231 replies to this topic

[threegee]

Malcolm Robinson, on 04 March 2010 - 11:57 AM, said:

... The markets turning again, yep but it might be another financial tsunami coming our way!
I hate to say this but GGG’s apocalyptical ‘depression not recession’ might well be true after all.

£200bn doesn't buy you very much time when you insist on throwing it at all the wrong things. Makes all previous "cynically engineered pre-election booms" look magnificent value!

http://www.bedlingto...ant-you-to-see/

Hopefully Joe Public will wake up to the fact that "the recovery" is another hoax before 6th May. But part of me wants GB to scrape home on our badly skewed voting system, usual minority vote, and tide of Mandelsonian BS. Out of the resulting complete disaster might just come the social revolution we need.

Whichever party wins the next election is going to rapidly become the most unpopular government in history. The honeymoon period won't last past the Summer. Why David Cameron, or any other sane person would want to lead this is beyond me. That's a question you probably don't need to ask about Gordon though as I don't believe he qualifies!

We are already in that depression Malc - but it's a "repressed depression". The only thing which will realistically get us out of this is years of roaring inflation with all the terrible damage that will do to people on fixed incomes. Exactly what our amateur economist told us he'd ended! As you say, he was spending when he should have been saving, and when the smoke turned to flames he threw fuel on the fire.

The best course now is a ten year slog, with a lot of pain to re-build a sustainable economy. But does any politician have the guts to spell this out and come clean with the electorate? I fear not, and that we are in for a very rough and very long ride.

[Malcolm Robinson]

If they were going to tackle the impending inflation time bomb, if it isn’t already started, they would have raised interest rates last week. The whole thing is starting to look like pre election manipulation on an ever grander scale than normal! We have falls in our exchange rate and the producer price inflation report last week seems to spell out raging inflation to hit very soon. The output price index has been rising for the last 6 months and the input price index has gone from -6.2% to 6.9% over the same period. Interestingly 2 or 3 of the ‘shadow’ monetary policy committee have called for a rise in interest rates but of course that fell on deaf ears! When these figures and rates falls start to trickle though into the economy proper the current 3% inflation figure will look like a walk in the park!
One thing is for sure whoever wins the next election will not be able to keep all the balls up in the air.
If they had let the market correct itself a bit more we might have been chugging along the bottom but we would not face the prospect of dropping off a cliff!

[Malcolm Robinson]

Getting back on topic for a mo, the Greek bond issue last week looks to be a success, according to press article, but a bit more detail is coming though now. For instance which country bought 20% of the issue, only surpassed by Greece itself, the UK?????? Germany and France bought about 14% and 7% respectively so the great bastions of the euro only backed the issue to about the same level as us? What’s going on? Looking a bit closer it would seem UK hedge funds filled their boots! So Greece got her 5 billion euro 10 year bonds away but at what price ........6.47% yield, no wonder the UK fly boys got into the action, as long as they get repaid of course! The problem is that it translates into a 22.5 million a year repayment over 10 years at a time when Greece should be building its way out of the hole it is in. The outlook still looks bleak for Greece in the short term with large debt repayment due 2011, 2012 and 2014 and with possible declining output and economic growth hard to see how she can make the repayments with resorting to issuing more debt of course, if only she had the QE route to take, not!
Sarko of France said he stands ready and waiting to help Greece, but obviously not ready and willing to put his hand into his pocket! Interestingly the German finance minister Herr Schäuble proposed the euro equivalent of the IMF to help members in financial trouble such as Greece is experiencing at the moment. The EMF would enable member states to issue bonds in its name instead of the sovereign states and so should make them easier and cheaper to get off. Shouldn’t something like that have been formed at the inception of the euro not its death throes? Like the rest of the ‘civilised’ world the EU is managing its economies and finances by the well tried and tested business model, crisis management!

[threegee]

So what's wrong with the IMF? Easy one to answer: they don't control it! No gravy-train jobs there for washed-up europoliticos. No, do what we tell you because we have the power to remove you. No, put hard economics before political manoeuvring.

crisis management a bit strong Malc. Not the crisis bit, the management bit!

BTW did you notice Greek VAT up from 19% to 21%? UK VAT to 20% within months - that's now a cert! Even VAT on food being contemplated. Who's going to be the first to use the phrase The Decade of Discontent?

