment they are being taught (by enlightened educationalism to some extent but even more by the "experiential" culture that is being communicated in the mass media) that the World is there for them to "experience" and that their reaction to it, their "feelings", are the important output. This leads to an individualism that works if people are being raised as consumers - but doesn't empower them to do anything. (People are reduced to consumers, spectators and tourists).

Second, the discussion on further education has right on both sides. It is, on the one hand, a good thing that more people have access to further education and raising the general level of education in the population is clearly "a good thing". On the other hand, it is also right that we need to focus on quality as well as quantity. it is not enough for everyone to have a degree if these are all equally worthless. Both in terms of the jobs market (where buyers want marks of distinction) and in terms of the innovative thought we will need in the next generation, it will be the quality end of the distribution curve that delivers.

Fortunately, these two objectives are not mutually exclusive. But more to the topical point, neither is best served by the sort of penny pinching approach to education that the coalition is demonstrating. I stand with those who have said that we could, and should, afford to make further education freely available to the next generation - and not to do so is short sighted.

On trade and the environment, again two points. First, there is an urgent need for us to make ourselves more self-sufficient in terms of trade and energy. Our current trade deficit is not sustainable and can only get worse (unless we want to suffer a serious decline in our standard of living). This will require us to invest in new production and an obvious target is the technology and infrastructure needed for a more sustainable economy. Solar energy is, indeed, a prime candidate - and the amount of energy that could be obtained from a full scale supply system is more than sufficient: provided we build a grid that goes far enough South to find the sun!

On the other hand, I agree with Richard Dingle that protectionism will not help here. We should indeed be looking to have short supply chains and more local production - but the better way to achieve this is for us to devise and invest in the next generation of products and then to sell these both here and to the rest of the World.

Can we do this? Yes! Will we? not on the present performance. It's a shame.

72. At 10:40am on 13 Nov 2010, JavaMan wrote:
The Euro is dead as a duck

It has made possible an internal market of over 300 million. This is far too valuable too Germany to give up lightly. Also there is no wish by any of the PIIGS to leave,instead there is a queue of would be members.

A currency dies when it becomes so worthless no one wants to hold it.

The current exchange rate is 1.17 to £1 (I remember just 5 years ago it was 1.44 - some 'dead duck')

We need controlled defaults in sovereign debt.

We need controlled defaults in personal debt.

Massive 'haircuts' all round.

#71 Richard Dingle
Time for the mother of all 'haircuts'. Merkel was hinting at this a few weeks ago when she talked about 'controlled defaults'.

This has to happen before we can move on.

All of this financial hubbub conceals the underlying problem. That is that national governments control fiscal policy while the ECB controls monetary policy and the EU is separated into nations.

The Euro will only work when they are aligned. That might come about through market forces pushing trade in the right directions. That might take a long time if it happens at all. It shows little or no sign of happening so far.

Think of the difference in economic life within any large nation of the EU. Parts of it are rich, other parts are poor. The rich subsidise the poor. In England in Victorian times the North used to be rich and probably subsidised the south. Now it's the other way around.

In the EU broadly, such subsidy is happening through regional policy which causes national 'net contributions' to flow to poorer areas of the EU, whichever nation those poorer areas are in. That used to happen through 'regional development funds' and similar instruments in various EU nations. The virtue of it happening EU-wide is that it's supranational.

The problem is that in the case of the Eurozone, the rich refuse to subsidise the poor. They are separate nations with separate electorates and the numbers are too visible. Further, monetary policy is geared to the richer nations.

The result is probably what the architects of the Eurozone wanted, i.e. that borders have to come down and political union occur. A single state of 'Eurozonia' in which money flows invisibly back and forth between regions.

They didn't take account of the huge obstacles to this endeavour. Language is the greatest. National identity is another. The status quo and inertia, for better or worse, is another. The 'devil we know'.

You have to wonder how they ever thought it would work.

In the meantime the Eurozone will move toward harmonisation of tax and social systems on the way to the state of 'Eurozonia'. John_From_Hendon, do you want to go along with that ?

#68 Sleepy,

When it comes to politicians and their ability to employ rational thought I'm as much in the dark as you!

Hope you have already prepared a suitable reply to your little girl's questioning of why she should go to bed merely because you say so :)


#69 Sage,

For me the biggest problem with philosophy has been the rise of empiricism. In the state sector the teaching of religion is more to be pittied than castigated.

