AND WHAT TO DO ABOUT IT
Latest - JANUARY 17th 2012
groupings spread throughout the world and they were all
investing in the bubble they themselves had created.
All of life is to some extent a bubble but the trick is not to burst it
by blowing it too big.. The current one has burst but there should be
another one growing inside to take over. The investors of pension funds
who are still inside must hope that their investments are well enough
placed to be in the small one, undersized though it will look when the
wreckage of the first is cleared away.
Good will eventually come of all this compared to what would have
happened if the growth of the bubble had continued further. Bush's
cutting of interest rates is not a remedy, just a necessity in the
circumstances which will not help the global situation particularly
FOOD FOR THOUGHT
We are told by reliable authorities that in the UK we throw away about
1/3 (33.3%) of all the food we buy. I am not sure if that is by
weight, volume or price, but let us say it is by price. If we were all
to buy 20% less food, that alone would cause what we would call a
'recession' in the food retail industry and in a range of suppliers and
producers. If we are going to get the slightest control on the
management of this planet we have to accept tha we cannot 'grow' our
way out of problems when growth is the cause of the biggest problems we
are facing. There other ways. Innovation and the start of new
activities and ways of living instead of more and more of the same
would be a sensible way to go.
FEBRUARY 14th 2008
Recession is now the accepted description of what is occurring in most
western economies. There are of course local exceptions in both nations
industries. Now is therefore the moment to redesign the growth that we
need to keep economies going, so that this growth is consisiten with
limiting global warming and the sustainable supply of energy, raw
materials and food.
Because the present difficulties present an opportunity, an
encouragement and a punishment for failure to act earlier, this
recession is to be welcomed.
JULY 11th 2008
Just in case anyone should think we are not heading into a real
recession, today's news from America should clear their brains. The
report here is from the Guardian. The US is about to increase its
National Debt by a very large amount if it is to bail out Fannie Mae
and Freddie Mac tather than let the investors take the strain they were
in business to take. Critics of the UK government for their handling of
e.g. Northern Rock may have some food for thought here.
Markets slide as problems mount for
US mortgage lenders
Shares in America's two largest
mortgage lenders, Fannie Mae and Freddie Mac, plummeted for a third day
on expectations that the government will bail them out if their funding
In early trading, Fannie shares sank $6.10, or
46.2%, to $7.10, while Freddie plummeted $4.01, or 50.1%, to $3.99.
Both have lost more than 90% of their value since last August.
The Dow Jones industrial average dropped 176.6 points to 11,052.42
points, a fall of 1.6%, by 3.30pm BST. The
in London, reversed earlier gains and dipped into
again this afternoon. It was down 86.9 points at 5319.9 points, a drop
and Freddie, which together own or guarantee nearly half of the
nation's $12 trillion (£6tn) mortgage debt, have been hit hard by
US housing crisis.
The New York Times reported today that the
government is considering a plan to place the companies into
conservatorship. This could wipe out shareholders, and force taxpayers
to cover losses on home loans Fannie and Freddie own or guarantee.
think everybody's just holding their breath in expectation that
something substantive from the government will happen today or over the
weekend," said Karen Shaw Petrou, managing partner of consulting firm
Federal Financial Analytics in Washington.
A statement from US Treasury secretary Henry Paulson on the two
mortgage lenders is expected later today.
said the government could not allow Fannie and Freddie to fail. "In a
nutshell they are simply too big," said Phil Barleggs, Insight
Investment's head of fixed product management. "There will be a lot of
political pressure to bail them out."
Recession and inflation
Meanwhile, US consumer confidence
rose unexpectedly in July partly because of retail discounts, but the
increase was small and barely lifted sentiment above June's 28-year
low. The University of Michigan consumer confidence index edged up to
56.6 from June's 56.4. Wall Street had expected a fall to 55.5.
declines in consumers' evaluations of their personal finances were
offset by the availability of larger discounts on household durables
and vehicles," the survey said. "More than nine in 10 consumers think
that the economy is now in recession, and a deepening downturn was
widely anticipated during the year ahead."
A measure of
consumer expectations fell to its lowest level since May 1980. More
consumers complained about higher food and fuel prices and smaller
income gains than ever before, the report revealed, and those expecting
their finances to improve were at a record low.
expectations over the next year jumped to the highest since 1981, to
5.3% from 5.1% in June. Five-year inflation expectations held steady at
the peak of 3.4% recorded in May and June, which was the highest in 13
This article was first published on guardian.co.uk
on Friday July 11 2008. It was last updated at 15:50 on July 11 2008.
- guardian.co.uk © Guardian News and Media Limited 2008
JULY 21st 2008
The opinion (below) that the UK will have a worse time than the US in
this recession is true in a way because the US does not have to face
the music in quite the same way. It can get away with 'murder' on the
monetary and financial side for a number of reasons; in fact it has
been doing so for years. Its people do pay the price as the statistics
show, including prison population. The other point being made by
Blanchflower is that we should DO SOMETHING. I agree, but I don't think
I would agree with him on what to do. It is not that monetary policy
has been 'too tight', but that it has got to CHANGE in its conception
and should have changed earlier. Intervention or the lack of it has
always been the subject of hypocritical thinking and even more
hypocritical presentation in both the UK and the US. This recession is
going to hurt, and so it should. Blanchflower is right - but leave the
interest rates alone.
Britain 'Heading For Recession'
By Sky News SkyNews - Sunday, July 20 11:31 pm
The British economy is heading into recession,
according to a member of the Bank of England committee which sets
Blanchflower, who sits on the Monetary Policy Committee, also warned
that recent job losses could be "the tip of the iceberg".
In an interview in the Guardian newspaper, he said: "I think we are
going into recession and we are probably in one right now."
He added: "We will probably have three or four quarters of negative
growth, but the risks are to the downside.
not too late to stop it, but we have to act right now. Monetary policy
has been far too tight for too long. We can't just sit and do nothing
as we have done for too long."
Mr Blanchflower, who lives in the US, was the sole committee member
calling for a cut in interest rates in May and June.
But the Bank of England has held interest rates at 5% for the last
three months after cutting them in April.
of this month's meeting will be published on Wednesday, but the
academic economist seems certain to have repeated his call for lower
Sky's business correspondent Joel Hills said: "If his
forecasts are true, it would mean this recession, if it is one, would
turn out to be worst than the five full-blown post-war recessions that
we have seen, the last being in 1991.
Hills added: "This is all pretty gloomy stuff. However, bear in mind
that he has been a lone voice on the panel for some time.
has been at odds with the prevailing consensus of the committee, which
has been that the big problem isn't the slowing economy, it's rising
Mr Blanchflower also said that house prices in Britain could fall by
as much as a third and that the British economy could be facing a worse
ride than even the US.
AUGUST 8th 2008
There is much discussion and speculation about what the Government
should 'do' to 'save' the housing market and construction industry.
There have been complaints about the refusal of Chancellor Alastair
Darling to 'rule in or out' a holiday in Stamp Duty.
The truth is he is doing OK. There is no question of ruling anything in
or out. All he should do is endeavour to put together some means
of minimising repossessions. Everyhting else in the housing
market will take care of itself providing he can find a way of
preventing some of the most vulnerable from losing their homes only to
have to be provided with others at no saving and in fact additional
cost to the nation and profit to those who do not merit it. The stamp
duty holiday is not the answer, nor is any declaration that causes
hundreds of buyers, sellers and agents to run to take particular
actions. To a certain extent it is even wrong to think that a
whole range of actions is what is required. The correct action is more
basic and simple. It is to reduce repossession which might otherwise
get temporarily out of control. To do this will need the coordinated
cooperation of the mortgage service providers. There is also a case for
social housing provision.
As for looking at the reasons behind the instability that has let to
the crash and burn of the banking system, Jeremy Warner has, as so
often, focussed on the flaw in The
Jeremy Warner's Outlook: With the credit crunch a year old, is it
time to revisit the Glass-Steagall Act?
Wednesday, 6 August 2008
we approach the first anniversary of the credit crunch, is it the end
of the world as we know it for investment banking, the industry now
universally blamed for the present mess?
Most investment bankers would still scoff at the idea. Yet even the
most ebullient are being forced reluctantly to admit that the
consequences of the present implosion are likely to be rather more
momentous than previous cyclical downturns in which bankers have
similarly been painted as villains. After past crises, they have nearly
always come bouncing back after a few years of lying low. This time, it
looks much more serious.
Nor is it just the threat of regulatory backlash which stands to clip
their wings. Bear Stearns is already history, and at least three of
Wall Street's bulge-bracket firms – Lehman Brothers, Merrill Lynch and
UBS – will struggle to survive in their present form.
All three have been so neutered by the events of the past year that
they can now scarcely be regarded as "bulge bracket" at all. In any
case, it seems unlikely they will remain as the integrated investment
banking operations they were. Lehmans may yet disappear entirely, UBS
might shrink back to its core private banking franchise and Merrill
Lynch too will surely return to its roots in traditional retail broking
and asset management. Big challenges, both market-based and regulatory,
lie ahead for those that try to maintain the game.
According to talk on Wall Street, so desperate have the investment
bankers become for reasonably priced funding that even the mighty
Goldman Sachs is now in the market for a sizeable retail bank that
might give it access to cheap money. As things stand, some investment
banks are paying up to 250 basis points over bank rate for funds, an
unsustainably high rate, which undermines much of what they do.
At the same time, investment banks are facing the parallel threat of
regulatory backlash. The quid pro quo for being allowed to borrow from
the Federal Reserve's discount window is that investment bankers will
have to accept a much higher degree of oversight. Again, this is going
to affect much of what they do. Yet even if investment banks attempt to
become "universal banks" – like JP Morgan Chase, Citigroup, HSBC or
Barclays – it may not provide any relief.
Those political voices on both sides of the Atlantic clamouring for a
return to something like the Glass-Steagall Act of the 1930s, which
among other things forced a rigid separation of investment and
commercial banking, grow ever louder. It may be a bit far fetched to
cite repeal of Glass-Steagall by the Clinton administration in the late
1990s as the main cause of the present crisis, but this act of
deregulation certainly can't have helped. When banking lender and fee
earner become one and the same, it sets in train a fundamental conflict
of interest, which is almost bound to end badly.
After Glass-Steagall went, investment bankers did more conventional
lending and commercial bankers did more fee earning. The "originate and
distribute" model for banking took off like wild fire. Commercial banks
became more like intermediaries than traditional lending institutions.
They would take a fee on originating the loan, then another on
securitising, syndicating or otherwise distributing it. The process was
meant to leave the bank free of the risk of default. Certainly it
encouraged the collapse in lending standards that lies at the heart of
If "originate and distribute" was meant to lay off the risk with
others, how come so much of it ended back on the originators' books?
The answer lies only in part in the practice of "warehousing", where
banks would take the loans or securities on to their own books ahead of
selling them out into the market. When the music stopped, they were
left with the unsold risk.
In some cases, senior, apparently lower risk, tranches of the debt
would be held back to expand the bank's own balance sheet. Yet much
worse was the absence of centralised risk controls. While one part of
the bank was selling out the risk of sub-prime mortgages, leveraged
loans and so on, the proprietary trading desk on another floor or a
different country was all too likely to be buying it back again in the
hope of making a fast buck.
Treasury functions became seen as profit centres, rather than
risk-control departments. Bizarrely, HBOS and others bought US
mortgage-backed securities as part of their liquidity pools, a bank's
key source of cash for depositor withdrawals, believing these triple-A
rated bonds to be as safe as gilts, but higher yielding. The latter
characteristic should have told them all they needed to know, but the
warnings were ignored.
It is small wonder that now all these practices, and others more
complex and ingenious still, have become exposed to the cold light of
day, that everyone has lost faith in the banking system. To regain that
trust, investment, retail and commercial banks need entirely to reboot.
In any event, it is all too easy to make the case for the rigid
division of banking functions that Glass-Steagall once imposed.
Universal banks would have to break themselves up and a swift return to
the investment banking free for all of recent years would become
virtually impossible. Are we about to go back to the old ways of
originate and hold to maturity? Nobody quite believes that yet, but as
I say, even the most bullish of investment bankers are starting to
think that, perhaps, they need a new career path
AUGUST 22nd 2008
Late in the day official statistics reveal what has been obvious for a
very long time - that growth of the UK economy has ceased. It was
obvious because it was the only possible result of the actions taken by
banks, their customers, and UK businesses which would have to
wait for the Pound to fall some way and stay there before advantages in
exports and tourism could be felt to compensate in some way. The
tourism effect will be felt not only in encouraging visitors from
abroad but in encouraging UK citizens not to travel so much, but it
takes time to have an effect on our crunching economy.
There is now as a result a call for a reduction in interest rates. As I
have been saying for the last five years, interest rates should be left
alone. Their use as the prime lever to regulate the economy guided by
an inflation rate now based on a weird mixture of national and global
factors is past its use-by date. Leave the rate at 5%. For ever, unless
we move to yet another situation altogether.
growth at standstill
UK economic growth ground to a halt between April and June,
according to the latest official data.
The Office for National Statistics said economic growth was
in the second quarter from the first, revising an earlier estimate of
It ends a run of 63 consecutive quarters of growth in the UK and is
the weakest data since 1992.
The figures are likely to raise expectations of a cut in interest
rates to prevent a protracted slowdown.
The services sector, the backbone of the UK economy, grew just 0.2%,
while manufacturing output fell by 0.8%. Household spending dropped by
| The figures are very weak and
suggest the UK economy is already in recession
George Buckley, Deutsche Bank
Exports also fell as Europe, the UK's main trading partner, saw
growth contract in the same period.
The economy grew 1.4% from the second quarter of 2007 revised down
from an initial estimate of 1.6%.
"The figures are very weak and suggest the UK economy is already in
recession," said George Buckley, an economist at Deutsche Bank.
The economy technically enters a recession when it shrinks for two
Bank of England governor Mervyn King has warned that the UK economy
in for a difficult and painful period due to a combination of high
inflation and rapidly slowing growth.
Inflation, which hit 4.4% in July, could make it more
difficult for the Bank to cut interest rates to spur the economy but
analysts said the zero growth reading could lead to lower borrowing
costs by the end of this year.
"This really does put a rate cut firmly on the agenda
although it is unlikely to come until we have seen the peak in
inflation," said Brian Hilliard, an analyst at SG.
AUGUST 29th 2008
Everyone seem to be surprised by Alistair Darling's remarks that the
recession is far worse than was predicted and that the public was
'pissed off' with the government as a result. I am not in the least
surprised. Darling is a very straight guy. The only suprising thing is
that he was so surprised. As for the public who think he and Gordon
Brown could have prevented this recession and credit crunch, dream on.
Even if they had seen it coming as bad as it is, the public, big
business, the banks and the Tory Party and even the Unions and above
all the press media would have made it quite impossible for them to
taken the necessary steps, just one (only one) of which would have been
to join the Euro Zone. No, what is happening is very tough, was
obviously coming and it
serves our entire population bloody well right.
Darling warns of economic crisis
The UK is facing its worst economic crisis in 60 years,
Chancellor Alistair Darling has admitted.
He told the Guardian newspaper that the economic downturn would be
"profound and long-lasting" than most people had feared.
Using strong language, Mr Darling acknowledged voters were angry
with Labour's handling of the economy.
Shadow Chancellor George Osborne said Mr Darling had "let the cat
out of the bag" about the state of the economy.
The Chancellor admitted the government had "patently" failed to get
message across that it understood people's concerns about rising living
costs and growing job insecurity.
He said that voters were "pissed off" with Labour's
handling of the economy, a key issue at the next election, and said it
was "absolutely imperative" that ministers communicated their
| This coming 12 months will be
the most difficult 12 months the Labour party has had in a generation,
"We have got our work cut out," he said.
"This coming 12 months will be the most difficult 12 months the
Labour party has had in a generation, quite frankly."
Ministers are expected to announce a package of measures next week
to kick-start the moribund housing market.
The Chancellor has been criticised for sending contradictory signals
over possible measures to assist homebuyers, particularly the prospect
of a temporary suspension of stamp duty on home purchases.
He also faced a backlash over the abolition of the 10 pence tax
In a wide-ranging interview, Mr Darling said that Labour had to
rediscover its "zeal" if it wanted to be re-elected for a fourth term.
But he admitted that was "a huge problem for us at the moment".
Mr Darling hinted at tensions within Gordon Brown's cabinet by
there were "lots of people who'd like to do my job" and "no doubt,
actively doing it".
But he appeared to rule out an autumn cabinet reshuffle as Labour
tries to wrest back the political advantage.
How the government is trying to kick-start the housing market
"You can't be chopping and changing people that often. I mean,
undoubtedly at some stage before the end of parliament he [Gordon
Brown] will want to do a reshuffle but I am not expecting one
The Chancellor's remarks come after a summer of unremittingly bad
House prices are falling at their fastest rate in 18 years, leading
fears of a wave of repossessions in the upcoming months.
Mortgage lending has slowed dramatically due to the
credit crunch while key indicators have suggested that the economy
could be poised to go into recession in the near future.
The economy showed no growth in the second quarter of
the year while building firms and retailers have laid off thousands of
staff in recent weeks amid fears that the economy will deteriorate
A member of the Bank of England's Monetary Policy
Committee said on Friday that radical action was needed to ensure the
crisis did not get worse and warned of a sharp rise in unemployment.
Mr Osborne, commenting on the Chancellor's comments, said: "Who is
telling the truth at the top of government?
"The prime minister says the economic situation isn't as bad people
think and that Britain is well placed to weather the economic storm,
but the Chancellor says we are at a 60-year low.
"Gordon Brown has briefed out stories that he has an
economic recovery plan all worked out, meanwhile the Chancellor says
the downturn will be more profound and long-lasting than people
"It's not clear whether Alistair Darling meant to tell
us the truth about the mess 10 years of a Labour government has left
our economy in, but he has certainly let the cat out of the bag."
Liberal Democrat Treasury spokesman Vince Cable said the government
had been inconsistent with its message.
"I worry about the government lurching from one extreme to the
other," he said.
"Until very recently there was no problem, there was a state of
Britain was the strongest country in the western world, any problems we
had were from overseas.
"Now suddenly we've lurched into Apocolypse Now, the return of the
The Treasury said the Chancellor's comments were "entirely
consistent" with his previous statements.
A spokesman said: "These are the same difficult economic
that every other country in the world is having to deal with.
"But with employment levels near record highs, interest
rates that are historically low and the past decade of rising incomes
and job creation, the UK is well placed to deal with this."
SEPTEMBER 2nd 2008
The government has introduced a packet of measures related to
alleviating problems in the housing market, including but not primarily
the lack of transactions, and not all transactions either.
The Tory opposition spokesman has described it as 'too little, too
late'. It is neither too little or too much and as for saying it was
late, if it had been introduced earlier it would have added to the
problem rather than alleviating the straits of those who had been led
into unsustainable positions or were suffering as first time buyers in
an inflated market. Her Majesty's Loyal Opposition is as useless,
hypocritical bunch of wankers as has ever (dis)graced those benches
and some of them know it.
SEPTEMBER 6th 2008
Here is a good summary of the position
LONDON (Reuters) - The chief executive of home lender,
HBOS, warned on Saturday that the credit crunch was likely to last
until early 2010.
personal view, for what it's worth, is that it will take 18 months to
play through the system," Andy Hornby told the BBC in an interview.
current financial crisis was precipitated by the collapse of the U.S.
sub-prime mortgage market and Hornby predicted any revival would be
intimately linked with a recovery in the U.S. housing market.
"It's going to take 18 months before U.S. house prices
have started to rise again -- which is what's required for banks to
have the confidence to start lending again. It will take a long time to
"What will eventually bring wholesale funding markets
back is when U.S. house prices start to rise and then people will
believe the underlying value of asset backed securities is likely to
stop falling and the system will start to untrap."
expect UK house prices to tumble at least 20 percent from their peak as
the decade-long boom shudders to a halt and Hornby was equally
pessimistic in his outlook.
"Over the next 18 months we'll see considerable slowdown in GDP, and
we're also looking at a period of strong house price deflation --
stronger than the early 1990s.
"But I don't believe unemployment
levels will be as high as they were as the early 1990s and that is
going to be a very important underpin in terms of people's ability to
pay their mortgages."
Hornby also warned banks' shareholders must
be prepared to accept lower returns as the industry adopts a more
"Banks' models will be altered for the
long term and right across the international spectrum they'll fund more
of their growth from customer deposits and rely less on international
wholesale funding markets as the source of long-term growth.
"That means we will plan for slightly lower growth than you have
seen in previous credit cycles."
July HBOS posted an underlying pretax profit, including the negative
adjustments, of 1.45 billion pounds in the first six months of the
year, down from 2.96 billion in the same period of 2007.
(Reporting by John Joseph; Editing by Clarence Fernandez)
SEPTEMBER 7th 2008
I find the problems the US is having here demonstrate what I suggested
were the weaknesses in its phony market economy back in the 1980s. The
solution is nationalisation, a solution they take from time to time
without admitting it. This time they will have to come clean. By going
potentially bust, the shareholders leave the government free to set the
price in the national interest - a subtle balancing act, but it could
US takes over key mortgage firms
US President George Bush says mortgage giants Freddie Mac and
Mae have been taken over because they posed "an unacceptable risk" to
The two companies
account for nearly half of the outstanding mortgages in the US, and
have lost billions of dollars during the US housing crash.
The most recent figures show about 9% of US homeowners were behind
on their payments or faced repossession.
The federal takeover is one of the largest bail-outs in US history.
It was announced on Sunday by Treasury Secretary Henry Paulson.
"Putting these companies on sound financial footing, and reforming
their business practices, is critical to the health of our financial
system," President Bush said.
"The actions taken today are temporary, and will support housing
finance in the near term."
As part of the changes, the management of the two companies will be
replaced while the firms will be given access to extra funding to
support their business going forward.
Treasury Secretary Henry Paulson said the government
was intervening in the wider interests of the financial system and of
taxpayers since the financial position of the two firms was fast
| A failure of either of them
would create great turmoil in financial markets here and around the
Henry Paulson on Freddie Mac and Fannie Mae
He added that the two firms' debt levels posed a "systemic risk" to
financial stability and that, without action, the situation would get
"We examined all options available and determined this
comprehensive and complementary set of actions best met the objectives
of market stability, mortgage availability and taxpayer protection," he
"Fannie Mae and Freddie Mac are so large and interwoven
in our financial system that a failure of either of them would create
great turmoil in financial markets here and around the globe.
US treasury statement on the future of Freddie Mac and Fannie Mae
The move is intended to keep the two companies afloat, amid fears
either could go bankrupt as borrowers default on their home loans.
The two firms will be administered by the Federal Housing Finance
Agency until their long-term future is decided.
The Congressional Budget Office has said such a move could cost up
$25bn but Mr Paulson said there was no reason why taxpayers should have
to directly foot the bill.
Together, Freddie Mac and Fannie Mae own or guarantee about $5.3
trillion (£3 trillion) of mortgages.
But they have made a combined loss of about $14bn in the past year
officials were worried that they would no longer be able to continue
functioning if such losses continued.
For the US Treasury, the bailout could turn out to be
one of the most expensive financial rescues in history
The Treasury's funding guarantees to the two firms - which will
it buying up high-risk mortgage backed securities used to fund the
mortgage market - will last until the end of 2009.
During that period, neither Fannie Mae nor Freddie Mac will be able
to make any payments to their shareholders.
But Mr Paulson warned that the move was only a short-term
He said it would be up to Congress to agree proposals to reform the
two firms and address their "pervasive weaknesses".
Federal Reserve chairman Ben Bernanke said he "strongly endorsed"
proposals to ensure the two firms remained financially sound.
"These necessary steps will help to strengthen the US
housing market and promote stability in our financial markets," he
Banks around the world are highly exposed to the two
companies and therefore, given the febrile state of markets across the
world, it had become dangerous for doubts to persist about whether they
were viable and would be able to keep up the payments on their massive
liabilities, says the BBC's business editor Robert Peston.
A rescue plan passed by Congress in July gave the US
government the authority to offer unlimited liquidity to the two
companies, and to buy their shares, in order to keep them afloat.
The headline next day in the Independent needs little explanation. A
certain amount of finance that was being withheld on th e precautionary
principle was released, on the grounds that the risk would be shared by
the US taxpayer - the US 'Taxpayer' being US residents and US domiciled
nationals but not all US
owned companies, nor all those with interests in the US economy.
Dividend payments are suspended and preferred shareholders, which
includes a lot of small US banks, will feel the pinch.
The dramatic nationalisation of mortgage giants Fannie Mae and
Freddie Mac by the US Government today sent London's leading shares
soaring almost 4 per cent.