[Malcolm Robinson]

Back to the UK economy and following on from the balance of payment figures we now have the manufacturing and industrial production figures. Industrial production figure was -1.5% (Jan10/Jan09) and the manufacturing figure +0.2% year on year. Of the 13 sectors in the manufacturing figure 11 fell! The problem I have here is that the manufacturing sector represents such a low make up of UKPLC these days a fractional rise is meaningless. It is about 13-15% of the economy, if I remember correctly, and has almost exactly swapped with the service sector, including financials, which is now just under 30%, or was until all the bubbles started bursting!
Why is this stuff important, because we have bankrupted the country trying to stabilise our situation and (like Greece) we now need to build our way back. Worryingly the figures show no such growth for the economy and considering the supposed financial stimulus HMG have made something is badly askew, either that or someone has their sums wrong for whatever (political)reason!
Interesting speech made by Kate Barker on Monday evening, she is about to retire from the MPC, in which she made several references to her time in office, the last 9 years. Interesting because she said the MPC realised the asset price bubbles building up in the economy could have a detrimental effect on the well being of the economy as a whole......well why didn’t you do something about it Kate? She did say she was less then satisfied with her performance regarding the financial crisis. We can agree on that one then! Also in a thinly veiled reference......... ‘It may however also have been the period in which a large error was made in allowing the belief to become established that policymakers had solved the issue of economic instability.’ Now who said they had abolished boom and bust? She goes on to say that she doesn’t (and by association the MPC as a whole?) see the new asset bubbles building in the economy as yet endangering the economic prospects for UKPLC, however she does mention the debt associated with such peaks. So back to normal then Kate no lessons learnt! It is starting to look like our Central Bank is actually encouraging debt laden asset bubbles and for that read house prices and stock markets.

[Malcolm Robinson]

As an antithesis to Kate’s speech there has been a report by the IMF done by Daniel Kanda entitled, ‘Asset Booms and Structural Fiscal Positions.’ Bit heavy, maybe, but it focuses on the Irish economy and their housing bubble which in a lot of ways replicates our own.
Quote:
‘Asset booms and sectoral changes can distort traditional estimates of structural fiscal revenue, and could lead to serious fiscal policy errors. This paper extends the estimation of structural revenues to take account of asset prices and sectoral changes, and applies this to the case of Ireland, where a property bust has revealed a large hole in the public finances. It is shown that excluding these factors led to a substantial bias in the estimation of structural revenues and the structural balance prior to the crisis was much larger than earlier estimated.’
What this means and what the paper goes on to say is that Ireland took the revenue generated by the likes of the housing bubble to increase its public sector provision thinking income, VAT, stamp duty, capital gains tax etc, would continue. Without that ‘extra’ tax income they were left with a burgeoning public sector which was unable to be supported by an economy entering recession. (BTW this is exactly where I think France and some of its continental partners have it wrong, their take is that the private sector is only there to support the public sector, dumb or what, quite obviously the wrong way around unless they really are a communist state!) Anyway we can easily draw comparisons with the UK and Ireland in this respect; however Ireland has already begun the much needed austerity measures to get its finances back into some semblance of order. Bit like Greece needs to do now if the people allow it! What is clear is that UKPLC will have to at some point, and the sooner the better, revalue not only its assets, and get the froth out of them, but also examine the public sector and trim that cloth to suit. With the biggest employer in our county the public sector worrying times ahead.

While there is much in this single IMF report to congratulate there is also a contradictory view of the organisation as a whole. The Polish finance minister quoted in the FT said of the IMF,
’Spain is complaining that the same institution which was urging them to increase their budget deficit last year is now telling them what a dreadful mistake it was this year. We were on the end of that same advice but we took a contrarian view…

Well done Poland and can you have a word with Gordo........

[Monsta®]

its and you wonder why gordo looks stressed!