#73 Buzz,

I suppose it had to happen one day - but I agree with you.

76. At 11:27am on 13 Nov 2010, Clive Hill wrote:
In the EU broadly, such subsidy is happening through regional policy which causes national 'net contributions' to flow to poorer areas of the EU, whichever nation those poorer areas are in.

This has worked to a certain extent.

The question you should ask is 'would any member of the PIIGS be better off now had they not joined the Euro'.

The answer is no. Of course (if they had their own currencies) they could fiddle around with devaluation but that is not a solution just a fudge. Interest rates in the EU are already very low, but not STUPID low like the UK.

Your analysis is correct in that the best solution would be proper monetary and fiscal union, and by default political union.

The 'founding fathers' did have this in mind and it is still 'game on'.

Personally I think their vision has been damaged by allowing too much enlargement too soon.

It is political. The Germans will not give up an internal market of this size.

Hence controlled defaults to help the PIIGS (I hate that term but it saves typing) as a solution.

Another is for a large population block to join (ie Poland).

There should be a lot more done to move EU agencies to the Med countries to provide more employment for locals.

TFOTH:

Solar has great potential, particularly in direct electricity generation. However, photovoltaics are a problem. they are very expensive to produce (materials and energy) and they use some very rare earth materials (supply problem and shortage of materials). Direct parabolic mirror concentrated solar is much more efficient and lower cost and installations last longer.

The problem is then converting the electricity into a form that is suitable for transport and storing it for use when it's dark. Both require huge infra structure investments that we should have been working on extensively since the oil shock of the 1970's. The options are hydrogen for hydrogen fuel cells, or batteries for electric vehicles. Both require huge infra structure investment in vehicles, re-fuelling infrastructure etc.. Hydrogen is overall only 25% efficient in energy conversion from electricity to energy output in the fuel cell, batteries (Lithium Ion) are nearly 70% efficient.

However, Lithium is very rare and expensive to extract and utilise.

So huge problems in actually achieving implementation, but I agree we have to start.

Financial capital is a real issue in all of this unfortunately, as is lack of time.

75. At 11:15am on 13 Nov 2010, Richard Dingle wrote:
'A currency dies when it becomes so worthless no one wants to hold it.
The current exchange rate is 1.17 to £1 (I remember just 5 years ago it was 1.44 - some 'dead duck')
We need controlled defaults in sovereign debt.
We need controlled defaults in personal debt.
Massive 'haircuts' all round'

I agree Mr Dingle, but I don't think that's what we're going to get.
I think we're in for more QE here, and I reckon the ECB is going to end up doing the same.

#78. Richard Dingle wrote:

I agree with most of your post.

However I do not think that it is overly beneficial to ask questions about what would have happened if something different had happened in the past at, least at this juncture. (I.e. the Euro not been set up!)

We need I think to look at the best way froward and wishing we were not here is not a great way to find the best way forward.

It is particularly unfortunate that the G20 meeting set out as one of it successes that countries would not seek to gain advantage by competitive devaluation when that has been the main instrument of policy since 2008. This dissonance with the facts shows just how far from reality we have slipped (I use 'slipped' to refer back the Mervyn King's line 'we let it slip')

It is glaringly obvious that the whole G20 meeting has been between people who haven't a clue what they are actually doing economically and haven't a clue what to do.

In the end it is the arithmetic that dominates what will happen. In the UK there are glaringly obvious facts that are a total constraint on recovery and that are crushing the country. House prices are double or three time too high in places in relation to the average income of the people who need to live there for their jobs. What this causes is economic atrophy - which is what we are suffering from. It is also the cause of road congestion and rail overcrowding - neither of which is it possible to escape from by building more railways or roads.

We need to reconstruct policy so as to incentivise employers using staff that live near their offices/factories. That is as I see it the only way froward. This should lower house prices in the countryside. In terms of national policy we need to see a draconian treatment of second homes for the same reason. This needs to be accompanies by at least the FSA suggested mortgage policies and I would add that the mortgagor should ensure that the home to work distance is no more than 30 min travel. We also need incentives fro the retired to move away from the big underused homes in the cities to the regions so as to lower house prices in the cities so that the workers can move in at sensible prices. In essence, we need to have as objective of all policy to work towards dramatically lower property prices. This will drive low end retail premises rent's down which will enable more jobs to be created on our devastated high-streets.