SEPTEMBER 12th 2008
It has become clear that even the nationalisation of the liabilities
and the operations of Freddie and Fannie have not impressed financial
markets as a whole. Lehman are now on the skids. The losses they have
been making have been the result of pure gambling, which banks, just
like individuals, can sink to when they have not succeeded in the
business of genuine investment .
Below are extracts from
Lehman racing to find buyer for beleaguered firm
By JOE BEL BRUNO, AP Business Writer
With Lehman Brothers' shares signaling another steep drop on Friday,
top executives are racing to put a sale of the beleaguered investment
bank in place before it loses further market value and confidence.
Confidence has waned that Lehman Brothers Holdings Inc. will emerge
from the financial crisis as an independent franchise, and the No. 4
U.S. investment bank is scouring Wall Street for a financial lifeline.
Executives worked feverishly in the past 24 hours to find someone
willing to buy all or part of the company, bankers and industry
executives close to the situation said.
* * * * *
Lehman's losses soared to almost $7 billion in the last two quarters
alone, primarily because of wrong-way bets on mortgage securities and
other risky investments.
It's not alone. Global banks have lost more than $300 billion since
the subprime mortgage crisis spread to the credit markets one year ago.
And the International Monetary Fund has suggested total losses globally
could hit $1 trillion.
SEPTEMBER 15th 2008
Lehman Bros is done for. Bank of America has purchased Merril Lynch but
nobody is going to take on Lehman as it is totally dependent on the
continuation of a trade-wind that has ceased to blow, leaving it with
immense debts, monies owing it cannot collect quickly if at all and a
wages bill big enough to feed Zimbabwe.
Meltdown in US finance system pummels stock market
By PATRICK RIZZO and JOE BEL BRUNO, AP Business Writers
The upheaval in the American financial system sent shock waves
through the stock market Monday, producing the worst day on Wall Street
in seven years as investors digested the failure of one of its most
venerable banks and wondered which domino would be next to fall.
The Dow Jones industrial average lost more than 500 points, more
than 4 percent, its steepest point drop since the day the stock market
reopened after the Sept. 11, 2001, attacks. About $700 billion
evaporated from retirement plans, government pension funds and other
The carnage capped a tumultuous 24 hours that redrew U.S. finance.
Lehman Brothers, an investment bank that predates the Civil War and
weathered the Great Depression, filed the largest bankruptcy in
American history. A second storied bank, Merrill Lynch, fled into the
arms of Bank of America.
It was by far the most stomach-churning single day since a financial
crisis began to bubble up from billions of dollars in rotten mortgage
loans that have crippled the balance sheets of one bank after another
and landed mortgage giants Fannie Mae and Freddie Mac under the control
of the federal government.
"We are in the middle of a deep, dark recession, and it won't end
soon. Here it is, and it is pretty nasty," said Barry Ritholtz, who
writes the popular financial blog The Big Picture and is CEO of
research firm FusionIQ.
And the fallout was far from over. American International Group, the
world's largest insurer, was fighting for its very survival: New York
Gov. David Paterson moved to allow the company to tap one of its
subsidiaries for an emergency loan to stay above water.
"AIG still remains financially sound," Paterson said, even as the
company's stock tumbled almost 60 percent. Almost $20 billion was wiped
off AIG's balance sheet on Monday.
In Washington, Treasury Secretary Henry Paulson, who refused to toss
a financial lifeline to Lehman, was unapologetic as the Bush
administration signaled strongly that Wall Street shouldn't expect more
rescues from Washington.
The American people should remain confident in the "soundness and
resilience in the American financial system," Paulson told reporters at
the White House.
Six months ago, Paulson moved to prevent the collapse of Bear
Stearns, brokering a deal for JP Morgan Chase & Co. to buy the firm
at a fire-sale price with Federal Reserve backing. Earlier this month,
he stepped in to help the government seize Fannie and Freddie in hopes
of reversing the housing and credit crises.
But Monday, Paulson said he "never once" considered it appropriate
to put taxpayer money at risk to resolve the problems at Lehman
Brothers, which was saddled with $60 billion worth of soured real
The result was one of the most momentous days in Wall Street history
since legendary banker J. Pierpont Morgan helped broker the rescue of
financial markets during the Panic of 1907.
The Dow industrials dropped 504.48 points to close at 10,917.51, the
first time since July they have finished under 11,000. It was the
sixth-largest point drop ever and the worst since Sept. 17, 2001, when
the average fell 684.81 points on the first day of trading after the
In percentage terms, the fall for the Dow on Monday was its worst
since the summer of 2002. The index has shed nearly a quarter of its
value since its record high last October.
Broader stock indicators also fell. The Standard & Poor's 500
index lost more than 4 1/2 percent, and the Nasdaq composite index lost
more than 3 1/2 percent.
Financial stocks fell as investors worried about the strength of
banks' balance sheets. Washington Mutual Inc. 27 percent to $2 a share,
while Wachovia Corp. fell 25 percent to $10.71.
While Lehman Brothers was filing for Chapter 11 and AIG was
scurrying to find financing to stay afloat, Merrill Lynch was avoiding
a similar fate with a $50 billion transaction to become part of Bank of
The deal would create a financial giant rivaling Citigroup Inc., the
biggest U.S. bank in terms of assets. Bank of America has the most
deposits of any U.S. bank, while Merrill Lynch is the world's largest
and most widely recognized brokerage.
"It was an opportunity of a lifetime," said Ken Lewis, Bank of
America's chairman and CEO.
Lewis made the announcement at a news conference where he was
flanked by a smiling John Thain, Merrill's chief executive. The two put
the deal together in 48 hours, while they were taking part in marathon
discussions at the New York Federal Reserve over the weekend to save
Lehman Brothers. Merrill stock rose a penny Monday.
One huge concern is that the Lehman bankruptcy will probably
trigger even tighter credit — making it more difficult for everyone
from large companies to small businesses to American homebuyers to
It was a dark day for Lehman workers, too. Many of them brought
gym bags, shopping totes and Lehman travel bags to cart home personal
files and pictures from their desks at the company's midtown Manhattan
headquarters. Gawkers lined up behind metal barricades, and bystanders
took pictures with their cell phones.
The failure of Lehman and probable job losses at Merrill are
also a blow to the New York City economy, which is still trying to
absorb a blow from shrunken tax revenues after the collapse of Bear
Stearns in March. The city and its outlying suburbs rely heavily on
taxes paid by workers in the financial services industry.
In marathon sessions Friday night, Saturday and Sunday,
government officials and the chief executives of major U.S. and foreign
banks huddled at the New York Fed's fortress-like building in downtown
Manhattan, trying to work out a way to save Lehman.
They failed at that. But a group of 10 banks that includes
JPMorgan, Goldman Sachs and Citigroup formed a $70 billion pool that
banks or brokerages can tap to cover short-term funding needs.
There were also worries that Lehman's problems would infect
other financial companies and spread to global stock markets, further
harming the U.S. and global economies.
The Fed meets Tuesday to decide interest rate policy. It's
widely expected to keep rates at 2 percent, but some economists believe
it could lower them to soothe Wall Street's frazzled nerves.
The financial turbulence could also further derail consumer
confidence in the economy just as stores prepare for the critical
holiday shopping season. The upheaval in the financial system also
means that those consumers with marginal credit history will have an
even harder time getting loans, cutting into consumer spending.
"The backdrop even without this was tough. This certainly adds
to the worry level," said Michael P. Niemira, chief economist at The
International Council of Shopping Centers.
Republican presidential nominee Sen. John McCain assailed
"greed and corruption" on Wall Street and promised to clean it up,
while his Democratic opponent, Sen. Barack Obama, blamed White House
policies and said his opponent would only deliver more of the same.
Obama called it "the most serious financial crisis since the
Great Depression." McCain declared in a new TV ad that "our economy is
in crisis" and that only he and his running mate, Alaska Gov. Sarah
Palin, could fix it. McCain also told voters in Jacksonville, Fla.,
"The fundamentals of our economy are strong."
Associated Press writers Jeannine Aversa in Washington, Ieva M.
Augstums in Charlotte, N.C., and Rachel Beck, Tim Paradis, Ellen Simon,
Vinnee Tong and Stephen Bernard in New York contributed to this report.
The AIG collapse will cause an earthquake if it hits the
innocent punter directly or through the corporate banker clients, so
government will have to do some sort of
Northern Rock type rescue operation. We are told AIG has to raise 'new
capital' but perhaps that is exactly what it cannot and should not do.
No doubt the panicking public will destroy their own source of
stability. The more people abandon ships taking the boyancy bags with
them, the quicker the ships sink. The more they pile into life-boats
the more these will overload and sink too.
SEE ALSO GLOBAL FINANCE
SEPTEMBER 17th 2008
HBOS (Halifax, Bank of Scotland) has been raided by short-sellers and
is seeking a merger with Lloyds TSB. The theory, like Merrill + Bank of
America, being that together they are too big to be buggered. It also
could mean they are too big to be saved by anything except
nationalisiation on pitiful terms for shareholders in order to save
depositors and clients.
If free-market global capitalists cannot learn how to behave, their
game may be taken away you know, as has happend in centuries past with
fearful consequences till bloodshed has cleared the collective brain,
SEPTEMBER 18th 2008
The pumping of 180 Billion dollars into the money supply by the major
central banks is sadly necessary. This sort of action should be
reserved for moments of great and legitmate need to deal with global
problems, such as global warming when it really strikes, or
asteroid/comet defence when the real risk arrives, to permit massive
investment in and implementation of new technology on the basis of an
internationally shared liability . To have to use it because of
speculators on the one hand and panickers on the other in the existing
infrastructure is sad. The introduction of legislation to prevent
speculative profiting from falling share prices is welcome and should
have been introduced earlier. There are those in the City who will
moan, but they are wrong. The FSA is right to act on the short-selling
of shares. It will enable people to stop following every wave and money
can return to hwere it is needed.
There are ways to stabilise the market and if governments get together
they can actually take on some investments and liabilities and make a
big profit for taxpayers and the public purse. The
'freedom' which is George W Bush's watchword has bitten him in the bum
now in both the military and financial world. Eventually he may do the
right thing. That means recognising that ivory tower academics and
economic philosophers who have ridden the tiger they created are not
necessarily the people to follow when their invention has left the road.
pledge to 'clean up' City
Gordon Brown has pledged to "clean up" the financial system
the rescue of Britain's biggest mortgage lender HBOS by Lloyds TSB.
The prime minister said he had taken "quick action" to "maintain
the stability of the financial system".
But he said he also had proposals to end "irresponsible behaviour"
the money markets to prevent similar problems happening in the future.
Mr Brown was speaking before the FSA announced a clampdown on
The government by-passed competition laws to allow the HBOS
takeover to happen.
The £12.2bn deal will create a mega bank that will dwarf its
nearest rivals in the UK mortgage and savings market.
It follows the dramatic collapse in the share price of HBOS, amid
fears it was exposed to bad debt.
The takeover is unlikely to have been allowed by the Competition
Commission under normal circumstances.
| We've got to clean up the
financial system, we don't want these problems recurring in the future
But the government says it will allow the deal as financial
stability "must trump" competition fears.
Chancellor Alistair Darling added that without the deal the outlook
"very bleak indeed", though he denied the authorities had rushed
through the deal.
Mr Brown said the government's main priority in the short-term was
to ensure the stability of the financial system.
But in the longer-term, he said there would be reforms of the
financial system to prevent future future problems.
He told the BBC: "I think we've got to look at where there has been
irresponsible behaviour and I've said for some time that we need
reforms in the system.
"I believe there's now an audience that agrees with me that we
should do more.
"We've got to clean up the financial system, we don't want these
problems recurring in the future.
"I proposed a number of things to our international colleagues
this is global action that is needed to deal with a global problem, and
in our own country we'll do whatever is necessary to make sure that
people have confidence both in the system and we restore the prosperity
of the country."
Banks in trouble will be forced to disclose their debts
to the Financial Services Authority, the Bank of England and the
Treasury under proposed new legislation.
The Banking Reform Bill, due to become law in the next Parliamentary
session, will also allow the Bank of England to act more quickly to
take over ailing banks.
The government also backs international moves to allow central
banks to intervene more heavily in the banking system.
Mr Brown has been calling for the establishment of an international
early warning system to ensure future credit crunches are identified
and dealt with before the effects spread.
In a foreign policy speech in May, he urged America to
join him in pushing for reform of the major international institutions
including the International Monetary Fund and World Bank.
But there are no signs Mr Brown will follow the lead of
the US financial regulators and curb "short-selling" - the practice
which allows speculators to profit from falling share prices, which
critics say fuels financial instability.
Some of Mr Brown's domestic plans are also likely to be
opposed by the banks themselves, who fear shareholders in troubled
institutions could be stripped of their rights.
The Conservatives have said they will support
government legislation to reform the system - but they also want to go
further and hand the regulation of the banks back to the Bank of
Shadow chancellor George Osborne said the Conservatives
would also consider rules to smooth out the "credit cycle" to prevent
banks lending too much in good economic times and not enough when
things turn bad.
Vince Cable, the Lib Dem Treasury spokesman, has been
pressing for banking reform and tougher controls on lending for years.
He has urged the end of "lavish" City bonuses and
predicted the era of "freewheeling" financial markets was coming to an
SEPTEMBER 19th 2008
The coordinated action, in the US and UK particularly, has kicked off
immediate recovery in share values. Once investors knew that
speculative short selling had been outlawed for a least a quarter, the
risk of getting back into the market could be based on a realistic
estimate of stock values. The rush caused a bounce too far, but it
settled before the end of the day. In the US there was the addititional
commitment of the Federal authorities to take the most toxic mortgage
liabilities into the public domain. Of course it would be better if
this had not been needed but frankly, at the already reduced value, the
assets can be held. Then some remodelling can be sorted out slowly,
with the market tested incrementally. This rescue operation has been
called 'a political solution to a financial problem', but the truth is
it was more than a financial problem. It was instability caused by too
great a communications and informaton capability in the hands of
toomany people without wider responsibility, together with the (now
seen as) over-liberal actions of the Clinton administration in
repealing the restrictions of the Glass-Steagall act. The problems was
therefore techno-political and required a political part to the
solution. The remodelling will also require attention to the technical
implications as well, and the weapons of financial war may need control
at a higher level than the front-line grunts.
SEPTEMBER 22nd 2008
The bounce-too-far on the 19th, followed by rumours that congress might
take its time ratifiying the administration's massive bail-out plan,
has caused stocks to fall again. Foreign investors may have been
examining their domestic liquidity positions. There is still no doubt
the Paulson-Bernanke plan is needed, as the credibility of the US is at
stake. Richard Shelby on the Banking Committee thinks there are
alternatives. Indeed there could be, but not in time or in the current
situation. These alternatives can be explored in due course. However it
seems that the Paulson plan is flawed due to lack of certain details
and conditions. Admittedly he is caught between the need to look after
conflicting domestic national interests as well as international
considerations and that is why he has left it undecided in certain
details, but congress will have to get its act together if it wished to
bracket certain elements and exercise some control 'on-the-fly'.
The truth is Paulson and Bernanke understand what they are doing and
why. Their critics in both the Republican and Democratic parties do
not. They will set a price for the 'toxic' assets they buy which will
be above the current market value but low enough to see the taxpayer
into a sustainable position. The current market price is affected by
both a liquidity and confidence problem combined with particular
mismatches in supply and demand caused by sub-prime mismanagement. On
top of that, international investors have been withdrawing tactically.
These four factors will all diminish. The Federal Government alone is
in a position to do what others can not, Having said that, Bernanke has
a lot to answer for from past inattention but he was handed a bag of
worms by Greenspan who managed to jump before the ship ran aground.
SEPTEMBER 24th 2008
Barak Obama had a big chance to make an important contribution to the
final shape of the package that passes the approva of Congress this
week, on which the future of the American economy depends. He is
flunking it. This is very disappointing. It gives the impression he is
a man who ducks the tough issues for fear of offending some part of the
electorate. Not good. But later he decides to turn up and argue the
toss. If he stays there to vote he will be forgiven.
Today is, in my book, D-Day. If the citizens of America (and to a
lesser extent the UK) cannot take the responsibility and duties on
their individual and collective shoulders to bring order to the
economy, it will crash. In America, they have to get on and pass the
legislation required and sort out the reforms of the system and the
blame later. In the UK, people have got to realise that if as
individuals they bale out of a bank as well funded as Bradford and
Bingley they are sinking the boat they are sailing in. The richest and
the poorest, the so-called powerful and those without a job at all are
all in the same boat, very few of them can swim and most of those who
can would have to reach land start from scratch. So the government will
launch a public lifeboat for all the passengers but shareholders will
have baled out and chucked the valuables of remaining shareholders
overboard in doing so.
So far there (7:30pm GMT) is no deal. Will Hutton is talking sense.
There is liquidity but it is frozen. It will unfreeze if this deal goes
through. The American taxpayer is only at risk if he does NOT play
ball. The Republican ideologues will shoot themselves in the foot if
they muck this up. It is characteristc of them - they make their own
problems. They will even go to war to solve them rather than face the
fact that their financial ideology is as delusional as any other. The
fundamentals of nature are deep, Human financial epiphenomena are a
surface event that can be controlled only within the limits the
underlying reality allows.
9:00pm GMT: It seems there is a deal. Just as well. Obama is making
sense and as he states there is a disconnect between the White House
and the Republican Party.
Now people are asking what to do assuming the plan stabilisies affairs
at least a bit ! As someone who is not in the least
surprised at what has happened and understands exactly how and why, I
can tell you. The world as a whole has to predicate its expansion for
the next 10 years in a more 'dirigiste' way, just as De Gaulle did in
France. The market economy is still going to be there but it is going
to take a back seat until we have got things set to deal with global
warming. The market can't deal with problems that citizens as a whole
cannot perceive, and the problems climate change is bringing simply do
not impinge directly on citizens in the developed, rich nations - even
on the poor in those nations. We have houses with roofs, and we have
people who cannot afford to live in them or buy them. That is because
the market has not been matching supply to demand for some time. But
that is not the real guide to how to expand the economy without causing
the same problem again. That requires altering the market forces from
supplying what people think they want to giving them what they need. In
the US that means completely different automobiles for a start, whether
they like it or not. Dirigism means the modern equivalent of the
Volkswagen and the 2CV - it will not resemble these but it will do the
appropriate job for now - the NEW NOW.
At the moment they are still arguing on the plan and it is now Friday.
SEPTEMBER 26th 2008
So the big argument at the moment is the extent to which foreign banks
and investors should be baled out along with US domestic. The answer is
they are just as important. The American tax payer is most certainly
liable and anyway, if it is well managed, they will not even make a
loss. The so called 'bale out' will leave the banks with egg on their
face and a thumping loss on their books, American citizens will have
save their country's credibility which would otherwise be down the
tube. Just get on with it.
Now we have got down to the nitty-gritty. Although the Democrats could
push this plan through without the Republicans (and half the
Republicans or more are in favour of it) nobody wishes to be stuck with
the responsibility (in case it doesn't work) or with the blame (because
the American public are claiming the politicians for the failure to
regulate the system). I am sure Gordon Brown is being the very soul of
diplomacy. This is why I never went into politics, as I would tell
these overfed, overpaid braggarts to stand up and take their medicine
along with their citizens. Obama has made up his mind and taken
responsibility. McCain is stalling, to get it underwritten by as many
as possible. In fact all the proper points being insisted on would be
part of any plan anyway. McCain is just getting publicity and kudos.
Wall street is yaking its medicine come what may. The protection now
needed fast is for the country and its citizens.
Ah, good. I have just turned on the TV and a lady who was a financial
advisor to the US administration has explained quite clearly that there
has been a serious mistake in calling this a bale-out (note my
spelling) of Wall Atreet, it is a bale-out of the American public,
(Bails are what go on cricket stumps by the way).
SEPTEMBER 27th 2008
In the UK Bradford and Bingley is nationalised (in the right way) and
yesterday in the US JPMorgan Chase acquired Washington Mutual, the
biggest bank yet to hit the buffers. Tomorrow is the end of the line
for the entire rescue package. I am prepared to believe the time we
have been waiting has been well spent as the terms that are being
spelled out are going to be the right ones, it is just that I would not
of thought there would be much argument about them. I guess people just
needed to have their say and be seen to be having it, but this is
getting close to the wire.
SEPTEMBER 28th 2008
The media are still confused, as apparently is David Cameron - but not
really, the confusion is a pretence. The tax-payer is not baling out
the shareholders of these banks and building societies. The big
shareholders (some acting on behalf of many small) have panicked and
run for cover, leaving those who did not panick with almost worthless
shares which the government, on behalf of all, picks up cheap and will
eventually make a profit. Should they not, some people are now arguing
that there should be further penalties on any remaining private
shareholders by retrospectively changing the terms of purchase. Then
there are those who are saying there was 'too much regulation of the
wrong kind, not enough of the right kind'. All this hindsight is
hypocritical in the extreme. To have avoided what has happened would
have meant the UK adopting practices which no opposition party other
than ironically the Liberals have suggested, and they would never have
sold it to their own supporters in the final analysis.
Midnight GMT: Bush has announced the deal is finaiised, sufficient and
ready for the vote tomorrow.
SEPTEMBER 30th 2008
2 days have gone by so that could calmly write something here. It
became apparent rather late in the day that the silent majority in the
US public were drowned out by the prima donnas posing for the cameras,
and some of the legislators worried about their seats panicked and
voted against the package. A few voted against because they a right
wing ideologues amyway with not the slightes idea of how the world
works. The combination was enough to defeat the bill. In a strange way
it could be helpful, because it is important that a sufficient
proportion of the American public learn how the old order must change,
giving place to new - not because of ideology but because of reality.
To deal with global problems (such as Climate Change) we need to use
new political and economic methods, with some decisions not left to the
market. The power of the market as the final arbiter and control in all
times had to be challenged, useful though it is as part of the
mechanism. In THE STATE OF THE ART in 1985 I wrote: "Any government,
whether called right- or left-wing, but be free to privatise or
nationalise at certain times in the national interest or the interest
of global stability and the management of human affairs." This was the
conclusion of much evidence and reasoning and science. It remains one
of the most important passages in that chapter of SOTA (Politics and
Regulation is another matter. David Cameron, embarrassed by the
hostages to fortune left hanging by the conference speeches of Osborne
and Mayor Johnson, has publicly admitted that his policy of opposing
the governments bill to regulate and to enable the Bank of England in
certain respects following the Northern Rock collapse will now be
junked. They will support the government. Well done Dave. When the
public understands that all the Tory policies are pie in the sky except
for the good ideas that will be pinched by Labour anyway, they will not
risk voting for you at the next election unless Labour make a further
pig's ear of something big.
As for the American Republicans, they have hopefully dug their
electoral grave anyway. McCain could not lead them even if he was
elected as they would not understand why any of the policies he wanted
I look forward to the new (or the same) package being passed soon
before the Warren Buffets of this world buy the planet for their
personal property at a knock-down price.
Prices will obviously rise now as the bale-out plan of some sort will
follow. But the credit crunch will remain as will instability.
OCTOBER 1st 2008
Yesterday's most interesting annpuncement concerned Irish banks. It's news
Irish bank guarantee 'anti-competitive'
The Irish government's blanket guarantee of deposits at six
major banks in the face of the global financial crisis is
anti-competitive, the body representing banks in Britain says.
The British Bankers' Association said the move put banks not covered
by the move announced on Wednesday, particularly in the British-ruled
province of Northern Ireland, at a competitive disadvantage.
Yes indeed. This is a very good idea by Irish banks, and if we were in
the EU the whole EU could act together on the same basis, making it a
safe action and one that would benefit economic activity throughout
Europe, boosting UK exports, the best policy imaginable. Instead of
that, due to our Tory Party pandering to ignorant Europhobes over the
years, we can hardly tell the EU how to behave or even benefit from
what they should and probably will do (adopt the Irish policy
throughout the EU), as we are not in the Euro. I am so tired of bashing
the keyboard in an endeavour to enlighten our half-witted public I
really think they deserve the troubles that now hit them. It might wake
them up. It will certainly help to prepare us for the new global
financial gameplan that is required to deal with the real problems. [note added later:
adlopting the Irish Solution throughout the EU is not on for a number
of reasons it seems. There needs to be a limit - not for the reason
that the guarantee would be called on, but for purely practical reasons
of variable abuse and economic differencs in the structure of different
Now we must wait for America to vote. If they don't get it right I
suggest we reorganise our foreign policy and alliances - the Russians
have got more brains. Incidentally, Senator Bill Nelson (Florida) is
bill could be better and should be better, but people in the Republican
Party will apparently not accept a better bill even if many Democrats
So the things he is concerned about will have to be dealt with later.