[Malcolm Robinson]

Here comes the rewording............

http://uk.news.yahoo...ce-20b2d2f.html

[Malcolm Robinson]

To show just how out of touch if not incompetent the current ruling Euro politico class are here is a statement made by Romano Prodi , one time prime minster of Italy and former European Commissioner.
“For Greece, the problem is completely over, I don’t see any other case now in Europe. ”
I disagree Signor Prodi, and I guess the 25,000 strikers in Athens the other day would too. Even with this ‘new’ package of backing announced by the EU, Greece still has a hard road to go down to get its deficit back under control. The austerity programme their government is trying to implement to get the fiscal deficit back to the Euro level of 3% of GDP by 2012-13 will produce even more populous unrest and once we consider other states stumping up their own domestic cash to help Greece out we will soon see unrest there too as their populations ask why they should have to go without to further the grand EU experiment. As I have said before without political union..........
BTW, if Greece does manage that trick it will beat the German plan to get their deficit under that threshold!
I wonder if Signor Prodi has heard of Latvia who the IMF ‘helped’ out with a similar austerity package when their economy went bits up? They are now in junk bond status with a B rating and dropping.
Remember those Greek bonds which went out at such a premium our hedge fund managers fell over themselves to get in the action, well the market is catching them up and eroding that premium. Currently Greek 10yr bonds attract 6.33% not so far off the 6.75% the 5 billion issue went out at. I expect we have seen some reassessment of positions in those figures!

[Malcolm Robinson]

Well it would seem the Guardian’s ‘senior European source’ might have jumped the gun as we still wait for official news of the Greek bailout. France’s finance minister, Madam Largarde, has just spoken out in the FT seemingly at pains to point out German culpability? The point of her tirade, she says the Germans are as much to blame for the euro crisis because of their productivity gains, increased competitiveness and trade surpluses? WHAT, oh yes this is France!!!!!!! She then goes on to say the successful German economic model is not one the rest of the EU can sustain, or would want to for greater convergence. (Is that what you call a backhanded compliment or what?) The Germans meanwhile go on with their, non aggressive this time, take over of continental Europe insisting on fiscal discipline and stable prices, always centre pin in German economic after their own spectacularly disastrous QE programme! Can anyone really expect Germany to somehow stop being as industrious, stop insisting on a stable currency and ask it workers to work unpaid overtime to allow its continental partners to benefit from their more relaxed way of life? No wonder the leaders can’t agree, the whole thing is nuts and all the while Greece is left like a gaping sore on the side of the Euro!

[Malcolm Robinson]

So the EU have come out now and criticised the UK and in particular the Brown/Darling deficit reduction plans. This from an organisation which cannot even sort out its own house.........the problem is they are right: its just we never like ‘Johnny Foreigner’ telling us where we are going wrong! The reason for this statement is that we have breached EU stability rules, exactly the same as France and Germany!!!!!!!
So the B/D plan is to half the deficit in the next four years, possible, maybe, probable no, they are now hooked on a huge PSBR which has been inbuilt into the system. This deficit figure doesn’t even take in the real position as the likes of PFI, public sector pensions, etc are not included. If we look at public sector pensions and take our own county as an example of this particular black hole country wide, we find 50% of the total combined overall budget for county is the same as their pension deficit, over £400 million and being reassessed (upwards) as we speak! When I questioned county about this, after being told we (ratepayers) will just have to keep paying into it, I was then told as it was a countrywide problem it was almost being ignored. Sound financial planning indeed and conveying a high sense of confidence in abilities to actually manage a billion pound a year business! If we then think about the fact that almost 50% of all jobs in our county are in the public sector I hope we can all start to see the very real problems we are about to face, its called reality!
The forthcoming election (only concentrating on the two major parties sorry Stephen) now seems to have some blue water between the parties, fiscally anyway. We have a choice of either paying more and more into an ever increasing black hole of debt or seeing policies implemented which could result in 10,000 plus redundancies locally, and that’s just public sector ones. Neither would seem particularly appetising but sometimes that’s politics! I think it boils down to ‘Do we take the medicine now or put it off for a while?’

[threegee]

The EU are right of course, and amateur economist AD once again totally wrong! Has he ever been right about anything, including his advice to GB about not going to the country at the only time he had any realistic chance?

But if you go along with the myth that this is a "global problem", and the myth that the height of the post-millennium party is a normal state of affairs; then it's quite easy to kid yourself that the party going on isn't really the party going on, but a prudent period of pre-adjustment to lower levels of alcohol consumption.

There's a very real chance that the markets will lose confidence in Sterling if this stupidity continues. It's a re-run of the "balance the books over the length of the economic cycle" crap. The length that was never defined, but where an end to the cycle was always just around the corner. Until that end became the "global" recession, and we had a whale of an excuse to throw all pretence of prudence to the wind.