We also need to re-establish the price of money back to rational long term levels. This will necessarily involve scrapping the Bank of England present legislative structure and returning to a more rational system of money management (a large proportion of the staff will also have to go as they are too wedded to the failures of the past - after you have been hit by the express train it is totally impossible to understand that the light that is seen in the distance is the end of a tunnel.)

If QE has a role in the short them it can only be to finance getting people back to work building necessary infrastructure - it is absolutely wrong to continue to use it to finance bankers - in the vain and totally unproven hope that some good may come from it!

#79 Sage

I agree for the most part about solar: particularly the need for huge investment that should have been going on since the 1970's. Still it didn't - and there's no time like the present.

As for transport, if you have sufficient, cheap nrenewable energy then you can relatively easily split water (to give hydrogen and oxygen) and then use the hydrogen to convert carbon dioxide and water to methanol. Methanol would be a good candidate for a portable fuel for transport. If we could get the carbon dioxide from the air (and there are prototypes doing just that) then we would really be in business.

This is all scientifically possible - but to take it from the "good idea" stage to a working system: and from that to a national grid will require the same level of investment (and in a European context this means Government investment) of time, effort and money that went into creating the national grid in the first place.

But then, when they built the national grid they had a vision......

#80. Dempster wrote:

"The current exchange rate is €1.17 to £1 (I remember just 5 years ago it was €1.44 - some 'dead duck')"

What is most difficult to understand is the totally irrational manner, contrary to the basic facts, attitude of the Chancellor and the Governor to this - they are completely unable to accept that we (Sterling) is in a far worse condition than the Euro. As do the right wing press - not surprising in their case as they have never allowed facts to cloud their bigotry!

Post 1: "In Spain its clear that domestic consumption is rising but GDP and employment aren't. So what is the source of the goods they are buying and the money to pay from them? Why Germany of course, they have lent Spain their savings so the Spanish can spend them to buy German goods, thus boosting the German economy."

This is a classic line of half truth and pseudo logic. If we extend this line of argument, the next question is why are the Spaniards buying German products? Is Spain (or Greece...) a German colony where the colonial masters dictate rules? Or is it because the products are wanted by the free people? In that case, should the Germans stop producing goods wanted by the world? Why are the Spaniards not developing products of their own? Is someone preventing them? Or Are the Germans preventing other countries from selling their products in Germany? Going by the ubiquitous spanish tomatoes and telefonica here, apparently not. So what is the point of this line of argument. Also bitte.

#84.tridiv

I agree totally.

Which is a pity because I would much rather have an argument.

#84 tridiv. You appear an acomplished practitioner of psuedo logic and half truths.

What products are wanted by a "free people"? Perhaps you have in mind the military submarines being supplied to Greece by a German manufacturer. Do you really think that Greeks were taking to the streets to demand that pensions and salaries be cut so that they may afford more submarines?

You can´t cancel the submarines because that would be breach of contract, but you can cut salaries and pensions and raise taxes and unemployment because that only affects ordinary people, and who cares about people?

If Greece is so interested in submarines why don´t they build their own? Perhaps they intended to, perhaps that is why the sale and purchase contract for the submarines contained clauses concerning technology transfer to a named Greek entity. What could go wrong, oh I know the Germans used some of their surplus savings to buy the recipient of technology transfer agreement which then meant that German technology was transferred to Germany. Thus the virtious circle is closed and everyone is a winner except a bunch of people - but hey that is why we have the media to smear and besmirch the losers and we can all sleep safely knowing that the mass of people are losers, but only because they deserve to be losers.

@53, Sage "rise of the living standards of Brazil in the past 8 years is almost entirely due to them being a net exporter of oil and oil going through the roof in price."
Since, you had gone back as far as 8 years; Brazil's actual saviour was IMF's Loan of USD30.4 billion in 2002. This was paid back in 2005, earlier than the contracted due date of 2006. The earlier repayment benefited from her agricultural and manufactured good exports. And given IMF's stabilisation aid; her self-sufficiency in the primary and agriculture sectors plus a planned economic policy of self-sufficiency in a wide range of consumer and industrial goods, encourage a deluge of foreign direst investment. This, too, inevitably hastened the early loan repayment.
Brazil only became energy independent in 2006. Previously she imported as much as 70% of her energy needs.