They can be. First things first. But yes, Nelson is right, the bill is
not sufficient. At least the politicians and the media realise that the
term Bale-out was about the stupidest way to describe this bill. It
emergency action to prevent the collapse of a debt-based economy caused
by the a sudden realisation that the parcel could no longer be passed.
Since all US citizens were beneficiaries of this debt-based economy
they have to fund the refunding of the kitty. Using the term
'tax-payer' as if it referred to only some of the US public, and they
are paying the bill, is absurd. The question on whom the tax bill falls
is complex and one of the issues. The need to pass the bill NOW is to
restore liquidity, as mechanisms that sieze up damage their parts as
they do so.
2:15 BST - They are voting now in the Senate. They need 60 votes for
and have 30 already.
2:17 - It's won and done. So much for the Senate. The House votes on
Friday and by then the public mood should be in favour as the facts are
explained to them, which should enable a majority to vote in favour.
Green and sustainable technology amendments should encourage some of
those Democrats who voted against to change their minds.
OCTOBER 02 2008
Crisis spreads as bailout focus on U.S. House
By Eddie Evans and Kevin Krolicki Reuters
YORK/WASHINGTON (Reuters) - Shockwaves from the global credit crisis
spread on Thursday rattling industries around the world and raising the
stakes for the U.S. Congress to finish up a $700 billion (397 billion
pound) bank bailout.
economic data amplified warnings that a recession is near, and European
Central Bank President Jean-Claude Trichet said Europe's economy was
weakening, opening the door for the first interest rate cut there in
Business leaders from hoteliers to automakers warned that a crisis
that began with risky lending to the overheated U.S. housing market was
on the cusp of a dangerous new phase.
are thousands, maybe tens of thousands of jobs at stake in our company
alone, and we are typical," Marriott International Inc Chief Financial
Officer Arne Sorenson said in urging Congress to pass the bailout.
of the rescue plan, including U.S. Treasury Secretary Henry Paulson,
called on members of the House of Representatives who opposed a similar
measure on Monday to change their vote. The Senate passed the bill
Wednesday night and the House is expected to vote again on Friday.
around the globe scurried for safety, betting that frozen credit
markets would slam the brakes on global economic growth.
currencies tumbled and stocks sank, led by a nearly 8 percent drop in
Brazil's benchmark stock index, as concern grew that the U.S. rescue
package would be too little and too late to head off a deeper downturn.
U.S. stocks dropped more than 3 percent, while U.S. and euro-zone
government bonds drove higher in a renewed safe-haven rally.
prices fell more than $4 a barrel on the expected slowdown, and the
dollar rose to a year high against the euro on the speculation of a
rate cut by the ECB.
U.S. AIMS TO PUT HOUSE IN ORDER
Speaker Nancy Pelosi said congressional leaders were working hard to
secure votes for the bailout bill and would not risk bringing the
measure to the floor without being confident it would pass, avoiding a
repeat of the defeat Monday that stunned investors around the world.
U.S. data underscored the growing threat to the world's largest
factory orders fell 4 percent in August, the sharpest contraction in
two years, which came on top of data on Wednesday that showed
manufacturing activity in September at its weakest since the 2001
U.S. jobless claims rose last week to their highest level in seven
years, ahead of September payrolls data due out on Friday.
a sign of how the credit crisis has hit even the bluest of the blue
chips, shares of General Electric Co tumbled to a five-and-a-half-year
low. The bellwether involved in businesses from turbines to television
failed to soothe market concerns with sale of $15 billion in new stock
to investors including Warren Buffett.
General Motors Corp and Ford Motor Co warned of tougher times, as
evaporating credit raises the risk of deeper production cuts and job
losses for a struggling industry.
"The problems of subprime and
credit crunch are now all over the world," Ford Chief Executive Alan
Mulally said. "The downturn is longer and deeper than we foresaw a year
In a week marred by bank rescues across Europe, French President
Nicolas Sarkozy's office said he would host the leaders of Britain,
and the ECB on Saturday to discuss a response to the credit crisis.
Sarkozy denied reports a 300 billion euro (235 billion pound) plan akin
to the U.S. bailout was under consideration.
Fears about the
health of banks put upward pressure on interbank lending rates on
Thursday, despite the Senate vote and large injections of cash by
The U.S. commercial paper market also contracted
for the third straight week, suffering its sharpest weekly decline in
seven years, as business lending effectively shut down.
Investors remained cautious about the prospects for the U.S. bailout
not betting anything here because I don't know what the House is going
to do," said Paul Mendelsohn, chief investment strategist at Windham
Financial Services. "If this bill doesn't pass in the House, it's game
Even if the bill is passed, worries have deepened over the
global economic outlook and whether the package will go far enough to
stop the housing-related dominoes from toppling in the United States.
are almost 10,000 foreclosures a day now, and between 1 and 2 million
adjustable rate mortgages are due to adjust upward in the next year,"
said Timothy Canova, a monetary policy expert at Chapman University
School of Law. "Without help for the bottom of the pyramid, Wall Street
will be back next year asking for another trillion dollars.
AFTER THE UNCERTAINTY: MORE UNCERTAINTY
bailout plan, equivalent to some $2,300 per American, is intended to
reinvigorate credit markets that have frozen as financial institutions,
staggered by failed mortgages, focussed on preserving capital.
group of House Republicans led opposition to the bill on Monday over
criticism it put the government at the centre of a problem that capital
markets had created and could still fix.
Many Americans also
opposed the $700 billion rescue plan because of objections across the
political divide, including criticism that it would bail out powerful
bankers without doing enough to help families struggling to hang on to
The Senate added tax cuts for families and
businesses and an increase in bank deposit insurance in a bid to win
broader support for the bill. Monday's House vote was 228-205,
requiring a net gain of 12 votes for it to pass.
Hoyer, the House Democratic leader, said calls from voters to
representatives had been running 6-1 against the bill before Monday's
failed vote but were now closer to 3-1 against.
Under the deal,
the Treasury would buy illiquid assets held by financial institutions,
in the hope of restoring confidence and thawing credit markets vital to
the wider economy.
President George W. Bush,
his authority eroded by the approaching end of his term, welcomed
Senate passage of the package and urged the House to do the same,
"The bill that's before the Houses of Representatives
tomorrow is a bill that has got the best chance of providing liquidity,
providing credit, providing money so small businesses and medium-sized
businesses can function," he said.
The crisis has become the
biggest issue in U.S. elections, now just over a month away. Both
presidential candidates, Republican Sen. John McCain and Democratic
Sen. Barack Obama, voted for the package.
The tally for all the
various rescue measures launched by U.S. authorities this year runs
near $1.8 trillion -- more than the combined economic output of Canada
and Spain last year.
(Additional reporting by Reuters reporters in New York, London,
Paris, Brussels, Hong Kong and Tokyo; Editing by Tom Hals)
OCTOBER 3rd 2008 6:15pm BST
I'm off line now till tomorrw, I have got better things to do that wait
for the result. Here's the latest news summary from AP.
Bailout bill gains momentum on House floor
By JULIE HIRSCHFELD DAVIS and DAVID ESPO, Associated Press
After a week of tumult, an unprecedented government bailout of the
financial industry gained ground in the House on Friday and leaders in
both political parties expressed optimism the $700 billion measure
would clear Congress by day's end for President Bush's signature.
With the election-year economy showing fresh signs of weakness on
several fronts, the measure advanced past a key hurdle on a 223-205
An Associated Press tally showed 29 lawmakers who sent an earlier
bailout bill to unexpected defeat on Monday had changed their minds and
would vote in favor of the revised legislation, far more than the dozen
needed. Officials said changes made to the measure had sparked a far
smaller number of defections among previous supporters.
"I'm optimistic about today. We're not going to take anything for
granted but it's time to act," said House Republican Leader John
Boehner of Ohio.
"I think it will pass," agreed Rep. Jim Clyburn, the chief
Democratic vote-counter, as debate unfolded in the House chamber.
On Wall Street, stocks surged ahead of the vote as the Dow Jones
industrial averate rose nearly 150 points.
The Senate passed the measure earlier in the week on a bipartisan
vote of 74-25, and Bush has repeatedly urged Congress to send the
bailout to him swiftly to prevent even further economic deterioration.
"No matter what we do or what we pass, there are still tough times
out there. People are mad — I'm mad," said Republican Rep. J. Gresham
Barrett of South Carolina, who opposed the measure the first time it
came to a vote. Now, he said, "We have to act. We have to act now."
Rep. John Lewis, D-Ga., another convert, said, "I have decided that
the cost of doing nothing is greater than the cost of doing something."
Critics were unrelenting.
"How can we have capitalism on the way up and socialism on the way
down," said Rep. Jeb Hensarling of Texas, a leader among conservative
Republicans who oppose the central thrust of the legislation — an
unprecedented federal intervention into the private capital markets.
It was little more than two weeks ago that Treasury Secretary Henry
Paulson and Federal Reserve Chairman Ben Bernanke concluded that the
economy was in such danger that a massive government intervention in
the private markets was essential.
The core of the plan remains little changed from its inception — the
Treasury Department would have $700 billion at its disposal to purchase
bad mortage-related securities that are weighing down the balance
sheets of institutions that hold them. The flow of credit has slowed,
in some cases drying up, threatening the ability of businesses to
conduct routine operations or expand.
At the same time, lawmakers have dramatically changed the measure,
insisting on greater congressional supervision over the $700 billion,
taking measures to protect taxpayers, and insisting on steps to crack
down on so-called "golden parachutes" that go to corporate executives
whose companies fail.
Earlier in the week, the legislation was altered to expand the
federal insurance program for individual bank deposits, and the
Securities and Exchange Commission took steps to ease the impact of the
questionable mortgage-backed securities on financial institutions.
In the moments before the vote, Rep. Barney Frank, D-Mass., chairman
of the House Financial Services Committee, pledged "serious surgery"
next year to address the underlying causes of the crisis.
If anything, the economic news added to the sense of urgency.
The Labor Department said initial claims for jobless benefits had
increased last week to the highest level since the gloomy days after
the 2001 terror attacks. Employers slashed 159,000 jobs from their
payrolls, the most in five years. That came on top of Thursday's
Commerce Department report that factory orders in August plunged by 4
Typifying arguments the problem no longer is just a Wall Street
issue but also one for Main Street, lawmakers from California and
Florida said their state governments were beginning to experience
trouble borrowing funds for their own operations.
One month before election day, the drama unfolded in an intensely
Democratic presidential candidate Barack Obama, a supporter of
the bill, made calls to members of the Congressional Black Caucus, who
publicly credited him with changing their minds.
Rep. Elijah Cummings and Donna Edwards, both Maryland
Democrats, were among them. They said Obama had pledged if he wins the
White House that he would help homeowners facing foreclosure on their
mortgages. He also pledged to support changes in the bankruptcy law to
make it less burdensome on consumers.
"It's not too often you get the future president telling you that
his priority matches your priority," said Cummings.
Obama's rival, Sen. John McCain, who announced a brief
suspension in his campaign more than a week ago to try and help solve
the financial crisis, made calls to Republicans. His impact was not
Republican Rep. Sue Myrick of North Carolina, who said she was
switching her vote to favor the measure, said of McCain: "They told me
he was going to call me. He didn't."
Looking ahead to election day, she added, "I may lose this race
over this vote, but that's OK with me. This is the right vote for the
The White House issued the latest in a series of grim warnings
of the risks of defeat. "If the financial markets fail to function,
American families will face great difficulty in getting loans to
purchase a home, buy a family car or finance a child's education," it
said in a written statement.
The vote on Monday staggered the congressional leadership and
contributed to the largest one-day stock market drop in history, 778
points as measured by the Dow Jones Industrial Average.
Across the Capitol, Senate leaders reacted quickly, deciding to
sweeten the bill with a series of popular tax breaks as well as
spending on rural schools and disaster aid. They also grafted on a bill
to expand mental health coverage under private insurance plans.
At the same time, the change in federal deposit insurance and
the action by the SEC on an obscure accounting rule helped produce a
steady trickle of converts.
OCTOBER 4th 2008
Of course they passed the 'Bill', laden with pork tis time and with an
attempt to explain to the public beforehand. As a matter of fat, the
first bill was the better one. All the stuff it now carries, some of
which is good and some not, could have been dealt with later on a
case-by-case basis. As it is a lot more will have to be done. I am glad
to see there was not a surge in stock market prices, even some falls.
Stability is the aim, plus liquidity and inter-bank confidence. Stock
prices are another thing.
Now, turning to the UK position we can look forward to some interesting
work with our EU partners. This morning on Any Questions it ws
interesting listening to Jonathan Dimbleby asking what the difference
was between a government blanket guarantee of all deposits, and 'doing
whatever it takes to ensure stability in the bankig system'. "It's a
simple question, can't you give me an answer?" says Dimbleby.
I was moved to write the following:
Every time Dimbleby says "It is a
question" we know this means Dimbleby does not understand the answer
given because he does not understand the most important truth at the
heart of the matter.
"Whatever it takes to preserve stability
and the banking system" is not the same as a blanket guarantee for
every depositor in every bank for any sum of money they have on deposit
orcare to deposit or care to deposit in future.
Any time a government commits itself to an unconditional course of
action in detail it lays itself open to the abuse of its powers and
good intentions by the crooks and chancers of this world for whom
altruism is just a sucker's charter.
The Government must act on a case-by-case basis, while being
consistent, while keeping to its aims and goals, by being ever able to
outwit the enemies of society. To some extent international agreement
can allow greater commitment to detail because it prevents a rush to
havens that are not regulated while at the same time giving strength
through size. George Soros could bet against the pound, but not against
Europe, the UK and the US combined without making enemies he could not
The idea that there can be winners without losers is wrong in a dynamic
economy. What can be doe is to stop a panicking public from making
of those who were not gambling - including themselves. NO SINGLE BANK
CAN EVER STAND AGAINST A
DETERMINED RUN. No bank, not even the Bank of England, of America, of
Russia etc.. That is why we have the IMF. Thank God we have the Euro,
Gordon Brown, and getting Mandelson back is a good idea too. We need
people who understand the world.
We are dealing in economics, as in physics, not with substance but
illusion created by the flow of energy and its apparent stationary
substance in the form of standing waves in a limited view of a
multidimensional matrix. Nobody needs to know that, they can live as if
the world was just as they see it. But they must be prepared to be told
that when they ask 'a simple question' there may not be a simple answer
that, if given, will not change the reality and therefore instantly
invalidate itself. See Heisenberg et al. This is true of economicsa and
finance just as it is in Physics, if you ask really big questions at
times of great stress.
The end of the world is not to come through economics or the Hadron
Collider, but is ever with us as epitomised by Alan Duncan. I must post
this so I can go and throw up after listening to him.
Incidentally, although I have argued for a
long time that the UK interest rate should be left alone, and that 5%
is a good place to leave it unless there is a big change in
circumstances, I would not throw a hissy-fit if next week it was
dropped to 4.5% due to special circumstances. But my argument is stil
that if the circumstances are that special and this would really help
is necessary, then why not 4%?
5% is where we want to be ideally. Interest rate change is not the
answer to the problem.
OCTOBER 6th 2008
This morning bank shares across the world are plummeting and Germany,
the first to complain about Ireland guaranteeing all deposits in its
banks, did exactly the same thing though not by legislation, just by
political declaration of policy. This is in effect what the UK has done
but there are some smaller nations for whom credibilitry can only be
given by legislation. My own advice stands firm: we need an EU
collective policy which will have to be prepared before, and ratified
at, the next full meeting of EU members. In the meantime this crazy
piecemeal action is the best that can be done.
Later: it seems that what was done was not good enough to prevent
massive selling across the stock market by those looking for cash in
hand. This has been counter-productive of course causing still more
fall and panic. It will now take a very long time to restore
confidence. Since our whole market economy works on the basis of
confidence in the banking system, it will take more than time. It will
take international agreement - a Bretton Woods III - to start again.
The advantage of this crisis is it might give us a chance to teach
another generation about the realities of life and the economy. Today
we had BBC TV news readers showing us pictures of monkeys trained to
act as waiters, accepting the argument that this could legitimatelt
save money and therefore make sense. Er,,,, no, not unless we have a
shortage of people capable doing the job and/or 100% employment in
OCTOBER 7th 2008
Things are going rather well for the world as a whole but not at all
for those, whether 'innocent' or 'complicit', that find themselves in
great difficulty due to a lack of the ready. The power that has been
given to mllions of individuals to play an instant role in the global
financial play has given them also the power to collectively self
destruct. The search for self empowerment when taken to far by too many
results in powerlessness. As W.S.Gibert wrote: "When everybody's
somebdy then no one's anybody", and the mass of people rushing to look
after their own interests, using the tools they have been given, can
make a force beyond the control of governments. Its all very
educational, as was the earlier Great Depression and WWII. History
never repeats itself, but old lessons are learned by new generations in
new ways at new levels.
Lord Lawson's advice is half right as usual. Talk will not serve to
stabilise, coming out with a clear statement in a confused situation
does not necessarily make sense or good policy, strong, decisive,
action can help. Coordination across Europe is needed if there is to be
any effective global agreement, Lawson's simplixtic "bad banks should
be allowed to go to the wall" is a silly remark. Even a bank that has
made serious errors may have assets and business that may be best
served by a process that deals carefully with any change of ownership
and the extent to which the shares are devalued in advance. Major
shareholders and fat-cats can be dealt with later. The government is
doing it right. I do wish Robert Peston would take it easy.
I have already said in other places that an interest rate drop of a
half or even one percent is allowed at this point but only if other
steps are agreed on lending. The closure of the wholesale money markets
is what has to be replaced by governments. When it comes to share
as a whole, it is unfortunate that hedge funds will at some point be
called upon by their investors for the money. This could cause another
irrational drop in the stock markets. Irrational because the market
values are already well below the intrinsic.
OCTOBER 8th 2008
WELL DONE. The package announced today and the coordinated interest
drop of half a percent (with China dropping just a quarter) is what was
wanted ( See above ). We can now ignore stock market levels apart from
worrying about who is buying up the valuable shares at a knock-down
price. I hope it will often be the government on behalf of taxpayers in
the case of banks and good businesses that are vital for the future and
dealing with national and global problems. These can be privatised
later at a profit for the taxpayer if this is for the best. A main part
of this purchase by the government is indeed part of the package - in
the banking sector.
If we get through this crisis OK it will be the best thing that ever
happened since WWII. If ever a purge was needed of capitalism and the
global financial system it was now. I love the idea of Nick Clegg
thrashing around thnking of putting out the fire before looking for
people to blame. This is the best financial fire that ever happened. Of
course it was caused by many people, all struggling to impose their
will and ambitions on the world and their lives, some purely selfish,
others more with a desire to serve. That is how it works. At the end of
this stage we will be better placed to deal with the challenges posed
by globalisation. That is how Nature works.
for UK banks unveiled
The UK government has announced a package of measures aimed at
the banking system which could add up to £500bn ($880bn).
It will initially make
extra capital available to eight of the UK's largest banks and building
societies in return for preference shares in them.
It is "designed to put the British banking system on a sounder
footing", said Prime Minister Gordon Brown.
But the FTSE 100 in London fell 4% after the measures were
HBOS shares rose 52% in early trading but Barclays fell 8% and
Standard Chartered dropped 13%.
| Taking taxpayers' money will
not be a licence to trade as normal
Robert Peston, BBC business editor
The key points of the plan are:
- Banks will have to increase their capital by at least
£25bn and can borrow from the government to do so.
- An additional £25bn in extra capital will be available in
exchange for preference shares.
- £200bn will be available in short-term loans from the Bank
of England, up from £100bn.
- Up to £250bn in loan guarantees will be available at
commercial rates to encourage banks to lend to each other.
- To participate in the scheme banks will have to sign up to an
FSA agreement on executive pay and dividends.
BBC business editor Robert Peston explained the falls in banking
He said that the huge amount of new capital the banks will have to
on will be expensive and that the message of the rescue plan is that
they need it.
"So it may be good news that the Treasury is prepared
to shore up their balance sheets, but it's pretty bad news that there's
such a big hole to fill," he said.
He argued that HBOS shares had risen strongly because
the rescue plan had brought it back from the brink to a greater extent
than its peers.
BANKS SIGNED UP
Nationwide Building Society
Royal Bank of Scotland
Much of the current crisis has been caused by the banks'
to lend to each other, so the government hopes that if those loans can
be guaranteed then lending will resume.
"This is beginning a process of un-bunging a big
problem where banks won't lend to each other for long periods," Mr
The lenders that have confirmed their participation in
aspects of the scheme are Abbey, Barclays, HBOS, HSBC, Lloyds TSB,
Nationwide Building Society, Royal Bank of Scotland and Standard
The Treasury said that other banks and building societies would be
able to apply for inclusion in the plan.
| Protecting taxpayers money means
the millions of people who own shares
in the banks will lose out in the future, as the government has first
call on any future profits
Declan Curry, Presenter, BBC 2 Working Lunch
Preference shares pay a fixed rate of interest instead of a
which has to be paid before other shareholders receive anything, but
they do not carry voting rights.
Taxpayers may even end up making a profit from the shares, but that
is by no means guaranteed.
Robert Peston said there would be strings attached for banks that
take the government money.
"Taking taxpayers' money will not be a licence to trade as normal,"
Negotiations will take place with each participating institution
will require them to extend normal credit lines to homeowners and small
businesses, in addition to rules on executive pay and dividends to
'Stop the panic'
It is hoped that the deal will get the money markets going again
and assure the future of the banking system.
"They've got additional capital now if they want it, they've got an
unlimited source of liquidity," said Terry Smith, chief executive of
the money brokers, Tullett Prebon.
"That certainly should stop the panic in terms of people wondering
whether or not the banks are safe."
The deal has also been welcomed by the banks.
"The government's announcement represents a very real and serious
intention on the part of the authorities, following consultation with
the banking industry, to bring stability and certainty to the UK
banking system," HBOS said in a statement.
Barclays, Lloyds TSB and RBS also issued statements welcoming it.
HSBC, Nationwide and Standard Chartered also welcomed the plan but
they did not intend to take on any new capital at the moment.
OCTOBER 9th 2008
Now we have to set out some general policies. It cannot be the case,
for instance, that every council and local authority that has deposits
with Icelandic banks has them all guarranteed by the UK government.
Councils have deliberatly diversified where they invest their reserves
and cash on hand, some was in Iceland, YOU WIN SOME, YOU LOSE SOME. If
every punt was a win, it would be a strange world indeed. But the UK
must look after any local authorities that find themselves in sudden
difficulty, of that there is no doubt, and losing out big time in
Iceland is grounds for calling for help in the cash flow. So the
councils should not be blamed, nor punished, but they will take a bit
of a loss which can be spread over time with government help.
Other policies will need to be developed for other problems related to
the credit crunch and any further bank crashes that cannot be avoided.
International cooperation will be required in many cases to give
governments powers that are not detrimental to the rules of fair
international finance and trade. International cooperation is he key to
the recovery. While it is good to put the fire out, rebuilding should
be careful and slow. A massive recovery of the stock market would be
irrational at this time.
There are those who say we will have to 'inflate' our way out of
recession. Print money is the expression. However, printing money is
not always inflationary if it does not cause demand that exceeds
production. It all depends where the money is deployed and by whom.
What we have to avoid is global inflation caused by increasing demand
for oil which drives the price up. So a non-inflationary future (I am
talking GLOBAL inflation) does depend on internationally coordinated,
responsible money-printing, deployed on environmentally sound
sustainable works and food production. The Credit Crunch will thus be
seen as forcing us to take the very actions required to save the planet
as a home, the same actions our corrupted market economies failed to
bring about. That is how Nature works. It will hurt of course.
OCTOBER 11th 2008
Some serious global panic selling worldwide, some triggered by
automatic stop-loss settings and others by defensive copycat moves, may
now have brought stock, share and bond values to the level where buyers
will equal sellers. The big question is who will these buyers be?
International Money Launderes Anonymous, or Pillars Of The Community
dot-org? Decisions on lending policies which had been outsourced to
computer algorithms need to be taken back in-house and subjected to
human judgment. Time also to face up to reality in the demands for
goverment to state clearly what it will commit to in precise detail.
Some thoughts I had a week or two back:
The idea that there can be winners
without relative losers is
wrong in a dynamic
economy. What can be done is to help stop a panicking public making
of those who were not gambling. NO BANK CAN EVER STAND AGAINST A
DETERMINED RUN. NO BANK, not even the Bank of England, of America, of
Russia etc.. That is why we have the IMF. Thank God we have the
Euro.... International coordination is the key.
We are dealing in economics, as in physics, not with substance but
illusion created by the flow of energy and its apparent stationary
substance in the form of standing waves in a limited view of a
multidimensional matrix. Nobody needs to know that; they can live as if
the world was just as they see it. But they must be prepared to be told
that when they ask 'a simple question' there may not be a simple answer
that, if given, will not change the reality and therefore instantly
invalidate itself. See Heisenberg et al. This is true of economicsa and
finance just as it is in Physics, if you ask really big questions at
times of great stress.