We're now told that there will be a spending review after the election. So a government which has been in power for thirteen years and asks us to believe that it is in full control of our affairs (except of course for this pesky "global problem" of our own gross overspend) needs a review of what it itself has been up to? Why can't this so-called review be carried out now, and we be told the true extent of the necessary cuts before election day? You can pretty well anticipate the Mandelsonian ducking and weaving that following this line of questioning will produce.

[Malcolm Robinson]

Moodys has just come out and said with a deficit of 12.6% of GDP even with AAA rating the UK Gov will be hard pressed to make headway without resorting to another round of QE. Looks like we will have to keep paying the mortgage with the credit card for some time!

[Malcolm Robinson]

Interestingly the Nordic, or the countries being asked to bale out Greece, have their own take on the situation. With 95% of their population not willing to see their hard earned savings disappear into the Club Med area they have come up with their own bale out plan, chuck Greece out of the Euro blaming fraudulent entry. That may well end up the case.
Seems the Greek finance minister et al are now, privately, asking the ECB to underwrite their bond issues in the short term anyway. Not only underwrite them but take them at a preferential rate. Having to pay upwards of 6% to get their bonds away Greece is being locked into repayments which it cannot hope to make. These really have to be met by increased productivity at a time when Greece will be going through an austerity package which will mean an increase in unemployment etc. The two just do not meld no wonder they would like to set a benchmark of around 4% not the 6% the markets insist on. With no real details emerging of any rescue plan by the EU and even more asinine remarks by the likes of the chair of the committee, Luxembourg Prime Minister Jean-Claude Juncker, “We think the question (of aid for Greece) will not arise”, the benefits of membership of the euro club for Greece are becoming less and less apparent.

[Malcolm Robinson]

Might be worth mentioning Standard and Poors statement about Greece here. Not because they have taken Greece off their long term credit watch negative but for one of the more generalised sentences contained in that report.

‘In light of these considerable budgetary challenges and the difficult economic environment, it remains to be seen whether Greece’s leaders will demonstrate the political will necessary to achieve fiscal consolidation.’

Now where have I seen, almost to the word, that sentence before? Ah yes the latest Government inspection report into our county council! In fact transposing ‘NCC’ for ‘Greece ‘anyone would think the same person wrote it!

[Malcolm Robinson]

Well listening to the reports coming out of the Office for National Statistics etc anyone would believe we are out of recession and on the up again. Unemployment is falling, always a welcome sign, but we have to look a little closer to see the whole picture and one not quite so rosy. The employed figures are falling too as are hours worked and the ONS are blaming students for the apparent dichotomy of these two statements. This looks like straight political manipulation of government stats but with the unelected Dark Lord in the centre of government is anyone surprised? Any rise in ‘economically inactives ‘has to be of concern at a time when we need as many people as possible to contribute to our deficit reduction.
Public sector employment is 6.1 million and has risen by 7000 since Sept 2009!!!! I thought we were supposed to be reducing PSBR not increasing it? So across our green and pleasant land every time you walk past 4 people the next one works for the public sector. That’s possibly unsustainable particularly at a time of recession but what really worries is that here, in our county, that ratio is one in two! For every two people you meet one of them works for the public sector, now is that really sustainable or is it payback for political allegiance?
Some members of the MPC seem to be getting jittery about inflation prospects, about time, but they are still voting unanimously. We now seem locked into importing inflation as a result of a weak exchange rate policy at the very least. ‘The depreciation of sterling since the start of the year was likely to put additional upwards pressure on inflation over coming months.’ They are still extolling the QE argument, I think this will be shown to be wrong at some point.
The BOE have come out with a ‘normalising’ exercise as they consider the financial crisis over. It is rewriting its policy regarding loan securitisations so it can get real securities, ones which the private sector will buy if needed, instead of the ‘phantom’ securities it has been accepting. Will this lead to a further tightening of credit lines?
One last thought before the budget of next week. Has Darling got anything in the pot to give away to bribe voters? You would think not but with a little creative accounting.........Looks like the amount of loans UKPLC needed this year (£174B?) might see an undershoot of around 20 billion (£152B?) on previously budgeted figures. (Need to see the March figures to be certain of course!) What can we expect Gordon/Alistair to do with that, not borrow it and therefore save not only that amount of capital but also the repayments? I think we might see the opposite with government maintaining its annual proposed borrowing figure which could give it up to 20 billion to sweeten the electorate. Not doing that would be the responsible thing to do as it would give international investors confidence that UKPLC was taking its recovery seriously, and who do we need to start buying our bonds instead of relying on a QE programme?