Eire

The BBC news story writes

"Since 2008, Ireland has suffered the worst property collapse of all developed economies, with house values falling between 50% and 60%."

Clearly the BBC is trying to ignore the UK. The UK property market is in a far worse state and hasn't fallen much yet - we need to fall at least 65% to 75% if the Irish have only(!) fallen 50%-60%.

The economically ill-educated at the Bank of England have been propping the UK property market up - however this is a pending catastrophe for us. When the rest of Europe (and the USA) have the huge advantage of lower property prices to make it far far easier for their business to recover, we will be stuck with absurdly over priced property (don't say we can use devaluation - as David Cameron explicitly undertook not to do so at the G20).

We have to get our property down to the same level of our competitor countries and we must not hang around as any delay will be a disaster for our economy.

The Bank of England's high property price support system is a disaster - it may keep our banks from going belly-up for a few more months but it will inevitable crush the Nation's economy. In reality the market knows that our banks' balance sheets are supported by vastly over priced property and they are already discounting a crash. Yet another disaster created and nurtured by the Bank of England and its Governor. How many more obvious, predictable and predicted disasters can we put up with from this broken organisation and its broken Governor?

79 Sage,
Regarding energy storage, I remember an article in one of the popular scientific magazines - I think they were talking about Zinc (or something in the same group as zinc). Energy from solar / wind etc can be used to turn zinc oxide into zinc which can be transported easily, and converted back to zinc oxide (releasing energy) when and where the energy is needed. The zinc oxide is then recycled again. I believe a plant has been built in Canada somewhere to store electricity from the grid, but I can't remember the details (it may have been mgnesium or something).

Kind REgards

The primary purpose of life is to facilitate and create more life, anything that runs contrary to the primary purpose must ultimately fail.

The current debt based monetary system, having hopelessly over-reached itself is now endeavouring to survive by reaching ever lower in the age group.
For example:
Student loans.
Perhaps next: Infant loans, or even foetus in the womb loans?

Whilst debt was a good control over the creation of money, it ceased to be a controller when defaulters were bailed out by the prudent, to allow the creators of debt to survive.

To attempt to sacrifice the next generation on the altar of ‘debt’ is fool hardy, fundamentally flawed, and ridiculous in the extreme.

And it is my belief that such will be 'debts' nemesis.

#90. Dempster wrote:

!"...debt was a good control over the creation of money, it ceased to be a controller when defaulters were bailed out by the prudent, to allow the creators of debt to survive."

But how do we get from where we are today to a more rational debt system without collapsing 'the creators of debt'?

This is the regulators' problem. The first step, after admitting that the present situation is economically insane, must be, in my view to, understand that money needs to be rationally and positively priced for the economy and capitalism to survive, let alone recover.

I see that we will have to bail out the banks again (the creators of the unsustainable debt).

We must also understand that historic secured debt has to be repaid, or if it becomes non performing - the security realized for what it will make and the balance written off.

This process must take place and can be summarized as the de-leveraging of debt or debt deflation. Every depression and many recessions require this step before capitalism can re-start. It has to happen, and debt has to be reduced.

What worries me most and what I see as the most disturbing aspect of the present situation is that the regulators are in denial and they seem to have dismissed this blatant and obvious historical economic certainty.

Mervyn King and Ben Bernanke are the two biggest obstacles to the recovery and they must either change their idiotic policies or if they will not, they must go. (This is quite apart from the fact that they pursued the policies that caused the bubbles that let to the crash even through they were warned many times of the consequences! - something that should have caused their dismissal.)

#78 Richard Dingle
The 'founding fathers' did have this in mind and it is still 'game on'.

Some of the 'founding fathers' certainly had this in mind but the people did not and never have since.

Every time any serious dilution of national sovereignty within the structure of the EU has been offered to any EU nation they have turned it down. Except, of course, in the case of the second Irish referendum where fear and some fragile promises persuaded the population to give in.

That makes the usual talk of joining the Euro somewhat unpleasant. It is always expressed disingenuously, as though it were a departure from transaction costs and that's all.

That is definitely not all. The current crises were predictable - not so soon but predictable nonetheless. They point up the ludicrousness of currency union without harmonisation of tax and social policy. In fact, given the way the Greek and other national positions have played out, full political union.

That is probably what John_From_Hendon and many others here want. It is a legitimate political aspiration.

It is not legitimate to conceal the truth of it from the electorate. That is exactly the same strategy as that pursued in 1975 in the original referendum. Now it is causing bitter hostility to all things EU.