OCTOBER 11th 2008
There are some errors and flaws in the article below. It is true that
the advent of paper money changed the position as far as the intrinsic
value of money is concerned, but gold and silver have a market value
just as the paper has a market value. Gold and paper use an agreed
value set by trading empires and the security afforded by states with
systems of law and enforcement. Of course gold does not corrode, is
rare and has commercial value, but the difference between commodity and
symbolic paper is nothing like as cut and dried as
the author of this article supposes. That said, the main point he makes
is very good one. The value of house is not guaranteed by a
government so cannot be used as currency. What we call MONEY is the
currency unit on our national bank notes. I won't say more as I don't
want to scare you but you should be aware that the world and the whole
universe is a gamble, a gamble on material existence and self
consciousness to name but two aspects of it. As part of the mind of
Nature, our lives are a gamble as well - but in a good way!!
All that money you've lost — where did it go?
Trillions in stock market value — gone. Trillions in retirement
savings — gone. A huge chunk of the money you paid for your house, the
money you're saving for college, the money your boss needs to make
payroll — gone, gone, gone.
Whether you're a stock broker or Joe Six-pack, if you have a 401(k),
a mutual fund or a college savings plan, tumbling stock markets and
sagging home prices mean you've lost a whole lot of the money that was
right there on your account statements just a few months ago.
But if you no longer have that money, who does? The fat cats on Wall
Street? Some oil baron in Saudi Arabia? The government of China?
Or is it just — gone?
If you're looking to track down your missing money — figure out who
has it now, maybe ask to have it back — you might be disappointed to
learn that is was never really money in the first place.
Robert Shiller, an economist at Yale, puts it bluntly: The notion
that you lose a pile of money whenever the stock market tanks is a
"fallacy." He says the price of a stock has never been the same thing
as money — it's simply the "best guess" of what the stock is worth.
"It's in people's minds," Shiller explains. "We're just recording a
measure of what people think the stock market is worth. What the people
who are willing to trade today — who are very, very few people — are
actually trading at. So we're just extrapolating that and thinking,
well, maybe that's what everyone thinks it's worth."
Shiller uses the example of an appraiser who values a house at
$350,000, a week after saying it was worth $400,000.
"In a sense, $50,000 just disappeared when he said that," he said.
"But it's all in the mind."
Though something, of course, is disappearing as markets and real
estate values tumble. Even if a share of stock you own isn't a wad of
bills in your wallet, even if the value of your home isn't something
you can redeem at will, surely you can lose potential money — that is,
the money that would be yours to spend if you sold your house or
emptied out your mutual funds right now.
And if you're a few months away from retirement, or hoping to sell
your house and buy a smaller one to help pay for your kid's college
tuition, this "potential money" is something you're counting on to get
by. For people who need cash and need it now, this is as real as money
gets, whether or not it meets the technical definition of the word.
Still, you run into trouble when you think of that potential money
as being the same thing as the cash in your purse or your checking
"That's a big mistake," says Dale Jorgenson, an economics professor
There's a key distinction here: While the money in your pocket is
unlikely to just vanish into thin air, the money you could have had, if
only you'd sold your house or drained your stock-heavy mutual funds a
year ago, most certainly can.
"You can't enjoy the benefits of your 401(k) if it's disappeared,"
Jorgenson explains. "If you had it all in financial stocks and they've
all gone down by 80 percent — sorry! That is a permanent loss because
those folks aren't coming back. We're gonna have a huge shrinkage in
the financial sector."
There was a time when nobody had to wonder what happened to the
money they used to have. Until paper money was developed in China
around the ninth century, money was something solid that had actual
value — like a gold coin that was worth whatever that amount of gold
was worth, according to Douglas Mudd, curator of the American
Numismatic Association's Money Museum in Denver.
Back then, if the money you once had was suddenly gone, there was a
simple reason — you spent it, someone stole it, you dropped it in a
field somewhere, or maybe a tornado or some other disaster struck
wherever you last put it down.
But these days, a lot of things that have monetary value can't be
held in your hand.
If you choose, you can pour most of your money into stocks and track
their value in real time on a computer screen, confident that you'll
get good money for them when you decide to sell. And you won't be alone
— staring at millions of computer screens are other investors who share
your confidence that the value of their portfolios will hold up.
But that collective confidence, Jorgenson says, is gone. And
when confidence is drained out of a financial system, a lot of
investors will decide to sell at any price, and a big chunk of that
money you thought your investments were worth simply goes away.
If you once thought your investment portfolio was as good as a
suitcase full of twenties, you might suddenly suspect that it's not.
In the process, of course, you're losing wealth. But does that
mean someone else must be gaining it? Does the world have some fixed
amount of wealth that shifts between people, nations and institutions
with the ebb and flow of the economy?
Jorgenson says no — the amount of wealth in the world "simply
decreases in a situation like this." And he cautions against assuming
that your investment losses mean a gain for someone else — like wealthy
stock speculators who try to make money by betting that the market will
"Those folks in general have been losing their shirts at a
prodigious rate," he said. "They took a big risk and now they're
suffering from the consequences."
"Of course, they had a great life, as long as it lasted."
OCTOBER 11th 2008 evening....
The IMF has approved the latest G8 resolution on cooperative measures
to support the banking system, but it has gone further. All the members
of the IMF are agreed we are now facing a global confidence crisis that
is affect all countries and in the case of poor countries there are
disasters ahead for some unless there is international solidarity. The
media are continually asking what action the IMF and the G8 are taking,
not understanding that the action these bodies take is to
establish policy agreement on the actions that member countries
will take. In addition, the IMF in its own right will LEND to countries
in difficulties providing such countries applies for loans. But the
media, the banks and individuals throughout the world have to grow up
and realise that society, local, regional,national and global is
dependent on its own behavour, its mutual support and self confidence.
The parable of the feeding of the Five Thousand is not understood by
many t seems. They think it was a paranormal event. It was not. It was
a demonstration of Christian Economic Science.
OCTOBER 12th 2008
Interesting developments yesterday. In spite of our non-membership in
Zone the PM is to attend a meeting today to discuss the ideas being
adopted in the UK being applied acros the EU. The government will, on
behalf of taxpayers as a whole, supply all capital required by banks
that the market will not supply. Public control of private banks will
pose a problem of course, but so what? Difficult decisions are what
life is all about. Conflicts of interest are there to be resolved. All
that is necessary is that potential conflicts of interest are
recognised and dealt with honestly. A recessionary philosophy is now
predominant. How fortunate it is that Global Warming will have given
governments a philosophical and political basis for how to drive the
economy forward rather than the ideologies of the past, based as
they were on reversing and overpowering the theories and economies of
political opponents. Unemployment can be minimized. Repossessions can
be substantially avoided. Today's news:
may get bail-out on Monday
The first banks to get money under the UK government's
£50bn bank rescue plan could do so as soon as Monday morning.
The banks and the Treasury are working on announcements to be made
before the markets open, according to BBC business editor Robert
He says the first banks to take up the recapitalisation are likely
to be HBOS and Royal Bank of Scotland (RBS).
A key aspect of the announcements will be what the government
requires the banks to do in return for the cash.
"What we're doing over the weekend is looking at specifics, how do
implement it," Alistair Darling, chancellor of the exchequer, told the
BBC on Saturday.
"We'll be making an announcement at the beginning of the week," he
| It's a terrible humiliation for
RBS's chief executive, Sir Fred Goodwin
Robert Peston, BBC business editor
The government is not expected to insist on having its own
on the boards of the banks, although other strings are likely to be
These could involve curbing executive pay and resuming normal
lending to individuals and small businesses.
The government has said that it will negotiate terms individually
with each bank that participates in the scheme.
"What we're doing now is talking with all of the banks about how we
implement the programme," Yvette Cooper, chief secretary to the
Treasury told the BBC.
"We'll set out the sort of strings that will be attached on a
case-by-case basis," she added.
The chief executive of RBS, Sir Fred Goodwin, is expected to resign
be replaced by Stephen Hester, the former finance director of Abbey who
is currently chief executive of British Land.
Earlier in the year, RBS raised £12bn from its shareholders,
which is now more than the bank is worth on the stock exchange.
Banks trying to raise new capital as part of the scheme may choose
approach their own shareholders again instead of taking part of the
If they go to their existing shareholders for funding,
the government has said it will underwrite the issues, which means that
if all of the shares on offer are not sold then it will step in and buy
That means that the government could end up owning large stakes in
the banks and having extensive voting rights.
This would be different to the preference shares that the
government would get for additional capital.
The difference is that normal shares carry voting rights while
preference shares do not, but preference shareholders, as the name
suggests, get access to any money that a company makes before the
If the agreements are reached ahead of trading on
Monday morning, it will be just another factor for investors to take
into account following the huge falls on stock markets last week.
The FTSE 100 in London fell 21.1% during the week, its worst weekly
fall since the crash of 1987.
The Dow Jones in New York fell 18% in the week while the Dax in
Frankfurt fell 21.6%.
In view of the above I expect further falls on the world stock-markets
to cease and I hope the recovery will be slow, steady and not too far.
OCTOBER 13th 2008
Today is remarkable for the hysterical bleating of Tim Congdon who
blames the UK Government, not the banks, for what has just happened. He
seems to believe that our government could have prevailed upon the US
and the rest of the world to change the rules of the financial world on
the grounds that it was getting out of control. I will accept that
Gordon Brown went along with what was happening to the extent that he
allowed the bubble to pay for what taxation and socialism could not;
but to suggest he could have done what Congdon suggests by way of UK
regulation is ridiculous. Had he even spoken his thoughts he would have
been accused of single-handedly trashing the UK's competitive economy
and the Pound Stirling on which the Congdons of this world based their
theology. Congdon now screams that the City of London will emigrate.
Well, people will do what they will do and the results will be what
they will be.... I forget the end of that quote. Congdon has talked
more balls for longer than any economist living.
On the other hand I do feel Natwest's downfall is due to trying too
hard rather than anything else, having to compete with deals offered by
fly-by-night banks that offered no service and never answer the phone.
They took risks to finance their battle believing that in the long run
the fakers would fall. In the meantime they financed the needs of their
customers based on continual growth - what else? But in doing so they
exposed themselves and their customers to the terrible risk that when
the fakers' bluff was called it could bring down the whole system,
leaving them carrying a toxic parcel themselves. That is what happened.
The EU countries have adopted their own vesion of the Gordon
Brown/Alistair Darling method of setting up considerable sums to buy
shares in and capitalise their major banks. http://news.bbc.co.uk/1/hi/business/7667342.stm
World stock markets are rising though UK bank shares are not. I don't
find that surprising. The purchase of bank shares is, however, being
described as less than 'nationalisation' as the management remains
independent. Policy conditions can and will be imposed nevertheless by
the government, acting for taxpayers, as major shareholders.
This needs no comment from me...
US, bankers rework bailout plan; stocks surge
By MARTIN CRUTSINGER, AP Economics Writer
The Bush administration plans to greatly expand protections for the
U.S. banking system out of deep concern for the faltering economy, an
industry official said Monday night after banking executives and top
federal officials met to revamp the largest bailout plan in the
nation's history. President Bush was to announce the expansion Tuesday
Earlier Monday, stocks soared around the world in response to
dramatic government economic rescue efforts in the U.S. and overseas —
and the possibility of the even bolder American action.
The administration will use perhaps as much as $250 billion of the
$700 billion bailout program recently passed by Congress to purchase
stock in U.S. banks, providing the banks with desperately needed money,
the official said. In addition, the Federal Deposit Insurance Corp.
will temporarily provide insurance for loans between banks, charging
the banks a premium for doing so. That should unlock a vital credit
flow that has come under severe stress, putting the health of the
entire economy in peril.
The official, who spoke with knowledge of the Treasury Department
meeting with the bankers on Monday, commented only on condition of
anonymity because the details of the plan had yet to be released.
This FDIC program would take the form of providing insurance for new
senior preferred debt that one bank would lend to another bank. This
debt would be insured by the FDIC for three years, helping to unlock
bank-to-bank lending, which has fallen dramatically because of fears
about repayment in the face of billions of dollars of bank losses
because of bad loans, primarily in mortgages.
The official said the FDIC was also considering removing for a
period the current $250,000 limit on FDIC insurance on bank deposits.
However, it was unclear whether all deposits above this amount would be
covered or only certain types. In response to the crisis, Congress as
part of the bailout bill temporarily boosted the deposit insurance cap
from $100,000 to $250,000.
The administration's proposals were explained during a meeting at
the Treasury Department that had been called by Treasury Secretary
Henry Paulson and included the top executives of the largest banks in
the country. Federal Reserve Chairman Ben Bernanke also participated in
OCTOBER 14th 2008
George Bush has just made a very coherent speech explaining the US
governments moves on allocating the first part of their 'bale-out'
package to the major banks and also making funds available to thousands
of smaler banks throughout the country, which they are encouraged to
The world must now nevertheless get ready for a major recession and
further serious problems which will emerge in the banking system
connected with the insurance of what are called 'debt swaps' (sorry: 'credit default swaps', I stand
these policies be called on. The entire system was based on assumptions
of growth. In the event of recession, implosion on a huge scale could
happen unless the world pulls together. A complete overhaul of
international banking and finance is called for. Gordon Brown is aware
of this and so there is a good chance, well, a chance, we can pull this
thing through. Actually it has less to do with chance than political
will and social cohesion.
In the USA we can expect a bonanza for lawyers as the litigation
starts. Where will the buck $top?
OCTOBER 15th 2008
We now have the chance, with the combination of government influence on
the banks and the potentially disastrous rise in unemplyment, to turn
these otherwise undesirable forces to good effect. We have more
financial wiggle-room that many people suppose and at the same time a
great need to have non-market-driven investment in such things as
energy conservation which can employ hundreds of thousands of skilled
and less skilled people. Which reminds me, you don't have to have
cavity walls to cut heat-loss drastically by just a wafer-thin sheet of
insulating material under some new wallpaper. And just because
something is not market-driven does not mean it is not financially
sound or in the long run profitable. And I can start a sentence with
'and' if I want to, so there.
No doubt various shareholders and other grumblers will try to muck up
the financial steps taken with regard to the banks - the idea of this
nation pulling together is a bit old fashioned. But pull together we
6:15pm GMT - If I didn't know that he has got better things to do I
might think the PM reads my web site. He certainly is onto the ideas of
how to help employment while attending to environmental priorities,
even metioned the home insulation on Sky News. But then its a
no-brainer, isn't it. Well, isn't it? Seeing that the first six minuted
of Sky News was taken up with Madonna and Guy Ritchie's divorce, it
seems we have to reckon on adapting the world so as to be fair to
people without brains.
OCTOBER 16th 2008
Obviously, if no dividends are paid out on bank shares where the
Government is a preferential shareholder, these shares will be
unattractive to holders or buyers and the Government will end up having
to buy more of them. On the other hand EU competition rules stipulate
that what can be seen as government subsidy is ended as soon as
possible. In this case, the EU will have to compromise and that is why
it was so necessary to get EU-wide agreement on the broad priciples
behind these measures. That has been done, so the banks can come to a
compromise also with the government on the dividend question, Don't
let's make a meal of it or blame the EU or the sharehiolders at this
point, just get on with it.
The US stock market plunged and then recovered. These wild swings mean
the losers are losing more, particularly the forced sellers, and the
shrewd players, for good or ill, are carefully building valuable
portfolios. It's a rough game. As I wrote at the very opening of this
file a long time ago, if you could judge the right shares to keep, the
best was to just hang on. The others, dependent on continuing growth of
the relevant economy at 3 percent or more, should have been dumped
before August and the funds re-entered carefully at the low points in
shares that are counted to pay dividends. Eastern stock markets should
be looked at in the light of reduced western requirements for goods,
while the Chinese domestic economy will not expand its demand to
compensate for some time.
OCTOBER 18th 2008
rallies behind banking reform
All 27 EU states broadly support the bank rescue plan proposed
bloc and the holding of a world finance summit, France's president has
Nicolas Sarkozy, whose country currently chairs the EU presidency,
was speaking at the EU summit in Brussels.
The heads of the G8 top industrialised nations also backed holding a
summit with other non-member states on global financial reform.
UK PM Gordon Brown has called for the IMF to be rebuilt.
Shares across the world fell sharply on Wednesday amid fears of
The Dow Jones index in New York sank nearly 8% and shares in Brazil
10%. There were sharp falls in London and on other European markets.
'New Bretton Woods"
Eurozone leaders agreed at the weekend on a comprehensive package
designed to shore up banks, including making more than a 1,000bn euros
($1,366bn) available for interbank loans.
| There's also a concern that the
EU may water down its commitment to the
free market, with talk of punishing fat cats and increasing regulation
The BBC's Mark Mardell writing in his blog
"The whole of Europe, without exception, approves the measures
adopted on Sunday in Paris," Mr Sarkozy said.
But he added that EU states had not yet reached a definitive
agreement on the text of the banking agreement.
Mr Sarkozy said the EU wanted to launch "a new Bretton Woods summit"
November, referring to the 1944 meeting which led to the creation of
the International Monetary Fund and other global institutions.
China and India needed to be involved in the
discussions, he said, adding: "We're moving towards a G8 plus - the
crisis is so great that it needs to include the whole world."
In a joint statement on Wednesday, the leaders of the
G8 countries - the US, UK, France, Italy, Germany, Canada, Japan and
Russia - said that changes had to be made to the "regulatory and
institutional regimes for the world's financial sectors to remedy
deficiencies exposed by the current crisis".
"We look forward to a leaders' meeting with key
countries at an appropriate time in the near future to adopt an agenda
for reforms to meet the challenges of the 21st Century," the statement
Gordon Brown told the BBC that global action was needed
to deal with the financial crisis, and he predicted a summit would be
held within weeks.
Mr Sarkozy was also pushing hard at the Brussels summit, which ends
Thursday, for an agreement on climate change and energy action by the
end of the year.
| We'll strive
to find a good compromise [on climate change] within two and a half
This was vital, he said, if Europe was to maintain its leadership
on the world stage.
With a recession looming, Italy and Poland are threatening to block
climate change package, which they say is a burden for industry.
"I'm not giving up on the timetable," said Mr Sarkozy.
"We'll strive to find a good compromise within two and a half months."
In other summit business, talks on a new EU-Russia
partnership treaty were postponed, amid continuing concern about
Russia's military presence in Georgia. There were divisions about when
to resume them.
A decision to revive the failed Lisbon treaty, meant to
give the EU more stable institutions in difficult times, is expected to
be put on the back-burner until December.
Irish Prime Minister Brian Cowen promised to come up with an action
plan by then on the best way to move ahead next year.
Mr Sarkozy is now in Camp David where a
meeting with George Bush and a publc address has followed.
host global finance summit
US President George W Bush is holding talks on the global
crisis with French counterpart Nicolas Sarkozy and the European
Mr Bush, Mr Sarkozy and Jose Manuel Barroso are meeting at Camp
They are discussing plans to hold a global summit of G8 nations as
as China, India and other major economies, which Mr Bush has offered to
The Europeans want the summit to pave the way for talks on an
overhaul of the world's financial regulatory systems.
As Mr Bush welcomed his guests to Camp David, the presidential
in the state of Maryland, he offered to host the summit in the US "in
the near future".
Mr Sarkozy said the summit could be held before the end of
United Nations Secretary General Ban Ki-moon has already proposed
using the UN headquarters in New York as a venue.
Calls for action
Standing alongside Mr Sarkozy and Mr Barroso, Mr Bush said it was
"essential" to preserve the commitment to "free enterprise, free
markets and free trade".
Mr Sarkozy said the world must move beyond the "hateful practices"
that prompted the current financial crisis.
He said that he and Mr Barroso came with a mandate from the 27
of the European Union, adding that the crisis could offer a "great
opportunity" to redraft the rules of international finance.
He warned against the lure of protectionism and the
temptations to individual nations to turn their backs on international
systems, saying such a trend would lead to "catastrophe".
Mr Barroso, the European Commission chief, said
European nations had taken swift and concerted action to tackle the
squeeze in the financial markets, but stronger and more effective
global action was now required.
"We need a new global financial order," Mr Barroso told reporters.
'Big enough and bold enough'
Earlier, in his weekly radio address, Mr Bush sought once again to
reassure Americans about the government's $700bn bail-out of US
financial institutions, which includes a $250bn scheme to buy stakes in
Elements of the plan are similar to those earlier announced by
"The federal government has responded to this crisis with systematic
and aggressive measures to protect the financial security of the
American people," the president said.
"These actions will take more time to have their full impact. But
they are big enough and bold enough to work."
On Friday, Mr Sarkozy said that without regulation there could be
Addressing a meeting of French-speaking countries in Quebec City,
Canada, he said the crisis was "an opportunity to change our bad
habits... to reflect differently on economic growth".
The BBC's Jane O'Brien in Washington says European
leaders have in the past blamed the US for the global financial crisis,
which started when high-risk borrowers began defaulting on their
But she adds that Mr Sarkozy,
whose country currently
holds the EU presidency, has made it clear he wants to move away from
finger-pointing and towards a partnership with the US to overhaul the
world financial system.
OCTOBER 20th 2008
Priceless stuff here...from Alan Duncan.
Shadow business secretary Alan Duncan told Sky News: "I think a lot
of small and medium-sized businesses in particular are going quite
simply to be in a battle for survival.
"We have got to make sure
that the lifeline that was given to banks doesn't just support bankers
- that's not what it's for. It's got to support the businesses and the
Yes dear boy, I think the PM and the
Chancellor know that somehow. The point is to make sure the banks are
solvent, liquid and can lend to business as the Government does not do
that. The trouble is the banks have to find better people to lend to
and there is good news as well as bad. The bad is that some of the
loans the banks used to go for were not very helpful either to the
borrowers or the nation or the world. Some of these borrowers will have
to be handled much more gently than others.
The good news is that because we will now have fewer overpaid high
flyers buying gas guzzling toys and buying up the world's food supply
to burn off in expensive gyms, car manufacturers developing better
vehicles and every sort of developer of ecological survival gear can
expect a real shot in the arm, with their output benefiting from
deterrent laws against the unsustainable and all sorts of help and tax
relief for 'The Right Stuff'. General Motors were warned again and
again they were heading for the scrapheap yet feign surprise.
It will take a little time to promote the production of the right stuff
and get the funds flowing. Perhaps if you could find General de
Gaulle's notes on this it would help. I am sure Sarkozy knows what to
do and could give some advice.
The other problem is that banking itself is such a major business for
the UK. We are going to suffer for that. But before you blame the banks
for everything just remember this. Not so loing ago, the major
high-street clearing banks had a home turf they coud look after without
their customers being poached by others. Then the building societies
became competing banks and then the whole world was allowed to compete
in the smallest UK community for any significant deposit and all sorts
of business and borrowing. competition was supposed to favour the
consumer, and it did. But there was no limit to the competition and no
referee. Nor could there be beyond the rules and ombudsmen and
tribunals the government put in place.
Our banks went into battle for the country in a global free-for-all and
produced result without which the upgrading of the infrastructure of
this country, negelected for years even by Thatcher, and those before
and after her, would have been impossible. Yes indeed there were some
greedy people in there amongst the legitimately hungry, but do not
believe for a moment that there was another game in town or Gordon
Brown could have called a halt. He had to ride the wave as best he or
any surfer could, and he rode it better than any before him. It was not
a local wave, it was a global wave and he had to allow the bankers to
get us on it and he did just that. It was bound to beach, but the
unecessarily violent crash on the rocks was caused by the United
States, desperate to show its economic model was the hope of the world,
spread its toxic debt in hidden parcels throughout the globe. No doubt
its leading gurus thought that having done that they had placed a
finacial doomsday weapon in the global economy. The world would never
call them to account as it would backfire and destroy them all. Well,
guess what! The one thing Americans seem to overlook is that when
people hurt and have nothing to lose, they don't care if they trigger
the financial doomsday bomb.
Now we here people are looking to Karl Marx's writings for advice.
There is a lot of good stuff in there, but they should have read it
long ago. The truth is neither Communism nor Capitalism is a formula
worthy of replacing human responsibility and imaginative, appropriate
behaviour. Sure we need some better international agreements on how to
compete globally and encourage actions that in furthering our
self-interest further the global interest as well. That is perfectly
possible. But market forces will not of themselves prevent a large
number of uninformed free citizens from making consumer decisions that
are toxic to the planet. The citizens of Russia know they need a
strong leader. Those in the US and UK think each one of them knows
best. De Gaulle decided France was ungovernable but he governed them
nonetheless till they overthrew him. Don't think for a moment there is
an answer to this question. Some little countries float happily through
when they are protected (as they are these days by history, NATO and
the EU) from physical or economic invasion. Their defence budgets are
paid for, or the fighting for them done by others. Others like the UK
for historical reasons finds itself involved up to the neck in every
possible role. Thats the way it is. But the way it is changes. What is
happening is a very good thing.