[Malcolm Robinson]

So we now have one of the Miliband boyos calling for the establishment of a national bank based on the post office network which will take on the private banking sector. It would seem an immanent election has forced this change in ideology! If it does go ahead pity it didn’t come sooner and at least try to save some of the closed post offices up and down the country. Is this really a change back to the roots of the Labour party as some sort of acknowledgement of their voter demographics in the run up to an election or does it make commercial sense? It would seem to make more sense if we didn’t have such big public stakes in the banking sector already as this could easily undermine those positions. It should certainly have been a serious option considered at the time we lavished such huge piles of money towards failing banks, which has then disappeared!

[threegee]

The P in PIGS gets downgraded.

http://news.bbc.co.u...ess/8584812.stm

Quote

The Portuguese Minister of Finance, Teixeira dos Santos, said it was key to maintain efforts to cut the budget deficit in order to differentiate the country from Greece.

Doing well then isn't he?

Someone was throwing a projection around after the budget saying that we were scheduled to spend more on simply servicing debt than the entire education budget. A really good use of public money! That, of course, presumed that our own debt rating would be maintained. Thing is a lot of Darling's figures are based on very optimistic projections, and some of them sound (particularly the proposed public sector "efficiency" savings) plain barmy. I'd take a bet that he's wildly wrong in more than one mission-critical assumption.

[Malcolm Robinson]

Well we have had the non event budget which very nearly turned into a party political broadcast. The ONS came out with inflation figures just before which were ‘not as bad as feared.’ No they weren’t but taking a closer look someone had manipulated the basket of goods which are measured to produce that very sentence! Now who is at the centre of government who might be guilty of that one? You can see the hand of the unelected dark Lord all over that! This means ALL ‘ONS’ figures have to be suspect from now on.
The fiscal portion of the budget revealed more about the missing information than any which has been included. £100M less borrowing over the next 5 years looks little more than an exercise in creative accounting as the forecasts have had about 0.5% subtracted each year over that cycle. The structural fiscal deficit figure of 8.4% of GDP reducing to 2.5% at first glance looks to be going in the right direction but the fact that it will still be there after we have gone through an austerity package will not be unnoticed by international investors. Speaking of which it would seem opportune that Portugal had their rating downgraded by Fitch which must have taken some of the spotlight off the UK. Still we saw UK 10Y gilts up 5 basis points and let’s remember we need to get £186B away soon.
The UK growth figures Darling is using seem to be optimistic to say the least even allowing him to get this year’s figures right. Not hitting his 3-3.5% growth rate over each of the following years would have a catastrophic effect on borrowing needs and wipe out that projected £100M saving. As for government savings those were noticeable by the absence of any detail what-so-ever. Asset sales were mentioned but as they reiterated figures used by Chancellor Brown in 1997 probably not even worth looking into them! Bank lending, quite an optical illusion here as we heard our second Iron Chancellor telling the part nationalised banks to increase business lending to £94B next financial year. Same sort of rhetoric he has already used on them and the result, business lending by RBS has actually fallen this year!
Stamp duty looks to be a particular minefield as it would now seem government wants first time buyers to enter a house bubble market with the distinct possibity of buying straight into negative equity. Not only that the concession to those buyers is temporary whilst the increase levied at £1M+ properties is permanent. That would seem strange for a supposed meritocracy? The much heralded Mortgage Support Scheme seems to show very very limited take up if Cam’s figure of 15 is correct maybe that was a clear case of grabbing headlines with no one looking at the small print?
Also the whole university issue looks to be very complicated as on the one hand there is to be a £35M innovation fund whilst at the same time £20M worth of cuts?
What is apparent is that this budget is at best a halfway house towards the next spending review if Darling still resides at number 11. With Tory promises of initiating their own budget within weeks of coming to office whoever is Chancellor will have to make a much more detailed and fiscally strategic offering next time.

[Monsta®]

how about saying it in layman's terms? for those who have no idea what your on about?