#91 John_From_Hendon
We must also understand that historic secured debt has to be repaid, or if it becomes non performing - the security realized for what it will make and the balance written off.

The problem which precipitated the 'credit crunch' was precisely that debt instruments could not be traded. Since they could not be traded, they could not be valued in a manner acceptable to all parties. Some argue that mortgages were deliberately bundled in a way confusing to the investor.

Anyway, once the market fell apart, they froze. Hanry Paulson's 'Troubled Asset Relief Program' (TARP) was originally intended only to take them off the banks' hands. It was extended by the Democrats into bailing out General Motors, etc.

One of the side effects of the securitisation of mortgages was the distance between the final owner of the mortgage and the management of the debt. The paperchain that connects them was not managed well. The result is that these debts will take years to unravel.

On the sovereign side of debt, you are suggesting that, say, The Republic of Ireland and Greece should default. That is probably the best economic option open to them.

That is not politically acceptable to the Eurozone, however. The Republic of Ireland has entered negotiation for a bailout. The problem with that for the Irish and the Greeks is that it will maintain their debt for decades to come.

Thus many, many debts will hang in the air for a long time to come.

A crash in property values might well be no bad thing for the UK economy. It's a little self-centred to say that it would be a universal good, however. Many buy-to-let properties would become non-viable instantly. Many more would flood in to fill the space but a lot of legitimate businesses would be ruined.

I believe it's unfortunate that we paint many in this crisis as somehow evil. Bankers are a favourite target. It seems to me that they are just people like me. Their system of business went wrong, that's all.

Stephanie describes the market sentiment that caused the Euro bond price to escalate as a "mini panic". That seems arbitrary. One could just as well call it a "brief interlude of sanity".

The market is the market. It is not an individual, it belongs to no political party, it does not engage in displays of emotions. The market is the sum of the multitude of commercial behaviours operating at any given time. It doesn't panic, and it doesn't scheme or plot with rational foresight.

The anthropomorphism which attributes sentiment and reason to the market is as misplaced and as misleading as the description of entire nations as justifiable or culpable combatants in a war. And just as we find in war, party members in government and their special friends in media will generally take every chance they can to shift blame from their own policies and place it upon the great fictional sentience of the nation, or the market.

To be fair, Stephanie is not too bad. The BBC has far worse commentary. Consider the following, from Joe Lynam:
"Unlike Greece last May, Ireland doesn't need to ask the markets for money until next year. But bond traders are not convinced it can cut its deficit by enough by then and have pushed the cost of borrowing to unsustainable levels (8.3%)."

Note that in this world view, the "bond traders" have "pushed the cost of borrowing" because they are "not convinced" of something.

This is very, very poor economic thinking, and it betrays a willing desire, almost a desperation, to allocate blame away from government.

There is not group of "bond traders" sitting around in a small group, plotting and scheming, comparing notes and deciding upon bond trader policy. Bond traders are not capable of pushing the market ANYWHERE, for ANY REASON.

Bond traders get told to buy or sell by their clients, in circumstances of great privacy. Their clients decide whether to buy or sell based upon their estimation of long term risk, and their faith in government policies and world trade scenarios.

If the cost of borrowing for a government becomes extremely high, it is not because bond traders decided to set a high price. It is because the government in question WENT TO THE MARKET and asked for money at a given price. And nobody said "OK, I will lend at that price". So the government said "What about THIS price?", it being slightly higher than the former given price. And nobody said "OK, I will lend and that price."

Eventually, the government asks to borrow at 8.3%, and somebody says "OK, I will lend to you at that price."

Notice the process. The government is asking for money at 8.3% interest. The market says yes or no, and everyone in the market is prepared to jump in and compete, to undercut the nearest competitor. It is the very opposite of a scheme or a plot to set the price at a given level, and to force governments to pay that level.

And yet we constantly receive reporting from the BBC that suggests that governments are victims of bond trader policies, and irrational market sentiment.

The issue is whether you understand how the world works, and whether our reporters on the BBC understand what the market really is. If this trend keeps going, the BBC business reporting will soon become an insane socialist nightmare, where nobody believes that there is such a thing as the market, and that governments are god fearing saints who can do no wrong, and who are being frustrated by the evil people who control all the money in the world.

If that sounds ridiculous, well it is, but we have been there before with alarming frequency.