OCTOBER 21st 2008
Recession has been inevitable since the start of this year, though
naturally it would have been suicidal for the Governor of the Bank of
England to say so before now. Nor can the MPC be criticides for not
dropping the interest rate earlier. It would not have helped then as
there were other matters to consider. The drop was needed now and it
was done (see INFLATION). I am relieved
to hear Kenneth Clarke on Newsnight and Ruth Lea both making sense. A
further rate cut just might be OK soon but as I said in the INFLATION
file the Bank Rate mechanism has become disconnected and also
inappropriate just now to achieve the results it used to be thought to
be responsible for. Caution is needed so as not to provoke a fall in
Sterling. Steady does it and we will be OK. See also GLOBAL FINANCE.
Mervyn King said the banking system had been close to collapse
Bank of England Governor Mervyn King has warned that "it now
seems likely the UK is entering a recession".
added that the British banking system had been closer to collapse
earlier this month than at any time since the start of World War I.
speaking at an event in Leeds, Mr King said the country's banks had now
"turned the corner", thanks to the government's £50bn bail-out
He said the move would slowly lead to a resumption of normal bank
to the event that sparked the recent global banking crisis - US
investment bank Lehman Brothers filing for bankruptcy protection on 16
September - Mr King said it was wrong to blame Lehman for starting a
me extend an invitation to the banking industry to join me in promoting
the idea that a little more boredom would be no bad thing
"It would be a mistake, however, to think that had Lehman Brothers
not failed, a crisis would have been averted," he said.
"The underlying cause of inadequate capital would eventually have
provoked a crisis of one kind or another somewhere else."
praising the swift work by global central banks to increase liquidity
in the banking system, Mr King said this would never have worked on its
"Central bank liquidity is sticking plaster, useful and important,
but not a substitute for proper treatment," he said.
|Mervyn King paints a bleak picture
Mr King said the part-nationalisation move by the UK government and
other administrations was the only action that could cure the banking
crisis, by restoring banks' capital bases.
"We are far from the
end of the road back to stability, but the plan to recapitalise our
banking system, both here and abroad, will I believe come to be seen as
the moment in the banking crisis of the past year when we turned the
corner," he said.
Yet he cautioned that it "will take time before
the recapitalisation leads to a resumption of normal levels of lending
by the banking system to the real economy".
Especially as he said the "age of innocence" of cheap lending
between banks "will not quickly, if ever, return".
Returning his attention to the wider UK economy, Mr King said the
most recent economic data pointed to a recession.
He highlighted unemployment rising at its fastest rate for 17 years,
and the recent falls in house prices.
moving on to inflation, he said there were welcome signs that it would
come down from the "worryingly high rate" of 5.2% in September.
He said this was thanks to recent falls in energy prices back from
the record highs of July.
Mr King said the Bank of England was committed to bringing inflation
back towards the government's 2% target, he more than hinted that there
would be no rate rises for the foreseeable future.
King: 'It now seems likely the UK economy is entering a recession
said the Bank would continue to set rates "to meet the 2% inflation
target, not next month, or the month after, but further ahead, when the
impact of recent developments in both credit supply and world commodity
prices will have worked their way through the economy".
Concluding his speech by returning to the banking sector, he said he
hoped for quieter times ahead.
"I have said many times that successful monetary policy would appear
to be rather boring," he said.
let me extend an invitation to the banking industry to join me in
promoting the idea that a little more boredom would be no bad thing."
King was speaking at a dinner organised by the CBI, Institute of
Directors, Leeds Chamber of Commerce and the Yorkshire Forward business
Fed aids money markets as IMF readies rescues
OCTOBER 23rd 2008 MUSINGS ON GREED...
I am not a banker but I have been studying
these things for a long time
There was much talk about GREED on the Moral Maze (BBC Radio 4) and it
by one witness that all humans are by nature greedy. I don't think that
is right. I was glad when the Moral Maze team took the witness on about
Greed is dysfunctional hunger. It is not a natural state.
Neither all humans nor many domestic animals are naturally
greedy by nature, they take and eat what they need. But greed can take
over if the individual finds him or herself in circumstances they are
neither used to or prepared for. A dog that finds itself suddenly alone
in a dining room prepared for a banquet will eat the lot and be very
It is important to distinguish between greed and
hunger and competitive drive to survive in a jungle. between those
acting purely selfishly and those paid high sums to do a very
competitive job. Some of those involved in the US firms that have gone
bust or been absorbed or nationalised have admitted to greed. Many are
now unemployed and may remain so for a very long time. Some have put by
a nest-egg, but some of those eggs were addled and others, though good,
were in nests that have been brought down in the storm.
Greed as default characteristic is a very
unattractive trait, known by every civilisation as something that leads
to a sticky end. But before we attribute it to all our bankers we
need to look at what the job is they have been asked to do.
The main high street clearing banks traditionally had a domestic
clientel that they
shared between them. Modern technology and globalisation opened up
their UK and even very local market elements to global competition. The
government gave the
banks a pretty free hand to go out and bat for Britain because they and
the country had
to survive. The banks had to manage and grow the wealth we needed to
rebuild the hopelessly
neglected and decayed infrastructure in railways, roads, schools,
hospitals and the rest.
We used private and public money, the tax
income and the gains of the banks and income tax and investment from
their employees amongst others, to do this job. There is no doubt at
all that things got out of hand in the frantic battle to get and keep
customers and investors, and by far the worst that happened was the
wrapping up and exporting parcels of totally toxic debt in the belief
that they would not be called to account because everyone was left
holding it world-wide. I have noticed it is a characteristic of US
thinking that they fail to realise that in extreme cricumstances those
with little or nothing to lose will pull the pin even if it means
suicide, and those with something to gain by this will exploits those
with nothing to lose.
In the period we are looking at banking was a big business the UK was a
leading player. There was no
other game in the global village and no way we could sit it out on the
sidelines. It came off the rails. Greed played a part, but...
Now the argument is whether we need economic and financial regulation
or whether it is an ethical question that requires different rules of
behaviour. There is no formulaic answer. What we need is some new rules
that are constructed on an ethical basis and an international authority
that can oversee and warn officially of dangers. The IMF has tobe given
a new status.
So where do we stand on the greed stakes? The public wants banks that
have branches near them, that are also accessible by phone and online,
that are staffed by highly reliable people that do not make mistakes.
In the UK they also expect free banking which no other European country
provides. The British had, let's face it, been spoiled. When a
lot of new banks without local branches or without the staff to handle
customers came and offered cheap deals on the internet or by automated
phone service, no loyalty was shown to the 'big four' clearing banks.
They offered overdrafts and mortgages and yet all they got were
complaints for charging sudden penalties when customers breachd the
overdraft limits. Many did not appreciate that had they asked in
advance to extend the overdraft a tad, they could have done so. The
truth is the banks have to know their position at the close of business
and in the real world. If the agreed limits are not stuck to, banks may
have to borrow very large sums for very short times at extremely high
rates. If customers want free banking they must stick to the rules and
banks must make investments with good returns in dividends and rising
stock values to pay for all the branches, staff and facilities they
A few days ago a poll showed that while some blame the UK government,
more blamed the banks. Now, fewer blame the government and still more
blame the banks, but mainly the American banks, not ours. With some
reservations, I agree. Our banks were openly ecouraging too much debt,
not hiding it, so when the really fraudulent stuff blew up the UK
public is highly vulnerable.
There has been greed in human affairs since time began but it is not
confined to bankers, nor is it an inevitable driving force in human
affairs. Many people are not greedy at all. Hunger is on the other hand
a fundamental part of human existence. Spinoza concluded in his
deductve philosophy that "The essence of man is desire". We desire to fulfill our
lives, to have enough food and shelter and friends and love, and to
find the answer to some of the riddles life poses. Human history is
full of the stories and thoughts of those who have been there before us
but every one of us has a chance to add our own efforts to the
I expect now there will not be the same
support possible on the same terms from our banks as before. The global
expansion engine in which they were involved has not just been stopped,
it has been discredited in theworld's major capitalist economy. America
has made the classic error of taking a philosophy to its extreme,
whereby the seed of its own destruction was forced to germinate. Small
businesses all over the world that are dependent on overdrafts at a low
rate and free banking will be forced to close unless the net cash-flow
is positive. Those small businesses that are not bank-dependent will
flourish IF they provide essential needs or inessential to any rich
survivers of the crunch and stock market collapse.
Now we have to see if that seed of destruction in the US is twinned
with a seed of rebirth, and if around the world there are capitalist
systems already carrying a mutation that will render them immune, and
others that will develop antibodies this time to make them a survivor.
OCTOBER 24th 2008
Today, both David Cameron and Gordon Brown are saying silly things.
Cameron repeats his claim that the government should have 'saved and
'put reserves by' to get ready for the current difficulties. "The
cupboard is bare" says Cameron.This is truly Enid Blyton economics. The
economy is a dynamic affair, not a cupboard of stores, and to have put
aside reserves would have been trivial in respect of dealing with
a dynamic event in the global financecial system. No, the government
was spending and investing in fixing the roof while the sun was shining
- the one thing Cameron claims they had not been doing.
Cameron's economic knickers are so twisted I expect auto-castration is
actually in progress.i
But Gordon is also mistaken in ranting against the oil producers
cutting production. They have no choice. There is a massive and
immediate cut in demand which would NOT be reversed by a sudden price
drop due to surplus other than by speculators who had deals with the
owners of storage of crude and refined products (civil and military),
or the latter acting in their own right. But tsome speculators have
already had their fingers burned, and holding stocks is expensive in a
recession. It is quite correct of the producers to cut production
The recession is looking like a slump and it is tempting to assume that
flooding the world with an oil lake could help, but that is a
misunderstanding. Fom time to time, Gordon does disappoint me. On other
matters he is doing OK.
Gordon Brown says the government is 'fighting' the
Prime Minister Gordon Brown has said the government is fighting
recession "every way we know how" but it needs other countries "to work
He spoke as official
figures showed the UK economy shrank by 0.5% in the three months to
September, twice what some economists were predicting.
Mr Brown rejected Tory claims the downturn was fuelled by his
He said it was a global recession and he urged other countries to
follow Britain's lead in tackling it.
He said the UK had led on rescuing the banks and protecting
and on helping people with bills through the winter fuel payment - and
he was working to ensure "other countries are taking the action we are
taking to stop this becoming worse".
And he rejected claims Labour's policies over the past
decade had made the prospects of a slump worse, stressing it was a
global problem which had "started in America".
"It started later in Britain, other countries are in
difficulty, but we believe we can help people through these difficult
times," he said.
He added: "Every morning I get up and before I go to
bed at night, it's got my undivided attention because I want to help
people through these difficult times."
He insisted Britain was "better placed" than in the past to weather
downturn because of low interest rates and the action he said the
government had taken on the housing market.
He said he "did not like" Opec's decision to cut oil
production but claimed the oil price had halved "since we called for
it," adding he was determined that would be "passed on" to motorists at
the pump and to energy consumers.
"People have got to see it coming through in their bills and I
we can push further in the next few weeks to make sure that happens."
But Conservative leader David Cameron said the growth
figures released earlier were an indictment of Labour's economic policy
over the past decade.
"This is the day that the recession became real. We've
had 10 years of being told no more boom and bust, 10 years of a
government not putting aside money for a rainy day. Well that rainy day
has now come."
Speaking during a visit to a small business in his
Witney constituency on Friday, he said short-term changes were needed
to support more small firms with their cash flow.
The Conservatives have proposed a six-month VAT holiday
for small and medium sized firms and a 1p cut in national insurance for
those employing four staff or fewer.
"In the longer term, we need a more balanced economy.
Less emphasis on just financial services and housing, more emphasis on
technology, on manufacturing, on broadening the base of our economy,"
'Boom and bust'
Lib Dem Treasury spokesman Vince Cable told the BBC: "This is a
statistical confirmation of what we already knew, which is that the
economy is now in recession.
"There are anecdotes from all around the country of
people being laid off, factories just not continuing and I fear it is
going to get a great deal worse."
He said "radical action" was needed, including a "drastic cut in
interest rates" and tax cuts for the low paid.
Chancellor Alistair Darling blamed the fall in UK output on the
crunch, rising food and energy costs and falling house prices which
have forced people to tighten their belts.
He told BBC Radio 4's World at One programme: "It's not
surprising that these global shocks are likely to cause recessions in
many countries including our own.
"The key is, what do governments do, both at home and
also acting together to try and resolve this problem and to see
ourselves through it."
Liberal Democrat leader Nick Clegg said Friday's figures showed the
credit crunch was "hitting the real economy and harder and faster than
was first feared," and said Mr Brown had consistently ignored warnings
that borrowing was out of control.
"This confirmation that we are heading for a recession
puts a name to the fear that many people have been feeling for months.
"With millions of people worrying about how they will
afford to get through the next six months, we may well be on the edge
of a new winter of discontent."
OCTOBER 25th 2008
I understand that the recommendation of the Chinese Prime Minister is
that in the New Global Order (Finance) which we hope will emerge
either from the rubble or if we are lucky from hospital, what we need
more than international regulation is OVERSIGHT, both national
and international. I think that is exactly the point. As for
regulation, although speculation cannot be prevented it could be
limited as a proportion of any bank's business. As far as traders and
brokers are concerned there would have, also, so be some limitations in
time and amount of discretionary powers to operate without reference to
oversight at higher levels.
For some reason many economists and most reporters of the current
situation are failing to realise this has nothing whatsoever to do with
the UK economic cycle or what we called 'boom and bust' for Britain. In
the past, this had either little to do with world economics o ran in
counterpoint to other trading blocks. This is a global lack of
confidence, brought about by the political abuse by the US of its role
as reserve currency and brought down by the hubris and greed of its
bankers. The rest of the world going along with this game have been
caught in the crash. With global coordination we can open our
parachutes together or bring the plane down safely dependng on your
choice of analogy, but in each domestic economy there will be
OCTOBER 26th 2008
More and more contradictory advice to the government emanates from
superannuated economists. "Spend your way out!" - "Don't spend your way
out!" - "Cut interest rates!" - "Don't cut interest rates of the
Pound will collapse!". Dear God, there are of course conflicts, and
conflicts of interest as well as conflicts in results and unintended
consequencess. Thta is why JUDGMENT and not ideology is needed. We
should only spend our way forward (not 'out') by spending where the
market was already failing the national and global needs, current and
future. The private investment market was chasing rainbows and the rich
consumer because the logic of the market is the rich consumer is the
only demand backed by ourchasing power. Now that a great many of the
newly rich are newly poor, their demand for non-essential luxuries and
second homes in tax havens and exotic food will have diminished.
Government can indeed see that its own programmes and bank lending is
steered in the direction of essentials for the present and a
sustainable future. Market forces were never going to do it, but
private enterprise can do it now if the right private enterprise is
THE CONTRADICTING ADVICE HOLD WITHIN IT THE KEY TO WHAT TO DO IF THE
CLASSIC POLITICAL DINOSAURS CAN BE SIDELINED. I STILL BACK THE PM AND
THE CHANCELLOR TO SORT OUT THE ADVICE.
The whole world is conflating
'private enterprise' and 'market economy'. They are not synonymous.
Private enterprise can pioneer, invest in and produce goods an services
for which the state can be a customer. Market forces on the other hand
may be analysed and classified including or excluding the state as
customer and including or excluding the state as investor. It may not
be necessary to nationalise an industry to effectively remove it from
the market economy, or to remove it from the market economy if it is
nationalised, though this last can create serious problems of
competition and is therefore acceptable only temporarily in a global
system based on free enterprise and trade, even if qualified.
Anyway, here below are the guys covering their arses. There is nothing
their letter to the Daily
Telegraph disagree with other than their conclusion in the last
paragraph and the fact that taking the rest it into
account, we still have to take steps. Public works will presumably be a
part of the overall plan, to be used as appropriate. As for thinking
that tax cuts would allow the market to determine which parts of the
the economy shrink and which flourish to replace them, this pinpoints
the precise way the market has failed us in dealing with the real
problems of a changing world. In short, these guys are wrong. They
are part of the problem and I am not surprised to see Congdon's name
Keynesian over-spending won't rescue the economy
Further to your interview with Alistair Darling, we would like
to dissent from
the attempt to use a public works programme to spend the country's way
out of recession.
It is misguided
for the Government to believe that it knows how much specific sectors
of the economy need to shrink and which will shrink "too rapidly" in a
Thus the Government cannot know how to use
an expansion in expenditure that would not risk seriously misallocating
public expenditure has already risen very rapidly in recent years, and
a further large rise would take the role of the state in many parts of
the economy to such a dominant position that it would stunt the private
sector's recovery once recession is past.
Occasional slowdowns are natural and
necessary features of a market economy.
as they are to be managed at all, the best tools are monetary and not
fiscal ones. It is inevitable that government expenditure and debt
naturally rise in a recession but planned rises in government spending
are misguided and discredited as a tool of economic management.
this recession has features that demand more active fiscal policy,
which is highly disputable, taxes should be cut. This would allow the
market to determine which parts of the economy shrink and which
flourish to replace them.
Andrew Lilico, Europe Economics; John Greenwood, Chief Economist,
Invesco; Richard Jeffrey, Cazenove Capital Management; Dr Ruth Lea,
Economic Adviser, Arbuthnot Banking Group; Trevor Williams, Chief
Economist, Lloyds TSB Corporate Markets; Dr Nigel Allington, University
of Cambridge; Prof Philip Booth, Institute of Economic Affairs; Prof
Tim Congdon, Author, Keynes, the Keynesians and Monetarism; Prof
Laurence Copeland, Cardiff Business School; Prof Kevin Dowd, University
of Nottingham; Prof Kent Matthews, Cardiff Business School; Prof Alan
Morrison, Said Business School; Prof Sir Alan Peacock, Former Chief
Economic Adviser, Dept of Trade and Industry; Dr Mark Pennington, Queen
Mary College, London; Prof David B. Smith, University of Derby; Prof
Peter Spencer, University of York.
World leaders pledge financial reform as gloom deepens
BEIJING (AFP) – World
leaders vowed Saturday to overhaul the global financial system in the face of
recession fears, but US President
Bush urged nations to "recommit" to free markets despite
After a week of growing economic gloom and plunging stock markets,
Asian and European leaders meeting in Beijing promised wide-ranging reforms
while UN Secretary
General Ban Ki-moon also called for quick change.
"Leaders pledged to undertake effective and comprehensive reform of
international monetary and financial systems," the 40-member Asia
Europe Meeting (ASEM) said in a statement released late Friday.
"They agreed to take quickly appropriate initiatives in this
respect, in consultation with all stakeholders and the relevant international financial
China's Premier Wen
Jiabao called for more regulation of the world's financial
system, saying after the summit "we need to draw lessons from this
"We need financial innovation to serve the economy better, however
we need even more financial
regulation to ensure financial safety."
Wen confirmed China's participation in a crucial summit in the
United States on November 15 aimed at tackling the financial meltdown,
without specifying which Chinese leader would attend the meeting of 20
industrialised and emerging powers.
The economic turmoil has led to growing criticism of US-style free market capitalism,
Nicolas Sarkozy earlier this week saying "the ideology of the
dictatorship of the market... is dead."
But Bush on Saturday, moving to set an agenda for the upcoming
international economic summit, said its participants must "recommit" to
the principles of free
enterprise and free trade.
"As we focus on responses to our short-term challenges, our nations
must also recommit to the fundamentals of long-term economic growth --
free markets, free enterprise, and free trade," Bush said in his weekly
The US president, who leaves office in January, added that "open market policies
have lifted standards
of living and helped millions of people around the world escape
the grip of poverty."
Ban said the Washington meet must address the need for change and
joined chief executives
of key UN institutions in calling for considered but large-scale
"The market and regulatory failures that have led to this crisis
be addressed as a matter of urgency," a joint statement said.
"We reaffirm the need for meaningful, comprehensive and
well-coordinated reform of the international financial system and pledge
our support to this end."
But next month's Washington summit came in for criticism at an
summit Saturday by Benin's President Boni Yayi for excluding poor
countries, which he described as "the main victims" of the meltdown.
On the heels of Beijing's
struck a somber tone.
"No one has an immediate solution. We are under no illusion that we
will resolve all the problems," Brazil's Foreign Minister Celso Amorim
told an emergency meeting of regional trade bloc Mercosur.
Stock markets provided a grim backdrop to the Beijing meeting,
plummeting Friday after a raft of pessimistic corporate and economic
news. Tokyo's dizzying 9.6 percent slump spilt over into Europe, where London's
FTSE plunged 5.0 percent.
The Dow Jones
Industrial Average slid 3.59 percent, capping a week when the US
blue-chip index dropped more than five percent.
The Saudi stock
the largest in the Arab world, began its trading week on Saturday with
a nine percent plunge to sink to its lowest point in four years.
Giants of the auto, airline and technology industries took
emergency action on Friday.
Peugeot-Citroen and Renault ordered huge production cuts, while Japan's electronics giant
Sony Corp. and Europe's biggest airline Air France-KLM issued profits warnings.
Britain's economy shrank by 0.5 percent in the three months to
September compared with the previous quarter, official figures showed,
marking the first contraction since 1992.
Steinbrueck predicted the financial crisis would last until late
2009 in an interview to be published Sunday.
"The risk of collapse is far from over," he told the Bild am
OCTOBER 27th 2008
The FTSE is now down to around 3800, like the date of the first Gulf
War. We have reached the point where people who simply need the liquid
cash for living have to sell some stock against their better
judgment to make sure they have the ready. Stability has been lost
along with any tendency for stability. The Japanese currency
strengthens so much its stock market plummets in anticipation of export
industry collapse. Global financial suicide is the
logical conclusion until we wake up and find the Greenspan era was a
dream anyway. Not that it is wrong to dream, these waves of hope are
what evolution at this level depends on. It is just that 'Any Dream
Will Do' is probably going a bit far.
Money has always been an artificial construct with an agreed value
backed by state rulers. Caesar's head had to be on a coin for it to
have that value. The market value of a coin could be more or much less
depending on the confidence in his authority and the demand for the
metal. There is no demand at all for paper or figures in a balance
sheet per se.
But we have here, beyond what looks like a disaster, the very means of
Meanwhile let us face it, things are going to get worse even if
interest rates are cut to 1% austerity
beckons for some time, They can be cut as long as other s nations
cut theirs too.
This is not to say that things
achieved during the last decade that were of value. If we have any
chance of managing climate change it will by using the knowledge and
technology we developed thanks to the global boom and the global
inter-connectedness that was made possible by it , and by a new,
way of managing global finance that the bust will have imposed on us.
We needed the boom and we need the bust. Those who think we needed
neither have not yet understood the answer to the riddle of life, the
universe and everything.
OCTOBER 28th 2008
The PM is right to ask the oil producing countries to provided funds to
enhance the IMF's capability. It is in their interest as well to do so.
It is important when emergency funds are allocated that they have
international oversight. The IMF has an important role. Perception is a
vital element of confidence, the coherent global action must be seen
and understood by the public. A windfal tax on the international
oil companies is NOT a good idea. Some VAT relief on winter home
heating bills as appropriate is a good way to go.
(The Associated Press) THURSDAY, OCTOBER 30, 2008
US Federal Reserve slashed a key interest rate by half a percentage
point Wednesday, driving it to a level seen only once before in the
last half-century. The government finally began distributing money from
the billions in the financial rescue package.
I expect UK and others to drop their rates
too, though not to so low unless there is an even worse crunch.
I am glad to see my thoughts on the solution to the financial and
environmental problems being one and the same are shared by leading
environmentalists and economists. Peter Morici dissents on how this can
come about, but he's a dinosaur and will go the same way.
One Planet (BBC World Service)
Environmentalists are arguing
that the current economic turmoil shows that a new form of "green
capitalism" is the answer not just to saving the financial system, but
saving the planet. http://www.bbc.co.uk/worldservice/programmes/one_planet.shtml
In a special One Planet debate,
Richard Hollingham discusses this idea with the Green MEP, Caroline
Lucas; the economist, Peter Morici; and the psychologist, Oliver James.
OCTOBER 31st 2008
I was waiting to find out what Barclays are up to. They have escaped
from the nationalisation and I assume they will be free to continue
paying absurd bonuses to their staff and investing in projects that are
environmentally unsustainable, following market forces. Of course they
are free to do the reverse as well, so let us wait and see.
NOVEMBER 3rd 2008
I am, an admirer of the writings of Niall Ferguson so have included his
thoughts in The Independent's "You Ask the Questions" below. I disagree
only on the Euro. We were right to stay out and have a go at running UK
PLC as a bank with its own currency, but we blew that completely by
putting our citizens in personal debt and our banks loaded with toxic
debt. It is now time to help Europe's Euro Zone make a success of
beating recession and pioneering the fix to global warming by combining
market and dirigiste economics. I we stary that off well, Brown can win
the next election too. So my disagreement with Fergusoin is
fundamental, though he is right on everything else.
Who would you like to see win the US election? Ian Barker,
I was one of John McCain's foreign policy advisers when he was
campaigning for the Republican nomination, but haven't been involved
since the presidential campaign became a two-horse race. I think McCain
was by a wide margin the best of the Republican candidates, but I can't
see him beating Barack Obama, who has run one of the most inspiring and
at the same time disciplined campaigns of modern times.
Like so many historic events, this has a financial back-story. Without
the credit crunch I think they'd be neck and neck. But the economic
crisis is surely going to hand victory to the Democrat, whose cool,
calm and collected manner are an asset at a time of panic and
pessimism. I will not be sorry. Obama has the potential to be a great
president – and who could fail to be uplifted by the prospect of a
black man as commander in chief, 40 years after the assassination of
Martin Luther King?
What do you think are the biggest challenges he will face?
Stephen Mottram, Newcastle
The economy, the economy and the economy – followed by Iran, followed
by his own party in Congress. The trouble is that Obama's plan to spend
around $1.3 trillion in tax cuts and new spending is going to be very
hard to implement when over a trillion has already been committed by
his predecessor to the financial bailout. At some point the bond market
may take fright at the explosion of government borrowing.
Alternatively, the US may be heading for a period of Japanese-style
stagnation and deflation, no matter how much the Treasury throws at the
problem. Neither scenario is going to make the next president's life
Is the US in terminal decline? MARK SUTTON, COLCHESTER
No empire lasts forever, but the US itself is not in terminal decline.
It has an immensely successful political system. Its economy remains
the most attractive place in the world for entrepreneurs and
innovators. It's social system is wonderfully good at integrating new
immigrants. Sure, there are problems, but I would say the EU looks much
more vulnerable at the moment. And let's not forget that the US is
still miles ahead of the competition when it comes to military power.
What does Obama's candidacy say about race relations in the US?
TINA WEEKS, BRISTOL
That there has been a real change of attitudes. Some Americans may
still harbour racial prejudice, but it is no longer socially acceptable
to express it. That's one of the most heartening changes I have
witnessed in the U.S. since I first started going there in 1981.
Will the world face recession in the next few years, or depression?
PATRICK HOBSON, LONDON SE8
Call it a Great Recession. It won't be as bad as the Great Depression
of 1929-32 (which actually dragged on until the Second World War in
many countries). But it will almost certainly be a deeper and longer
recession than anything we've experienced since the mid 1970s.
Given recent events, has your view of markets changed? MADDY
PHILLIPS, LONDON N19
My new book The Ascent of Money was written in the expectation that a
major liquidity crisis was going to strike financial markets in the
near future, and that we would see a herd-like switch from greed to
fear. This happens quite frequently in financial history. So I am not
surprised and my view hasn't changed. As Churchill said of democracy,
the free market is the worst of all possible systems, except for all
those others that have been tried from time to time. In the book, I try
to show that the financial system has an evolutionary character. That
means that periodic crises are inevitable.
Where would you advise me to invest/save my money at the moment?
DAVID ADAMS, BIRMINGHAM
Well, you're doing the right thing by saving. The key thing is to
reduce indebtedness if you can, because it's leverage that's most
dangerous at a time like this. A diversified portfolio of stocks and
bonds, domestic and foreign securities, some real estate and some other
assets (like art) remains the best bet. But the devil lies in the
There are some bargains out there among small-cap US companies. Right
now, I would be searching Silicon Valley for the next Google. Remember:
Microsoft and Apple were both established in the depths of the
Should Britain join the euro? ELLEN POWELL, LONDON W6
No. The last thing you want, especially in a financial crisis, is to
have given away control of your monetary policy.
Where will the balance of global power lie in 20 years' time? Will
the Asian Century be well and truly up and running? MICHAEL WILKES,
In The War of the World, I argued that the Asian century got underway
nearly a century ago with the rise of Japan and its emergence as a
credible rival to the European empires! Japan's had the second biggest
economy in the world for decades now, so this is not a new story. The
real issue is how far and for how long China can sustain the growth we
have seen in the past three decades. If it can, then by mid-century it
will be the biggest economy in the world. Then we may need to ask if we
are entering the Chinese century. But remember: Japan was also
projected to overtake the US and never made it. Economic history is
seldom a smooth upward curve.
What moment is there from financial history from which we can most
profitably learn? HENRY JOHNSON, NORWICH
I keep thinking that we are living through 1914 without the war – a
huge liquidity crisis requiring all kinds of extraordinary emergency
measures and extensions of state power over the financial system. In
the past this only happened in time of war.
Who do you think will win the next UK election and why? BRIAN
The Conservatives because the Labour Party has so obviously failed to
deliver the kind of improvements to public services that it promised
more than 10 years ago, and has also presided over the worst financial
crisis since an earlier Labour government had to call in the IMF.
Things are going to be very ugly for the UK economy next year. If
Gordon Brown were a stock, I would short him. His recent revival in the
polls is a sucker's rally.
What do you think about the way the BBC has handled the Russell
Brand/Jonathan Ross affair? LYNN THOMAS, LONDON NW6
I am afraid I do not know who these people are. Nor was I aware that
they are having an affair.
Should the BBC be privatised? LIAM BRYAN, WORCESTER
Yes. There is no credible justification for the licence fee, which
simply subsidises one bloated broadcaster.
Who do you think was the greatest British prime minister. And who
was the greatest US president? GAVIN PHILLIPS, CANTERBURY
Churchill was the greatest prime minister, Roosevelt the greatest
You wrote a history of the Rothschild family. What do you make of
George Osborne's recent brush with one of the younger inheritors?
IAN CLARKE, DEVIZES
I think the episode merely illustrates the danger of talking to
journalists about private conversations. This applies whether or not
the conversation was with Peter Mandelson, whether or not it was on a
yacht, and whether or not a Rothschild was present.
Which historian has had the biggest influence on you? CHARLIE
Probably A.J.P. Taylor, who was a wonderfully gifted writer of
diplomatic history, but my principal debts as a financial historian are
to Charles Kindleberger, David Landes and Fritz Stern.
How do you manage to produce so many books so quickly? NIGEL
By neglecting my family.
Niall Feguson's 'The Ascent of Money' has just been published by
Allen Lane at £25
NOVEMBER 5th 2008
Nothing could be clearer than the fact that the market cannot possibly
pull itself out of this recession. The free-market free-enterprise
system works only in benign conditions where confidence dominates and
opportunity beckons. It cannot deal with any kind of global problem
where self interest does not motivate the players to act in the
collective interest. At the moment, every player is acting in personal
and client short term or medium term survival mode. It is the
equivalent of a game of spoof. It is up to world governments to act
together now to frame demand to match real global needs and supply
liquidity and finance accordingly.
Market sinks on economic gloom as Cisco warns late
(Reuters) -Stocks plummeted on Wednesday, a day after Barack Obama's
historic victory in the U.S. presidential election, as a fresh batch of
dismal economic data underscored the massive challenges awaiting his
The drop marked Wall
Street's biggest loss ever on the day after a presidential
election, coming immediately on the heels of its biggest Election Day rally on
record in the previous session.
Selling hit across the board, with shares of big manufacturers,
including Boeing, as well as banks, technology companies, home
builders, retailers and energy companies among the biggest casualties.
And Thursday could be even uglier after Cisco Systems Inc , a
technology bellwether, said after the close of regular trading that
fallout from the United States had now spread to key markets abroad and
its revenue could fall as much as 10 percent in the current quarter. It
shares slid more than 6 percent after the bell to $16.25, down $1.14
from their Nasdaq
close at $17.39.
Investors worry that the new administration won't be in a position
to act fast enough to avert a deep economic downturn.
"Even though there's a lot of enthusiasm and a lot of excitement
the new president, I think it's going to be very difficult for anything
quick to happen," said Dean Barber, president of investment firm Barber
Financial Group in Kansas City.
"Today we just had reality set in that ... we're still losing jobs
and we still have consumer
spending at very low levels and we are heading into a holiday
season that looks like it could be one of the worst."
The Dow Jones
slid 486.01 points, or 5.05 percent, to 9,139.27. The Standard &
Poor's 500 Index plunged 52.98 points, or 5.27 percent, to close at
952.77. The Nasdaq
Composite Index lost 98.48 points, or 5.53 percent, to 1,681.64.
Grim economic news included a report that showed deep cuts in
employment by private employers in October and data that showed the
vast service sector contracted sharply last month as the worst financial crisis in 80
years roiled the world's largest economy.
Jet aircraft manufacturer Boeing sank 6.9 percent to close at $49.55
on the New York Stock
Exchange, making it the second-heaviest drag on the Dow and
ranking only behind Exxon
Corp, whose shares tumbled 4.9 percent to $73.69, while
lost 4.2 percent to $74.88.
The slide in energy shares was also precipitated by a sharp drop in oil prices
on fears that an economic downturn will hurt energy demand. December
crude fell $5.23, or 7.42 percent, to settle at $65.30 a barrel on the New York Mercantile Exchange.
the stock of iPhone and iPod maker Apple was the top drag, down almost 7
percent at $103.30.
Shares of Cisco,
Financials weighed on the S&P 500, with shares of Morgan Stanley ending
down almost 10 percent at $17.06, and those of Bank of America down more than 11 percent
at $21.75. The S&P financial index fell 8.8 percent.
and U.S. Steel Corp tumbled after Arcelor-Mittal, the world's largest
steelmaker, forecast a weaker fourth quarter, slashed output and froze
Nucor plunged 10.5 percent to $35.50, while U.S. Steel tumbled 8.3
percent to $37.75, both in NYSE trading.
Among home builders, luxury home builder Toll Brothers plunged nearly 10 percent
to $20.73, while among retailers, Wal-Mart Stores , a Dow component,
fell 3.6 percent to $54.13.
All 30 Dow components ended in the red.
A report from ADP Employer Services showed private employers made
deepest job cuts in six years last month and companies' planned layoffs
surged to their highest in nearly five years.
The Institute for Supply Management said the U.S. service sector
contracted sharply in October.
Investors were also nervous ahead of Friday's government data on
October non-farm payrolls. Economists polled by Reuters have forecast a
loss of 200,000 jobs in October.
Trading was muted on the New York Stock Exchange,
with about 1.31 billion shares changing hands, below last year's
estimated daily average of roughly 1.9 billion, while on Nasdaq, about
2.21 billion shares traded, slightly above last year's daily average of
Declining stocks outnumbered advancing ones by a ratio of about 4 to
1 on both the NYSE
and the Nasdaq.
(Additional reporting by Leah Schnurr; Editing by Jan Paschal)
NOVEMBER 6th 2008
As noted in the diary above,
of England Interest Rate had to drop further and could do because the
US and Euro rates were also dropping. I expected a 1% drop today, but
not the 1.5% taking it well below the Euro rate. But the MPC clearly
knows what it is doing now and why. 1.24 Euro to the Pound is the rate
at the close of business. I am impressed by the clarity of this
decision and the knowledge behind it. The sterling/euro and
sterling/dollar rate may fluctuate but the UK economy and industrial
mix as a whole is what the MPC has to bear in mind as that is what all
these rates depend on. I think they are doing that.
Bank of England Reduces Bank Rate by 1.5 Percentage Points to 3%
6 November 2008
Bank of England’s Monetary Policy Committee today voted to reduce the
official Bank Rate paid on commercial bank reserves by 1.5 percentage
points to 3%.
Now there will a lot of talk about how this
interest rate change should be 'passed on' by the banks. In the case of
balanced risks this can be possible. In the case where risk can
actually be reduced by passing the lower cost of borrowing on, the same
applies. But in the case of unknown assets and liabilities and risks
already assessed as dubious, banks have to make case-by-case decisions.
The Interbank and Wholesale rates do indeed have to fall now. On the
oher hand banks cannot lend at lowe rates than they can borrow without
taking a bath and that is to be avoided as we have seen.
The reason why the IMF says Britian will be harder hit than Europe in
this recession is simple: our economy was mlore debt-based than others,
so more dependent on steady growth. The reason why Gordon Brown said we
were well placed is equally simple: he had been presiding over and
encouraging a great deal of investment in parts of the infrastructure,
investment the opposition paradoxically both blame him for because of
the debt incurred and at the same time try accuse him of not doing. In
short, we are in a big mess but the opposition can claim no
righteousness either in their days of power (only Ken Clarke got a few
things right) or in their time as opposition.
NOVEMBER 9th 2008
Leadership in politics, as in military affairs, demands that the
leaders take descisions and, having done so, implement them.
Transmitting a feeling of uncertainty will always indicate to listeners
that the leader is not as well informed as they could be. The
proposition that they have taken all available advice and have
theirself an understanding of the matters in hand, yet are uncertain of
the outcome of their policies is not usually considered acceptable. Yet
the experience of our history over the past century should surely tell
us that certainty is impossible wen it comes to the separate components
of our society and our endeavours.
We should have confidence in an outcome that we set ourselves to
achieve as a community providing we put our minds and bodies to the
task but, just as in physics so it is in human affairs - the outcome
for any one individual is clearly uncertain. The BBC's Analysis
programme has just discussed the (frankly annoying) demand for
certainty in the detailed ways, means and outcome of every
political move, in every military operation that is undertaken. It is a
demand that is evidently fuelled daily by the media. I recommend a read
of the transcript at:
NOVEMBER 10th 2008
There is talk of tax cuts to day and much of the talk is rambling,
circular and confused. What is required is an EU-wide agreement to
reduce or completely abolish VAT on the purchase of goods and services
consistent with achieving the measures committed to countering Climate
Change and Global Warming. It is as simple as that. That does not
exclude certain other measures of relief to those in special need of
course. It will already do that to some extent, Certain income taxes
could be reduced by raising thresholds too.
NOVEMBER 11th 2008
In a private enterprise, capitalist free market, with no nationalised
financial institutions or industries, 'every man for himslef' is the
rule that applies as the roof falls in and the floor collapses.
Temporary nationalisation can become the only solution in many cases if
rivate finance is not forthcoming. Command production can be the order
of the day if the market does not provide demand. All the classic
pitfalls of that are there to avoid or fall into.
Obama urges action as Asian, European data gloomy
YORK (Reuters) – Fresh signs of economic weakness from China, Japan and
Britain reinforced fears of a prolonged recession, and U.S.
Obama urged the Bush
administration to back a second economic stimulus package and aid
the ailing auto industry.
Oil, which is heavily dependent on global growth, tumbled 5 percent
$59 a barrel after touching a 20-month low of $58.32. World stock and
other commodity prices also fell, with U.S. stocks closing 2 percent
Shares of U.S.
automaker General Motors fell as much as 15 percent to lows last
seen during World War Two before closing down 13 percent for the day.
"Reality is setting in that we are in a recession. It's almost like
endless abyss for the market -- it's sell first, ask questions later,"
said Ryan Detrick, technical analyst at Schaeffer's Investment Research
in Cincinnati, Ohio.
In an effort to reverse a wave of defaults threatening the U.S.
economy, the regulator for Fannie Mae and Freddie Mac, the two largest
U.S. mortgage finance companies, unveiled a plan to cut payments for
U.S. homeowners who face foreclosure and are spending more than 38
percent of their income on mortgage payments could have monthly
payments reduced by Fannie and Freddie, which own or insure roughly
half of U.S. home loans. The move could provide relief for hundreds of
thousands of borrowers.
The widening global slowdown has prompted a rash of corporate profit warnings
and led some companies to warn about their ability to operate in the
Obama urged President
George W. Bush to back a second stimulus package and asked him to
use existing bailout measures to help an auto industry battered by a
rapid drop-off in sales, an aide said.
A spokeswoman for Obama said he raised the issue in his meeting with
Bush at the White House on Monday.
The White House said it was open to considering any proposals from
Congress to accelerate loans to the U.S. auto industry from funds
U.S. House of
threw her weight behind an automobile industry rescue plan, saying aid
was urgent and that she was confident Congress could act on emergency
bailout legislation next week.
Evidence of a global slowdown was ample as the worst financial crisis in 80
years, arising from huge banking losses in the slumping U.S. housing
market, has sown a broad economic
downturn. Even fast-growing China has not been immune.
Chinese import growth slowed in October and inflation fell to a
17-month low as domestic demand cooled, raising the likelihood Beijing
will soon cut interest rates to back up the government's new economic stimulus plan.
exports fell nearly 10 percent in the first 20 days of October,
corporate bankruptcies jumped 13.4 percent year-on-year and sentiment
in its service sector hit an all-time low -- all signs the world's
second-biggest economy was teetering on the brink of recession.
German analyst and investor sentiment about the outlook for Europe's
largest economy improved but remained gloomy with the nation probably
already in recession.
British retail sales fell by the biggest amount in more than three
years in October, and a housing
survey showed home sales slumped to their lowest level
in at least 30 years.
Investors are looking to a summit of world leaders in Washington on
Saturday for new solutions, following moves worldwide to cut interest
rates, free up seized money
markets and recapitalize banks, at a cost of more than $4
"We need monetary
and fiscal policy coordination across the world ... a broad,
concerted economic response is now urgent," British Prime Minister Gordon Brown
told a news conference. "The second priority is that we agree a
timetable for measures that will clean up the failings in our banking
But officials are playing down the likelihood that the weekend
meeting will produce dramatic measures, and aides to Obama -- whom
world leaders have urged to make the credit crisis his No. 1 priority
-- said he would not attend.
Brown said there could be no retreat into protectionism and that he
was confident Obama shared that view.
The hard times have prompted a number of companies to issue profit warnings. Among
U.S. industrial conglomerate Tyco International Ltd and diversified
U.S. manufacturer Rockwell
Inc both warned that fiscal-year profits would be
well below Wall Street
forecasts. Tyco's shares fell 13 percent, and Rockwell's 8
Vodafone, the world's largest mobile phone company by revenues,
cut its full-year revenue outlook for the second time in four months
but said it would maintain profits by cutting 1 billion pounds ($1.58
billion) of costs.
The world's largest hotelier, InterContinental Hotels, posted a
14 percent rise in third-quarter profits but said it saw a sharp
deterioration in October market conditions.
the second-largest U.S. mall owner, expressed doubts that it could
continue to operate due to $4.2 billion in debt coming due November 28
and next year. Its shares plunged to about 40 cents, down more than 99
percent over the past year.
Rona Inc, Canada's biggest home-improvement chain, reported a lower
third-quarter profit due to a slump in construction and home renovation, and
warned that it might not meet its profit targets.
(Editing by Elizabeth Piper, Steve Orlofsky, Gary Hill)
NOVEMBER 12th 2008
There is still much misunderstanding about what can be done to stop the
world sinking into recession. If we do not get international
understanding on this we risk huge amounts of assets falling into the
hands of some very strange people, amongst them the 'mafia' in various
countries who have assets outside the audited systems and a variety of
black economies and their managers. Britain was always in my view crazy
to stay outside the Euro when this global event was sooner or later
inevitable but we gave our government no chance at all to take us in.
Now we must make the best of it and face the fact that the only way to
proceed is both European and global.
In a global solution, we do not have to borrow money. We can create
liquidity providing we can find a way to do it equitably. We can do it
without causing inflation, and at the same time we have the chance to
channel this liquidity into employment and manufacturing, through both
private and nationalised industries and services, to change our
consumption and way of life so as to achieve the carbon reduction
levels required. It is a remarkable opportunity which only a collapse
of the market driven economy that was causing the problem coud bring
about. We should thank our lucky stars it has happened. Instead of
worrying that the Chinese are no longer buying our waste paper to make
cardboard boxes for the toys they make and ship to us, we can stop
wasting the paper in the first place.
Markets use the principle of entropy. Only human intentionality,
anticipation and design can build systems in which the entropy of
markets can function
constructively. OK, it is rocket science. Let's get good at it. Before
globalisation civilisations were built on a rolling edge of slavery.
Now we can do it a different way. Until we understand this, global and
national unemployment will rise.
NOVEMBER 13th 2008
While Bush is still maintaining the crash is 'not a failure of free
markets' (which it most obviously is), Poulson is busy changing his
bail-out plan from acquiring toxic assets to nationalising the banks
and insurance companies. No matter what happens, US Republicans will
never admit that any principle of Socialism has even a wisper of
financial legitimacy. At the same time 'Pragmatism' is not
admissible as a political/financial philosophy either as it gives them
a problem with party political manifestos and programmes. Meanwhile the
meltdown continues with the US Automibile industry.
NOVEMBER 15th 2008
George Osborne's remark that the UK Government's policy of virtual
borrowing while the MPC cuts the Bank of England's interest rate could
cause a run on the Pound just about sums up the value of this
ridiculous man. Any fule kno that since the UK decided to stay outside
the Euro area, it's currency is permanently at risk. Osborne and his
party were completely in favour of this on the grounds that Brtains's
business was banking and investment world wide. Sterling was the new
British Empire and the free market economy was a game we could only
play if free to do so, unhampered by EU socialists.
There can be a run on any currency if it is started off, as nobody can
dare to stand against a run in unstable times when they are themselves
vulnerable. So of course the UK policy and the Pound are vulnerable.
What Osborne's remark signifies is: "I have just had lunch with a very
rich friend in the city who has made a lot of money over the years
thanks to us staying out of the Euro and he tells me we should sell
sterling now, and I am going to say that out loud now so later I can
say I told you so and one day you will remember and elect me as
chancellor so there, boo, snubs to you all."
George - you are a pathetic little twit who should retire from politics
as soon as possible.
Now, this evening, Kenneth Clarke has waded in to support Osborne. Now
Kenneth is a man of common sense whose judgment I have greatly
respected, but he plays economics by ear. He is not deeply
knowledgable. He has a very good ear, just as he has for music. But we
are now in a situation that requires deeper knowledge. There was
NOTHING to be gained by Osborne's remarks other than another useless
spasm in the foreign exchange markets. The value of the Pound Sterling
should reflect certain realities. It may fall, it may rise. But in the
current situation realities and intrinsic value has been abandoned as
those with no other business to do continue to try to make money from
money. All over the world there are people who do not realise that the
shadow chancellor is not an authority on anything and a billion people
making minor choices in a global economy are like the butterflies in
Chaos Theory all flapping together. Just button it, both of you. You
are amateurs in the worst sense of the word, not the best.
As far as the summit in America goes (report below), so far so good.
All parties are pleased with the result. But what counts is what will
actually be done - and people are being remarkably cagey about that.
Some understand what to do, some don't, and it will be slightly
different in every country.
Global leaders at the G20 financial
summit in Washington have pledged to work together to restore global
They said they were determined to work together to achieve "needed
reforms" in the world's financial systems.
Britain's Prime Minister, Gordon Brown, said the agreements reached
by leaders were "historic".
US President George W Bush said that finance ministers would now
work on detailed reform proposals, and then report back.
His succesor in the White House, Barack Obama, said in a statement
he was ready to work "together on these challenges" with the G20 when
he takes office in January.
"The president-elect believes that the G20 summit... is
an important opportunity to seek a coordinated response to the global
financial crisis," said a statement issued in his name.
The meeting brought together leading industrial powers,
such as the US, Japan and Germany, and also emerging market countries
such as China, India, Argentina, Brazil and others - representing 85%
of the world economy.
For the leading emerging economies, the significance of this G20
was clear - they now have to be taken into consideration in the
mangement of the global economy.
Brazil's President, Luiz Inacio Lula da Silva, said:
"We are talking about the G20 because the G8 doesn't have any more
reason to exist."
| The next summit is
likely to be in London
Key issues agreed by world leaders at this summit
- reform of international financial institutions such as the World
Bank and the International Monetary Fund
- an agreement by the end of 2008, leading to a successful global
- improvements to financial market transparency and ensuring
accurate disclosure by firms of their financial conditions
- making sure banks and financial institutions' incentives
"prevent excessive risk taking"
- asking finance ministers to draw-up a list of financial
whose collapse would endanger the global economic system
- strengthening countries' financial regulatory regimes
- taking a "fresh look" at rules that govern market manipulation
In his address at the end of the summit, Mr Bush said there was no
doubt that the financial crisis facing the United States and many other
countries was a severe one. Everyone is
affected by this downfall. Budgets of households and big corporations
are equally affected Asif Chaudhry, Pakistan
He said it had even been conceivable that the US "could go into a
depression greater than the Great Depression".