Charles Jurcich wrote:
"79 Sage,
Regarding energy storage, I remember an article in one of the popular scientific magazines - I think they were talking about Zinc (or something in the same group as zinc). Energy from solar / wind etc can be used to turn zinc oxide into zinc which can be transported easily, and converted back to zinc oxide (releasing energy) when and where the energy is needed. The zinc oxide is then recycled again. I believe a plant has been built in Canada somewhere to store electricity from the grid, but I can't remember the details (it may have been mgnesium or something)."

It is called a car battery.

#93. Clive Hill wrote:

"A crash in property values might well be no bad thing for the UK economy. It's a little self-centred to say that it would be a universal good, however. Many buy-to-let properties would become non-viable instantly. Many more would flood in to fill the space but a lot of legitimate businesses would be ruined."

When buy to let is destroying any hope of a realistic recovery do we not have to ask why should the whole country be held to ransom for such a small number of fundamentally unsound businesses?

"I believe it's unfortunate that we paint many in this crisis as somehow evil."

I have never used the term 'evil' to my recollection. However as you raise the question of culpability: I agree that bankers who simply reacted to market forces are not fundamentally evil - however that is not the case for the regulators who knowingly permitted the ballooning of totally irrational and unsustainable debt.

#96 John_from_Hendon
When buy to let is destroying any hope of a realistic recovery do we not have to ask why should the whole country be held to ransom for such a small number of fundamentally unsound businesses?

Which business is not 'fundamentally unsound' when its business model is undermined ? That's what happened to Northern Rock, for instance. It was not an unsound business even when the wholesale credit market dried up.

It was less exposed to the subprime market than most banks and it was selling Mortgage Backed Securities, not buying them.

It had the Bank of England as an emergency backstop. At that time the law compelled the BofE to make public the loan to Northern Rock. Even that was not the problem, the problem was the reporting of the loan which caused a run on the bank. The Financial Times, for instance, did not report it for precisely that reason but the BBC did.

The £20billion loan from the BofE might (it might not) have tided it over until it could adjust its business model. It had no chance to react. It was crucified on the altar of the sacredness of newsworthiness - a 'scoop'.

Nor am I suggesting that government policy should take account only of consequences to business. There will be many business consequences of the Comprehensive Spending Review, for instance. Can't be helped.

It should do what it can to soften the blow, however. Not least because these businesses are a source of tax revenue.

#96 John_from_Hendon
I have never used the term 'evil' to my recollection. However as you raise the question of culpability: I agree that bankers who simply reacted to market forces are not fundamentally evil - however that is not the case for the regulators who knowingly permitted the ballooning of totally irrational and unsustainable debt.

I was thinking more of Jacques Cartier, who seems to have an extreme dislike of bankers.

Your dislike, as you profess, is reserved most for the regulators.

When I was younger and IBM dominated the computer market - they had a higher market share than all of the next 10 computer companies added together - they used to recruit people out of universities partly so that their competitors could not recruit them

The designers of derivatives are extremely highly qualified and I imagine it is very difficult for the regulators to keep up with them. The above link starts Presigious Financial firm seeks talented Ph.D's in Mathematics or Physics to support financial derivatives trading and research.

Derivatives designers unintentionally created an economic bomb which behaved like a biological warfare device. These derivatives gradually spread a virus of mistrust which eventually made the whole system seize.

There needs to be something of a quality race between regulators and bankers - which the bankers should fund. For all that you vilify Mervyn King and Ben Bernanke, it was not macroeconomics which caused the 'credit crunch'. It was essentially the untradeable currency which was derivatives.

#98. Clive Hill wrote:

"Your dislike, as you profess, is reserved most for the regulators. "

Quite right - I have written correspondence with both the late Eddie George and with Mervyn King (and the Treasury) over the last decade that pointed out the folly of unconstrained creation of credit and the inevitable consequences. I know I am also not the only person who warned them all of the consequences of the then current policies. They ignored all warnings and the events that they were warned about came to pass - that is inexcusable. And this is why I reserve a special level of derision and condemnation for these people.

#99 John_from_Hendon
...And this is why I reserve a special level of derision and condemnation for these people.

I don't believe the Bank of England ever allowed the 'unconstrained creation of credit'. They monitor credit quite closely through their 'credit conditions survey'. Perhaps they allowed more credit than you thought sensible ?