"We are adapting our financial systems to the realities of the 21st
century," he said.
Speaking after the summit, the UK's Mr Brown said the group had
important conclusions "about trade, about financial stability and about
the expansion of our economies".
Russian President Dmitry Medvedev said the global financial
structures created at the end of WWII were now inadequate.
"It will be necessary to rebuild the whole international financial
architecture, make it open and fair, effective and legitimate".
The stalled Doha round of global trade talks should be
pushed forward so that a basic agreement can be reached before
President Bush leaves office in January, said German Chancellor Angela
"If there is the political will, it would be good if we
could reach an agreement in the Doha round with the present US
In their joint closing statement, leaders said the
reforms would only be successful, if they were "grounded in a
commitment to free market principles".
G20 leaders say they will meet again by 30 April, 2009, to review
The next summit looks set to be held in London, with US
President-elect Barack Obama attending.
Although no formal decision has been announced, France's President,
Nicholas Sarkozy, made it clear that he expects London to be chosen as
The G20 group of countries consists of 19 leading industrialised
and developing countries, as well as the European Union.
NOVEMBER 17th 2008
According to the Local Government Aurhority: "Research
I am sure that is
true, but we also need a national plan to guide and assist the choices
local government makes. There have been remarkable local government
initiatives in sustainable dvelopment and green energy (e.g. Woking). Let's see a few
more. Now we have the opportunity.
On the globals scale, nobody needs to starve or freeze to death because
of this recession if they are part of a functioning domestic society at
peace. But there are many starving and diseased because of civil
war and armed insurgency. If recession can bring commercial activity to
a halt, can it ever bring war to and end? Orthodox thinking has poverty
as a cause of war - can it be sometimes the cause of peace? Apparently
only if the funds of the aggressor are depeleted and cannot be regained
by aggression. It is possible that in some instances the global
recession might bring some opportunistic war lords to their senses; but
in general, it is essential that the governments of the world, now
drawn together as never before in agreement on economic and financial
matters, move to legitimise global financial and economic forces,
capital and reserves and the movement of funds instead of turning a
blind eye where it suits them, or failng to take responsibility when it
is not a domestic priority.
NOVEMBER 18th 2008
Much is being made of the change in direction of the TARP fund of $700
billion. Originally considered as mainly to be used to 'buy up toxic
assets' it soon became apparent that even when a low value was put on
these, $700 billion would be insufficient and leave nothing for vital
support now required for banks, major industries and others in
difficulty. So the administration is changing tack because it has to.
Obama want some of the TARP to bail out the auto industry while Bush
has a special fund already set up to restart a collapsed auto industry
on a new basis. For once, the current administration is naking more
sense than Obama. Obama seems to be in talks with McCain, and I have
little confidence in McCain's economics.
Treasury Secretary Henry Paulson reportedly
said Monday that he isn't likely to seek the OK to spend the second
half of the $700 million allotted to the Trouble Asset Relief Program.
The Wallk Street Journal said Paulson's comments came during an
interview with the paper.
"I want to preserve the firepower, the flexibility we have now and
those that come after us will have," the paper quoted Paulson as saying.
The bulk of the $350 billion in the first half has been used to buy
equity share in banks and in American International Group Inc.
Yes. A degree of Nationalisation so that
eventually there are two possible outcomes.
1. Banks, businesses with new government part-ownership later recover
and attract private investment, share values rise. The government sells
out to get a profit. Future taxation to pay back government borrowing
is thus avoided
2. Problems continue, the government takes on full ownership and stays
on as the owner on behalf of the public until such time as
privatisation is again a good option. At that point, the debt is paid
Either of the above is acceptable. The vital thing is to smash the
absurd ideology of those Americans who 'believe' in certain piddling
ideologies that define nationalisation always bad and private ownership
always the only way. In a sensible state of affairs, enterprise should
always be private and government should always be socialist, with the
two playing a compensating and alternating role, through which the
economy advances with checks and balances.
It is notable that in the UK, Cameron and his team are now against
nationalisations and instead (we hear) advocate the government should
lend money where required. What a daft idea, when interest rates are so
low and falling. No, the government should take equity and the current
low market prices. When rates rise, the market price will have risen if
it is a business that can stand alone. If it is one that is essential
and needs public ownership for longer, so be it - that will be the
NOVEMBER 19th 2008
When all is said and done the US Government cannot let their big auto
companies fail. They will have to fund their survival because of the
interconnectedness with other industries and the social consequences.
But they must put draconian conditions on the operation. The extreme
irony is that these conditions are the very ones that the US government
did not take seriously - the sustainable and green future nature of
industry and commerce. The government and industry were both living in
a fools' paradies in spite of being warned 24/7 since 1985. In effect,
these automobile industries must be taken into public ownership and
privatised in some years time at a profit for the modest US taxpayers
who shouldl all be made shareholders by virtue of their citizenship,
not only in proportion to their tax-paying status.
NOVEMBER 23rd 2008
But let us not forget that what is about to hit us is not just a sticky
patch in our domestic economy. This is global and we need to export and
have a vibrant tourist economy spending here and a busy services sector
providing for a global demand.
NOV 24: The effective nationalisation of the giant, international
CITYGROUP by the US Government is perhaps the biggest event so far in
the collapse of the banking system. Redundancies worldwide will still
Now we have the first lot of government measures spelled out. It may
not be enough, but it is the right start. In my view it is wrong to
worry about the size of the borrowing, what we need is to realise the
opportunity the collapse has given us to restructure the very basis of
growth. This is not like any previous recession for two reasons: first
because it started by a collapse of the banking system, second because
the problem of junk bonds posing as good was spread like a virus
world-wide, third because the flaw in our understanding of how to grow
and finance growth was global . The way out is to invest massively in
the move toward carbon neutral growth, while reducing the carbon excess
in the old growth. The UK must become expert and a world leader in the
technology and the practice. We must use our special wind and tidal
energy assets and develop hydraulic electricity storage so that peaks
and troughs can be managed. There is no need to worry about a new
Heathrow runway being against the carbon reduction. It need ot be at
all and Heathrow needs another runway for the traffic it has now.
Carbon saving in aviation will come in other ways and the new runway
will oi help when finished in some years time.
Will Hutton has rightly said this special budget is bold, but it will
have to be bolder.
Meanwhile, in the immediate and medium term for business and
individuals, the devil is in the detail. Most individuals will not find
it makes any difference unless they are kept in employment instead of
being sacked. Others may not be quite as broke as they were last week.
But the detail is what to look at now and also the behaviour of the
As for the claim by the Tories that the tax rise planned for later to
pay for these measures is serious, described as 'pain later', it
is no such thing. The only pain will come NOW from recession. The later
tax rises in 2011 and beyond are trivial compared most other
countries and to moan about them is pathetic. Personally I expect
tax payers to have to may more and they very easily can, though the tax
threshhold should be raised.
DECEMBER 4th 2008
I have written nothing here for many days as there was nothing worth
writing. The facts are clear and obvious, most people are in for a sea
change in their understanding of our global and national economy, and
as far as I am concerned it has come none too soon. There is going to
be a tough time ahead for many and we will be tested in how we treat
our fellow citizens. The PM will do his best as will the rest of the
government and our national and local civil servants. I doubt,
frankly, if the opposition has much to contribute.
The most stomach churning thing to date was the leaders of the American
motor industry making their pathetic, beseeching demands to Congress.
"This is a crisis in which we played no part" or words to that effect,
said one of these morons. Let us be clear: the American motor industry
is at the very heart of all that was wrong with America. It was behind
the consumption of gasoline and lousy tin that pushed the world over
the edge as the price rose. The demand for cars and the gas to feed
them was fed by perpetual advertising and credit offerings based on the
housing bubble that was hidden in junk bonds and anyone but an idiot
could see what was being done. The America of Enron was obvioulsly
crooked, the America of GM was just fools in denial. Personally I would
nationalise the whole mess.
DECEMBER 9TH 2008
Now that it is finally sinking in that we are facing a serious, deep
and long recession, David Cameron is panicking that the the reflation
policy of Brown and other world leaders will leave us in debt for years
to come. This is a misunderstanding. If all the developed countries
take similar measures the indebtedness will be notional, not real.
Providing the right measures are taken, there will be no artificial
inflation of any currencies. The only degree to which Cameron is right
is we must not rebuild the old econony based on activities
inappropriate to our collective survival, or to crearing a shortage of
resources that in turn creates inflation. We need massive investment in
the new economy and in training for that economy, so that we do not
have to import foreign nationals to do the new development work.
JANUARY 8th 2008
President elect Obama has had to forget there is 'only one President at
a time' and tell the truth. About time too, and surely with the
approval of Bush anyway. Americans who blame GWB for their troubles
should bear in mind half of them voted for him and have nobody but
themselves to thank.
Obama warns of dire consequences without stimulus
FAIRFAX, Va. – President-elect
urged dubious lawmakers Thursday to work with him "day and night, on
weekends if necessary" to approve the largest taxpayer-funded stimulus
ever, warning in almost apocalyptic terms that a dire economic future
was certain without it.
an extraordinary move for a president-in-waiting that reflected the
grim urgency of the times and perhaps the crack in congressional
support, came amid a flurry of new activity in the negotiations on
Capitol Hill over the massive proposal's details. Not long after Obama
spoke, some senators from his own party publicly criticized his plan to
include tax cuts.
Emerging from a private meeting of the Senate Finance Committee,
several Democrats expressed deep skepticism that the kind of business
and individual tax cuts Obama has been discussing would do much to
create jobs or increase consumer
Sen. Kent Conrad
of North Dakota
said a proposed $3,000 tax credit for companies that hire or retrain
workers wouldn't spur job creation if those companies' products still
weren't selling. Sen.
Ron Wyden of Oregon said a tax cut giving workers only about $10
to $20 more per week wouldn't change purchase patterns.
Meanwhile, Obama's economic advisers were on Capitol Hill briefing
Democratic lawmakers on details of the president-elect's plan. And the
Senate Democratic caucus planned a late afternoon meeting, followed by
a news conference by Majority
Reid and other caucus leaders.
a case for action, Obama warned in his speech that "a bad situation
could become dramatically worse" if Washington doesn't go far enough.
He talked of the possibility of double-digit unemployment and $1
trillion in lost economic activity, stark predictions that recalled the
days of the Great
Depression in the 1930s.
he said, "We are still the nation that has overcome great fears and
improbable odds. If we act with the urgency and seriousness that this
moment requires, I know that we can do it again."
Since his November election, Obama has deferred to President George W. Bush
on foreign policy
matters such as the Middle East. But, with the economic situation
worsening, Obama has waded in deeply on that front, an issue certain to
define and dominate his early presidency.
was the fourth day in a row that he had made a pitch for a huge
infusion of taxpayer dollars to revive the sinking economy he will
inherit from Bush.
Obama's events have
increasingly taken on the trappings and air of the presidency.
Thursday's speech — coming 12 days before he takes over at the White House
— was a particularly showy move. Presidents-elect typically stick to
naming administration appointments and otherwise staying in the
background during the transition period between Election Day and Inauguration Day,
but Obama has clearly made the calculation that a nation anxious about
its economic outlook needs to hear from him differently and more
The president-elect cast
blame on "an era of profound irresponsibility that stretched from
corporate boardrooms to the halls of power in Washington."
shed no new light on the details of his plan that could cost as much as
$775 billion over two years. And, he said little about the
unprecedented red ink and rising debt confronting the government, even
after spending days reassuring the public and Congress that he is
committed to tackling long-term deficits once the economy rebounds.
But he laid out goals of doubling the production of alternative energy
over three years, making 75 percent of federal buildings and two
million homes more energy efficient, computerizing all medical records
in five years, expanding broadband networks and updating schools and
"It's a plan that represents not just new policy but a whole new
approach to meeting our most urgent challenges," he said at George Mason University
in suburban Washington.
economic team is considering a package, half of which would be devoted
to spending ranging from infrastructure to assistance to states. About
40 percent — roughly $300 billion — would be tax cuts for individuals
and businesses, and about 10 percent would be spent on assistance to
Governors of six
states and mayors of 14 cities — a bipartisan audience that came from
as far away as Minnesota and Utah to be among the few hundred in
attendance — listened to the speech that lasted less than a half hour.
The group remained silent until light applause at the end.
Elsewhere, there was more grim economic news.
A government report showed that the number of people drawing jobless benefits rose
last week to the highest level since 1982, demonstrating the troubles
the unemployed are having in finding new jobs.
And broader unemployment figures due out Friday are expected to show
that the U.S. lost a net total of 500,000 jobs in December. That would
bring 2008's total job losses to 2.4 million, the first annual job loss
since 2001 and the highest since 1945, though the number of jobs has
more than tripled since then.
Speaking a day after the release of a stunning new deficit
estimate — that the federal red ink will reach an unprecedented $1.2
trillion this year, nearly three times last year's record — Obama
acknowledged some sympathy with those who "might be skeptical" of the
stimulus. Vast sums already have been spent or committed by Washington
in an attempt — largely unsuccessful so far — to get credit, the
lifeblood of the American economy, flowing freely once again.
Such statements are meant to appeal to both parties' budget hawks, whom Obama
wants to win over so that approval of a package draws wide, bipartisan
support in the Democratic-led Congress.
writers Stephen Ohlemacher and Andrew Taylor contributed to this story
JANUARY 13th 2008
Obama may not have the power and the backing to do this, but...
The 'Volkswagen' solution is
called for. At the moment, public
transport in the USA can't take he strain, individuals can't afford to
buy new 'green' cars even if they were produced as they haven't the
money or the credit. The airlines are all going bust and are not
'green' either. So they need a revolutionary fleet of Green Greyhound
buses (really blue sky technology) and a revolutionary Folks-Wagon
(with variants of different sizes) which will be supplied to initially
state-owned car-rental companies (Hertz/Avis etc combined and
The rental cost must be subsidised to the degree required to enable the
economy to recover. Eventually the recovery will allow the rental
company to be re-privatised and individuals to buy used rental cars as
these are replaced by newer, greener versions available for rental and
later purchase. All the whiie, public green transport must be developed
and enhanced. The vital principle is
to stop the free market principle from deciding
the manufacture and use
of the new transportl vehicles.
JANUARY 16th 2009
It was on October 14th that George Bush took some steps toward the part
nationalisation of some US banks. It looks now as if the best bet is to
fully nationalise most of them, control the recovery and sell them back
at a profit to the taxpayer in some years time.
JANUARY 28th 2009
Obabma has got his mammoth reflationary package through the House, now
it goes to the Senate. Republicans all voted against, some so as to
avoid responsibility, others because they see it as a future national
debt they don't want theit children to carry, others because they are
terrified of what they call socialism. In truth, none of them
have a clue how the world works, they are all thinking inside one of a
series of boxes depending on their history and speciality. Some of the
things they are worried about are genuine risks which will have to be
played like reeling in a fish. Much depends on international
cooperation. One thing is sure, the hysterical rantings of the most
vociferous openents is a clear indication of their loss of footing in
the world we are now entering. They are still in the 20th century.
In the UK, the Tories have a sneaking suspicion Gordon Brown is doing
the right things so they are now set on discrediting him for feeding
the flames of the bubble that left the UK mired in personal debt. Their
attempt toaccuse him of enlarging the National Debt does not fly. They
have woken up to the fact that accusing him of 'not fixing the roof
when the sun was shining' is a non-starter - since that was exactly
whathe was doing as Chancellor, not banking the money but carefully
using public and PFI funds to get the work done. It is of course true
that Brown presided over the property boom and the bank lending spree
based on it; but if you take the trouble to read his statements on the
global financial system over the past few years there is no doubt he
knew it was in crisis. Had he tried to rein it in, imagine the noise
from the Tories and the media. The truth is that last fling of free
market global capitalism had to be flung. It enabled a massive
modernisation of key elements of global and UK hardware infrastructure
even though in the US much was neglected. It was quite unsustainable
and a good thing too, but civilisations depend on unsustainable bursts
to break through to new uplands. Sometimes they have been in the form
of wars but the modern world is too dangerous for serious war between
Unfortunately some of the contruction was wasteful and ungreen, that is
why the bust is now welcome. There now needs to be a burst of
government intervention to divert expenditure and economic activity
into the channels required. Neither Obama or Brown will get much more
than 50% approval from their electorates. They will be increasingly
unpopular as the new mistakes are made. But it is time for new
mistakes. We must never cease making them.
Now we have Davos, where all the self-important guys who did not see
what was staring them in the face, or saw it and did nothing, can now
FEBRUARY 3rd 2009
OBAMA is working hard to come up with his stabilisation and rescue
package. He will get no support from the Republicans who seem to have
little idea of the consequences of letting things work out 'naturally'
in a 'free market economy'.
They are obsessed with fears of nationalisation and socialism. Funny
that, when they have depend so much on their military for the basis of
their hitherto unquestioned domination of events. The armed services
are by definition nationalised and socialised and undemocratic and
that's they way they want it.
FEBRUARY 9th 2009
Jeremy Paxman pretends to be amazed by Ed Balls' opinion that the
recession is the biggest financial crisis for over 100 years. How could
it be anything else? We never had a globally linked economic bubble
before on which the entire flow of investment, growth and wages
depended. It is going to be a total train-wreck and if it had gone on
the wreck would have been even worse. Of course it is a disaster, of
course the bankers passing the risk onto house holders with impossible
mortgages are to blame, and that and the credit card debt allowed added
up to financial suicide. Gordon Brown not only saw it coming he said
frequently the world financial system was in crisis and we needed
a different approach. There was nothing he could have done. The only
way out now is a globally coordinated command economy to get done the
massive amount of work we need to convert to a climate controlled
world. That is the only way unemployment will not go exponential. Obama
understands it, Sarkozy understands it, Brown understands it too but
keeps too quiet for historic reasons. All is for the best in the best
of all possible worlds - but the best of all possible worlds has to go
through the worst every now and then. That worst can be pretty bad.
Read your history please.
FEBRUARY 10th 2009
Today the leading figures from the UK banks that are at the heart of
the collapse were grilled by the Parliamentary Treasury Select
Committee. The Committee seemed unable to understand why these banker
had not forseen the collapse of their position until it occurred. The
reason, dear reader, is very simple. They assumed their financial
position, though leveraged and worrying to some extent, could not
collapse unless the entire basis on which global financed was secured
were to collapse. That, they thought, was (a) absurd and (b) if it
happened, would leave everyone in the same boat. Broadly speaking, they
were right. It could only collapse on those terms, and it did.
FEBRUARY 13th 2009
Bankers are all accused of greed. Anthony Worral Thomson, a UK chef
attempting to expand his chain of restaurants (a business whose clients
indulge their greed daily), accuses his bankers of going bankrupt
through greed. In fact they, just like him, were trying to survive in a
headlong race in a world dedicated to expansion and growth, pedalling
like hell because their bicycle would fall over if it stopped. Now he
has had to put some of his his restaurants into receivership. Tough.
Now we can see how things are shaping up. In the USA the bipartisan
the Credit Crunch Crisis has not washed with the GOP. Republicans are
mentally incapable of free thinking. Obama has got his recovery plan
through by the skin of his teeth, with detractors claiming thatit is
not a plan, only a plan for a plan. To some extent that has to be true,
and I am glad to hear the planners admitting they will be making some
new mistakes. That's fine, as long as they get moving on two fronts,
preventing deflation and attacking climate control, without any
compromise at all of either.
We must realise that amongst the talented thinkers from the Democratic
past are those who abolished the Glass-Stegall act - an action that
more than any other put the banking world into a no-holds-barred
contest - a race in which it is idiotic now to complain that banks took
risks. In a competitive race in the corporate world, you drive as fast
as you can to survive because those lagging are simply taken over by
the leaders and swallowed, abandoned by their supporters. Nor can
regulators be expected to forbid any contestant from pushing their
vehicle to the limit. If free market competition is accepted, the
referee must keep quiet unless the law is broken. Anything else would
make the regulator liable for the relative loss caused by cautioning a
business or a bank.
We can accuse the bankers of hubris, overpaying themselves, but there
again we asked them, demanded them to compete with each other. That
means buying top dealers, making big profits for shareholders (pension
funds), and making their country the leader in world banking. All the
beneficiaries eat in expensive restaurants, way beyond their
nutritional needs, run by people like A.WT
In summary, Worral Thomson is an utter hypocrite.
FEBRUARY 18th 2009
Once again we hear that 'Quantitative Easing' is the only
the risk of repeating myself this was obvious from day one when he
global financial bubble imploded. The question is how to do it (a)
without incurring a real national debt with consequences for future
generations and (b) without causing inflation and (c) to do it fairly
when the market, which previously
took care of that, is not longer the big driver.
The answer to (a) is by international negotiation and agreement. Beause
of the speed we need to act this will require some broad brush
decisions that can be taken on the grounds that they can be fine tuned
later. Just GET ON WITH IT. The US, because of its status as reserve
currency and the size of the problem, can do this on its own. Europe
can only do the same if it acts together. JUST GET ON WITH IT.
The answer to (b) is first of all the same as (a) and then to review
the situation carefully as time passes.
The answer to (c) is far more difficult - there is no perfect
answer even in theory. I am reminded of the day in 1975 I stood on a
table in a cabin
in the Alpilles, Provence, surrounded by French farmers who were all
talking at once. I called for silence. "Do you want justice, or do you
want water?" There was a thoughtful silence. There was only one answer.
The plan for the financing of a pump on the canal and the payment of
the water it would provide, according to a formula which took into
account as well a I could work out the distance, elevation, land
surface and different cultures of the many participants. It could not
be completely fair, but it would bring them water and survival.
6pm GMT - I have now just heard Gordon Brown speak on this subject. It
is clear that he understands it. How long is it going to take the old
farts amongst the European Commission and the banking community and the
UK Tory Party who clearly do not understand how to stand outside the
box they were born in, to get with it or get out of the way.
FEBRUARY 23rd 2009 nnnn
Obama's recovery program will not and should not
cause the US stock market to recover.
The stock market is invested in the old economy, a flawed economy, an
It has to recover by investing in a new economy, the one promoted by a
recovery programme, a dose of comamnd economy, globally coordinated, in
which private investment can slowly take a share and consumers benefit
from without running into debt, or being part of a bubble which
gives them comfort as capitalists, but as part of a globally
sustainable growth of employment and wage earning linked to a green
economy. A new comfort.
It will not resemble the old economy, which has to die.
This is still not understood,
MARCH 02 2009
OK, perhaps it is understood now after the news from AIG and some words
from Warren Buffet.
Dow ends under 7,000, S&P tests 700 on AIG fallout
YORK (Reuters) – U.S. stocks slid to 12-year lows on Monday as a record
$61.7 billion loss for AIG and another government bailout for the
insurer heightened concerns about the extent of the damage to the
Shares of companies that have found themselves on the wrong side of President Barack Obama's
Stanley healthcare index
has lost 26.4 percent over the past four days and the AMEX
pharmaceutical index has dropped 12.3 percent over that same time span.
Story at http://news.yahoo.com/s/nm/20090302/bs_nm/us_markets_stocks
MARCH 14th 2009
I am not sure the UK Government has got the right idea with its
'Quantitative Easing'. It is certainly required, as a moumental amount
of available liquidity has been unceremoniously removed by the world's
investors devaluing their own assets on a beggar-my-neighbour sell out.
Quite right too, they, the invesstoirs and many businesses and their
managers, had indeed been printing money WITHOUT the real value in
tradeable assets to back them. There was a false market. Now,
governments throughout the world must take up the challenge and back
the capabilities of their citizens to create and serve, trade and feed
and house and clothe themsleves providing peace and security can be
maintained, and SO that peace and security can be maintained. But the
coordinated easing cannot be done by just auctioning government bonds
if the ownership of these is not concidental with national obligations
and aims to regrow the national economy on a new, sustainable,
The meeting of ministers in Horsham seems to have gone quite well, but
we need a bit more focus. I hope that will come in time for the London
meeting in April.
MARCH 24th 2009
Whether or not Gordon Brown has got everything done in the right order
so far, one thing is certain; the Governor of the Bank of England is
utter dork. Of course we cannot go on expanding the money supply
without carefully targetting it, and of course we cannot get it to work
unless the other developed countries in the world in Europe and America
coordinate their policy and do the same. That is the only way currency
inflation can be avoided and future debt too. But to give that little
twit Cameron ammunition to derail Brown's international initiative is
about the stupidest thing he could have done. Obama and Geithner
understand exactly what has to be done. If the international plan
proposed by Brown and Obama is not implemented there is no way forward
at all for the global economy and we shall end up with full scale
Perhaps in the end it will be best if they do cock it all up and then
we ca prove the point, but it will be unnecessary and the painful in
The Obama-Geitner 3 Trillion plan has produced an upward bounce in the
US Stock Market but it is meaningless. That is just opportunisitic
dealing by those on the inside and a few big players tellung their
game-players to pick up a bit as the market twitches. It is going
nowhere, and it won't, except in a few cases. Obama will put the money
where it needs to go and the banks have had their chance. They will now
try to grab onto the federal coattails of course and there will be
private-public initiatives, but the task it just to get what needs
doing, particularly those things the market was not doing when it was
booming, and to get employment going in the green economy, education,
health and improved sustainable transport both public and
MARCH 28th 2009
It is hard to know whether to laugh or cry listening to George Soros
telling us that the G20 meeting next week has to come up with a global
agreement because the world financial system has collapsed and cannot
be rebuit on the old lines. What an utter pain this man is. He and hs
like are at the heart of the system that ha crashed, its crash was
inevitable, what he is now telling us was obvious as soon as the US
sub-prime dam burst. The only sad thing is that Soros is still alive
and not broke. I see the BBC calls him a philanthropist - my arse. It
would be nice if he could have given Gordon Brown, to whom all this has
been clear for ages, a bit more help. Soros has just Soros at heart and
only now will he have to support the right policies. The last 25 years,
he says, were an aberration. I'll say they were George, why did you not
mention it at the time.
MARCH 30th 2009
Commentators are now pretending that there is a divergence of opinion
between those who like the French insist on international controls on
finance, cross-border movements of funds etc, and those who like the US
are wanting a very large fiscal boost top the global economy and
monetary policies to match. Any fule know that there is no possibility
of having the second without a sensible action with respect to the
first. So unless both Obama and Sarkozy get their way there can be no
result that would not cause chaos or fail.
APRIL 02 2009
The G20 meeting in London is over and has done what it could. Clearly
it had been well planned. The IMF will play a big role in the
implementation of some of the actions agreed on. As Prof Stiglitz
points out it will have to act on a very different brief to that it was
accustomed to in the past. He thinks we need a new institution.
Stiglitz has a good point, but it is not possible to do
all this at once.
Now that we have decided to give the IMF the means, it will have to be
reformed. In my own mind this has to have been agreed behind the
scenes, even though it has not been announced.
Stiglitz is also right in saying the IMF has caused a lot of trouble in
the past. But it was sometimes a lesser of 2 evils. Where they failed
was not changing their policy in the light of the evidence, but there
they ran up against the same problem anyone exercising authority with a
rule-book as their guide in order to claim consistency. Many a judge
has given out an unjust sentence because their hands were tied by the
law. The Catholic Church has found it almost impossible to make sense
of its policies over the years.
The only solution now is to give the IMF new instructions based on the
current plan. That will take some time to discuss and implement, in the
meantime there will be some emergency actions which will be partially
implemented, for adjustment in due course.
However, the old economy MUST NOT BE REVIVED. It was a disaster in
every way, other than it allowed the installation of a certain amount
of technical infrastructure - an infrastructure which ironically
brought to light the global impossibility of the old model.
Gordon Brown is still talking about 'growth' as the solution, and this
may be the bit he does not understand. But that does not matter. It is
not necessary for any current leader to understand the full picture as
long as they play their part, and Brown is doing that. All we can
do right now is prevent a catastrophic slump and he will have done the
best he can. It will be up to people all over the world to make the
best if the tough times we will be going through (and that includes
many UK citizens) while a new economy is built using very new
technology. There can be 'growth', but not in the sense we used that
Curiously, Bob Geldoff revealed he actually does understand some of the
wider economic science. He never did that before - and even then I am
not sure he has it all in order or has thought it through as far as it
needs to be - for now....
The Tories are asking what all this means to the man in the Clapham
Omnibus. The answer is bugger all. The agreement reached is designed to
make it possible for the various nations to take what action they need
to minimize unemployment (which will still rise hugely for a time)
without causing the massive currency instability that would have
occurred otherwise or leading to protectionism which will nonetheless
take place but in a less hostile and more co-ordinated and transparent
(though subtle) way.
APRIL 16th 2009
Here is an excellent contribution from a writer in the New York Times
April 15, 2009
Greening the Debt
The global economic crisis and
climate change are probably the two signature challenges of our time.
Luckily, there are ways to make our responses to these challenges
One approach is to green the expenditures of the fiscal stimulus
packages, as called for by the final communiqué of the G-20
the room for maneuver here is limited. An estimated 15 percent of the
stimulus packages are already green. And because it is the primary
objective of the fiscal stimulus to support the economy in the short
run, it is not possible to devote a much larger proportion to the
longer term objective of fighting climate change.
However, there is another way to green the stimulus: greening the
enormous additional debt due to deficit spending. In 2009 alone, E.U.
countries will pile up a stimulus debt of around €115 billion, or 0.9
percent of GDP, with the United States adding twice as much — an
estimated €220 billon, or 2 percent of GDP. These debts could be
“greened” by a firm international commitment to repay them exclusively
with additional revenues from CO2 taxes and emissions cap-and-trade
This is what I propose should be done.
The additional green revenues would be raised as soon as economies
recover enough to repay the stimulus debts. The time-path of debt
repayment could be explicitly linked to the timing of the economic
recovery. And once the stimulus debt has been repaid, the green
revenues would be used to reduce the fiscal burden on labor. Such a
shift from taxation that reduces desirable employment to taxation that
reduces undesirable pollution will lead to welfare gains.
The envisaged increase in green revenues is ambitious, but not
utopian. In the E.U., green taxes already make up 2.6 percent of GDP —
substantially more than the annual size of the stimulus packages to
date. Green tax revenues in the United States are far lower, but the
Obama administration is already working on a cap-and-trade scheme that
could generate the required revenues.
Repaying stimulus debt through green taxes has a number of
First, there are efficiency reasons to complement the carrot of
green subsidies with the stick of green taxes. The latter clearly
addresses the underlying problem, namely that private agents do not
fully take into account the negative climate externality of CO2
emissions. By contrast, the carrot of green subsidies is better suited
to dealing with a narrower and positive externality — the spill-over
effects of technological innovation aimed at reducing CO2 emission.
Second, green revenues not only improve environmental but also
fiscal sustainability. A credible commitment by countries under fiscal
pressure on how they will repay their debts could serve to reassure
financial markets. Even countries like Ireland without the fiscal room
for maneuver for discretionary fiscal measures might be tempted to
participate in the greening of part of its debt.
Third, green debt makes the case for coordination of fiscal stimuli
even more compelling. Such coordination could address fiscal and
environmental free-riding at the same time: All countries that commit
to a fiscal stimulus would thereby automatically commit to increase
their CO2 taxes at a later stage to service their green debt.
Only a couple of years ago, this proposal would have been completely
unrealistic. Ironically, the threat to fiscal sustainability during
this economic crisis may be decisive in helping our economies to move
toward environmental sustainability.
Jakob von Weizsäcker is a resident
scholar with Bruegel, a think tank in Brussels partly funded by 16 E.U.
JUNE 4th 2009
German Chancellor Angela Merkel's attack on the Quantitative Easing
policy of the UK and US must indicate she has been got at by an
old-school economist trying to fight the inflation of the Weimar
Republic. Good grief, Charlie Brown, can we please move on? Do they
forget Hitler put Germany on its feet by proper quantitative easing?
OK, they want ot forget that, but seriously, the basis of today's
quantitative easing poilicy is that it is a global operation to restore
global liquidity and has to be done across the globe in a coordinated
way. Done right, it will not only not cause inflation it will not raise
national debt. Get with the beat, baggy for goodness sake.
JUNE 5th 2009
I am pleased to see Jean Claude Trichet, head of the European Bank, has
rebuked Angela Merkel and stated clearly the bank is independent and
will pursue its policies, which will be agjusted as required and are
under constant revue.
JUNE 24th 2009
Now, both Trichet at the Euro Bank and our own dear Governor are
panicking about the degree of quantitative easing, for two reasons as
far as I can detect: first because it is working and must be reined in
before it gets out of hand. They feel that it could become a habit, and
also that if it grows as a percentage of the forces of economic
velocity it could be come harder to check. All that is true but
simplistic. We now need to move toward QUALITATIVE EASING which will
limit Quantitative Easing to vital areas of the economy that are
essential for the NEW ECONOMY. The danger is that any recovery that
rebuilds our old economic road to perdition will seem attarctive to the
old players who were making easy money before. So I am with Trichet and
Mervyn King as long as they understand Climate Change and what to do
about it. They never used to, but maybe they do now.
As for 'Green Shoots' and the overall ups and downs of stock markets,
forget'em. Qualitative Investing, chaps, please.
JULY 9th 2009
The Bank of England holds the interest rate at the effective bottom and
stops the Quantitative Easing for the moment, presumably while they
manage the funds they have already prepared. That looks right to me.
Perhaps we can now ease off on the talk altogether and concentrate on
That action has to be internationally coordinated and will add up to
Global commitment to financing (by equitable means) the technical
move to achieve the required reduction of carbon dioxide and other
greenhouse gases. If we concentrate on international Qualititative
Easing on all fronts we can move to green growth. It is going to hurt,
so let us hear no more guff from the underdeveloped nations that
nothing that is agreed should bring any hardship to them. It will bring
hardship to many in both the deveoped, undeveloped and failed
economies, but the voluntary hardship I am referring to is nothing
compared to the suffering that will ensue if we start wittering on
about justice and blame for past history and fail to reach agreement
that results in action at national levels as a result.
JULY 19th 2009
An interesting discussion between Patrick Minford and Richard Caborn
about descriminatory and indescriminatory government support, taking
the British Steel industry as a crucial example. Minford says general
expansion by government finance must use market forces to decide who
are the beneficiaries. Caborn says it was the free market that caused
the trouble we are in. Curiously, Minford is winning this argument on
the basis that rebuilding the old economy is a mistake. Caborn sees the
imperative of keeping our national industry and skills in the steel
business alive so it is there when the recession eases. He claims we
highly competitive. There is right on both sides here - no easy answer,
but whichever road is taken it will succeed if followed through by
government, management and workforce. If there are any industrial
relations problems, we should forget it. A very deailed analysis is
I am in favour of discriminatory government support to get new Green
industries and Greening of existing industry. They should of
course be exposed to market forces but not the market forces of a
public or financial sector not driven by Climate Control. How this
affects our steel industry, global steel and steel demand I do not
know, but this should be studied.
JULY 20th 2009
The Tory Part has published some plans for financial regulation in the
UK should they come to power. They have got it slightly wrong. Some new
powers they propose for the Bank of England, which would allow them to
prevent bubble-inflation in e.g. housing by means outside just setting
the base interest rate, are essential and should have been within the
Bank's remit for the last 30 years. On the other hand the plan to scrap
the FSA and its role and duties is completley wrong. It is important
that the Bank of England with some new powers should NOT take over the
role of the FSA.
AUGUST 6th 2009
I congratulate the Bank of England from refraining from all discussion
during past weeks and announcing today they are continuing with more
Quantitative Easing in view of the need as they have analysed it. There
is no inflationary risk from excess demand, the banks are still
rebuilding their reserves as serious losses are finally consolidated by
some. Less talk more action was what I asked for, this is it.
The Bank of England's rate-setters have decided to
pump another £50bn of new money into the economy in their
It will take their total spending to £175bn, unexpectedly
going over the £150bn set aside by the chancellor.
SEPTEMBER 03 2009
Problems with the stimulus package in the US:
Progress with banking regulation in Europe:
SEPTEMBER 15th 2009
Contrary to some comments below, there is no U-Turn, no change of
policy, and no announcement about 'cuts' other than what make sense in
the middle of a global financial crisis and Britains special role in
All is not well, but our Chancellor and PM are well informed. They
could do more without confusion sown by our bumbling political
opposition parties in the hope of currying public favour.
We could do with a separation of certain types of banking and lending
Those who say it was wrong to let Lehman's go bust are wrong too - it
If people here understood the importance of the EU we could move faster.
We need GREEN GROWTH backed by legislation to encourage it. Sometimes
that could be the relaxation of legislation where this favours Green
Growth. But we need less overall growth and less overall credit.
make cuts, Brown tells TUC
Gordon Brown has admitted for the first time that spending
cuts will be needed, in a speech to union leaders.
The prime minister said he would "cut costs, cut inefficiencies, cut
unnecessary programmes and cut lower priority budgets".
But he said Labour would not "support cuts in the vital front-line
services on which people depend".
The Tories say he had made a "grudging admission" on cuts. The Lib
Dems have urged "serious proposals" to cut debt.
In a speech to the TUC in Liverpool Mr Brown said "hard choices"
He added that as Britain moves "into a full recovery we will invest
grow within sustainable public finances - cutting costs where we can,
ensuring efficiency where it's needed, agreeing realistic public sector
pay settlements throughout, selling off the unproductive assets we
don't need to pay for the services we do need".
In the wide-ranging 35-minute speech on the economy he
also said he would be "demanding that internationally we look at
setting limits on city bonuses".
The "C" word concession was not the big message in his speech to the
TUC. It was, instead, the U-turn needed to allow that message to be
Nick Robinson BBC political editor
He said, "when the recovery comes" a Labour government would
to raise the minimum wage every year" and got a round of applause from
union delegates when he said he would be "arguing that we should
implement a blacklist on uncooperative tax havens".
Mr Brown also said from April 2011 fathers would get
the right to take up to six months' paternity leave, six months after
their child was born, if the mother decided to return to work.
Mr Brown said voters faced a choice between Labour,
which would "protect and improve your front line services" and the
Conservatives, who would "reduce public services at the very time they
are needed most".
Union leaders have warned of possible strikes if public sector jobs
put at risk and the BBC's chief political correspondent Laura
Kuenssberg said there were some stony faces in the audience as Mr Brown
gave his speech. Some delegates held up "no cuts" posters.
Tony Woodley, the joint secretary of the Unite union,
told the BBC Mr Brown had shown he was "on top of the game" and had
said he would not cut costs that would affect frontline services. "I
think Gordon Brown's got it absolutely right here," he said.
“ They have completely collapsed and are in
full retreat ”
George Osborne Conservatives
But Mark Serwotka, head of the PCS union, said he "wasn't very
impressed" and was particularly concerned about Mr Brown's pledge to
reform "Whitehall early exit scheme payouts for early retirement".
He told the BBC it meant Mr Brown was "going to get rid
of people on the cheap" and said there was "not much for me to smile
about or more importantly, six million public sector workers".
Public spending is set to be a major issue in the run-up to the next
election as the government defends its plans to halve its budget
deficit - expected to reach £175bn this year - within four years.
The Conservatives have claimed that spiralling debt
levels will force Labour to push up interest rates and taxes and do
long-lasting damage to the economy.
“ The prime minister clearly has had to change
Vince Cable Liberal Democrats
Shadow chief secretary to the Treasury Philip Hammond said the prime
minister had been forced into a "grudging admission" that cuts would
have to be made.
"What we still didn't quite hear is an overall
recognition that there will have to be cuts in the total of public
spending, as his own Budget published in April predicts," he told the
"Nonetheless, he is there. Finally, after spending
months denying that a Labour government would have to implement cuts,
months trying to pretend that there wasn't a problem, he has finally
been forced into a U-turn of sorts."
Liberal Democrat Treasury spokesman Vince Cable told
the BBC: "The prime minister clearly has had to change tack - he must
have been the last person in Britain to recognise that there has to be
a proper detailed approach to the problem of public sector cuts. The
public are ahead of the politicians on this."
SEPTEMBER 21st 2009
It is all very well the IMF saying Europe, America and others should
take the IMF's advice, but the point is this advice has in the past
been based on poor economic modelling and it is not clear to me they
have really understood the new situation. I though they had - maybe
they have, but it is still not clear.
We do need a different approach if the world is to get Green Growth,
adequate employment levels and a reasonably stable but still dynamic
monetary and financial environment. The following leads me to believe
they understand the problem, but do they see the solution? We need a
global currency other than gold or the dollar to be the IMF Global
Reserve currency. Then we have to work out rules for its use and
U.S. to push for new economic world order at G20
Monday, September 21 09:19 pm
The United States wants world leaders to
agree this week to launch a major rethink of the world economy in
November as they try to strengthen the global economy after its near
outlining the U.S. position ahead of the September 24-25 Pittsburgh
summit of Group of 20 leaders said exporters, which include China,
Germany and Japan, should consume more, while debtors like the United
States must boost savings.
world will face anaemic growth if adjustments in one part of the global
economy are not matched by offsetting adjustments in other parts of the
global economy," said the document obtained by Reuters.
Obama, cutting through the coded diplomatic courtesies, made the
case more bluntly for a change in business as usual.
can't go back to the era where the Chinese or Germans or other
countries just are selling everything to us, we're taking out a bunch
of credit card debt or home equity loans, but we're not selling
anything to them," he said on Sunday.
The framework proposed by U.S. policy-makers foresaw "candid,
even-handed and balanced analysis" of G20 members' economic policies by
the International Monetary Fund to figure out if they were consistent
with balanced growth.
call on our finance ministers to launch the new framework by November,"
the document said, signalling a determined effort to maintain the
momentum for change created by last year's global financial crisis.
Finance ministers and central bankers from the G20 countries are due
to meet November 7-8 in Scotland.
IMF will play a central role in this process of "mutual assessment" by
making policy recommendations to the G20 every six months based on its
assessment of global economic developments and emerging patterns of
Taxpayer money to the tune of $5 trillion (3.08 trillion
pounds) has been pumped into the world economy to keep it from seizing
up since the beginning of the crisis last September.
will maintain that pace of stimulus while acknowledging that at some
point it will have to be wound down, the document said.
mindful of how a disorderly rush to raise interest rates could roil
world markets again, they will also ask finance ministers to thrash out
a "transparent and credible" exit strategy.
There were no details
of how to achieve this in practice, but the document echoed the caution
of G20 finance ministers at their meeting in London earlier this month
acknowledging the pace of change would vary by country.
scale, timing and sequencing of this process will vary across countries
and across the type of policy measures," the document said.
Central Bank President Jean-Claude Trichet said on Monday that
persuading Europe, the United States and China to accept International
Monetary Fund advice on economic polices may be difficult.
In the past many countries have ignored advice dished out in regular
reviews by the IMF.
told French newspaper Le Monde that the G20 had made progress on
reforms to make the financial system more stable after the crisis.
the most difficult question is still open: Europe, America, China, are
they ready to modify their macroeconomic policies in the future -- by
following the advice of the IMF and under pressure from their peers,
for the common good, and world economic stability?" he said.
sources told Reuters there was a renewed determination to act to stem
the global imbalances because the crisis had underlined the
interconnectedness of the financial system and how joint action could
be more effective.
(Additional reporting by Anna Willard in Paris and Darren Ennis in
Brussels; Editing by Chizu Nomiyama )
SEPTEMBER 24th 2009
Baroness Vadera has been a key thinker and player is saving the global
financial system from collapse. If she can help to explain to the G20
what needs to be done and how to do it, there is a chance we can
stagger out of this situation heading in the right direction: Green
stepping down as minister
Baroness Vadera is stepping down as business minister to take
up a new role advising the G20 from Downing Street.
She will focus on the institutions needed to implement the
of sustainable and balanced growth" to be agreed this week by the G20.
The former investment banker was a senior Treasury
adviser to Mr Brown when he was chancellor and has remained one of his
key aides since becoming PM.
A sometimes controversial figure, she became a minister in January
Mr Brown, speaking in New York, said he was "delighted" she had
accepted his invitation to take up the job.
"The G20 is an increasingly important global group. The previous
has shown the vital importance of working together to deliver jobs,
growth, and stability. In her new role Shriti will significantly
strengthen the UK's engagement with the G20, including working with the
Republic of Korea as the next chair," he said.
Business Secretary Lord Mandelson said she had made a "tremendous
contribution" to his department.
"She has worked tirelessly to ensure businesses, especially small
businesses, are supported through the recession and emerge stronger at
the other side," he said.
"Shriti has real passion for the G20 and has done excellent work
already promoting international action to tackle the financial crisis.
So this is a logical move for her and us."
She will be replaced as minister for competitiveness,
small business and enterprise by Lord (Mervyn) Davies, who is also a
former City banker.
In her new role - for which she will not get a
ministerial salary - she will effectively be employed by the South
Korean government - which is shortly to take over the G20 presidency -
but would continue to be based in the cabinet office.
Baroness Vadera first hit the headlines in 2001 during
the nationalisation of Railtrack after she reportedly called small
investors in the company "grannies".
And earlier this year, she was criticised for claiming
to see "green shoots" of economic recovery on a day when large job
losses were announced.
BBC business editor Robert Peston said: "As Gordon
Brown's closest adviser on economic and financial matters, she will be
seen as working on what he hopes will be his legacy - a formal
structure for creating a more stable global economy."
SEPTEMBER 26th 2009
The last paragraph of this analysis is as important as the rest. I
would just add that the G20 has to succeed in bringing some order and
direction to global financial policy and, even if it does not succeed
in preventing some of those who by dint of their position and ability
with the levers of electronic dealing from creaming off profits on
successful operations, that the fruits of their labours are guided
transparently into an investment process that is not the making of
the making of sustainable wealth.
Analysis: Can G-20 succeed where G-8 failed?
– The world's most exclusive club has just gotten bigger, and it is
promising a lot of big things for the global economy. But it is likely
to have just as much trouble delivering results as the smaller group it
Leaders of the Group of 20, holding their third summit in less than
a year, proclaimed that the 21st century needed a new way of
coordinating the global economy to replace the much smaller Group of Seven and
later the Group of Eight that ruled over economic decision making for
the past three decades.
Going forward, it will be the G-20 calling the shots. That means
that the old economic
powers — the United States, Japan, Germany, France, Britain, Italy, Canada and
relative newcomer Russia
— have now been joined by fast-growing developing countries like China, Brazil and India.
The old leaders were effusive in their praise of the expanded club. British Prime Minister Gordon
Brown said the new grouping would be the "premier economic
organization for dealing with economic management around the world."
President Barack Obama,
But despite the lofty rhetoric, the results the G-20 managed to
produce in Pittsburgh
looked very much like the mishmash of proposals that have been produced
through the years by the G-8: lots of lofty goals but few specific
That shouldn't be surprising
since the process of getting results is the same. Before the leaders
sit down together, their aides spend hours working on the details of
Getting a bunch of
government bureaucrats in a room for lengthy negotiating sessions
invariably means that any bold proposals get whittled down to the
lowest common denominator to meet objections from other countries.
France and Germany
called for tough caps to penalize greedy bankers, an effort that ran
into objections from the United States. The result: a proposal that
calls for banking regulators to do a better job of linking pay to
performance but without any binding caps. This is a disappointing
outcome for voters already angry about a return of significant paydays
for bankers whose institutions received massive government bailouts only a few
Likewise, an effort by the United States to avert another financial meltdown
by forcing all countries to adhere to stronger capital standards seems
destined to fall short of its lofty goal of preventing the next
On its surface, the
idea seems sound. Banks got in trouble last year because they did not
have enough capital, the reserves used to cushion against losses from
bad loans and other sour investments.
G-20 did adopt the broad outlines of a tougher approach to capital, but
the effort is likely to run into heavy opposition between the
goal-setting phase and the implementation phase from banks upset that
the new rules could cut into their profits.
list of misses in the G-20's Pittsburgh communique is a lengthy one. In
some areas the best that can be said is that the countries agreed to
keep talking about thorny problems they have already been debating for
One example is the lengthy drive by China
and other fast-growing developing countries for more of a say in the
running of international lending institutions such as the International
Monetary Fund and the World
that issue, the G-20 agreed to move toward equalizing the voting power
of developed and developing nations but left many tough decisions for a
In some cases, the rhetoric
did not match reality. For their third straight meeting, the G-20
promised to resist demand to erect protectionist trade barriers during
the current hard times, seeking to avoid the disastrous spiral of
tit-for-tat trade retaliation that deepened the Great Depression
during the 1930s.
the track record of the G-20 countries including the United States, the
world's biggest economy, has fallen far short of the promises. Just
last week, the Obama administration announced it was imposing punitive
tariffs on Chinese tire imports as the president moved to keep a
campaign promise to a key labor constituency, despite an angry reaction
from the Chinese
even with all the failings, the G-20 could still offer more promise
than the old G-7, if for no other reason than the right people are now
at the table where decisions are being made. It made no sense to
exclude China, now the world's third biggest economy, and such rapidly
growing economies as Brazil
and India from
the decision-making process.
whose country took years to crack the barriers keeping it out of the
G-7, took a philosophical view of the latest expansion, saying no
matter how big the ruling group, they need to be mindful of those left
"In the world, there are not just 20 countries, 20 economies,
and therefore we have to think how the G-20 can work with the other
countries that are not part of this club," Medvedev told reporters at
the conclusion of the Pittsburgh discussions.
EDITOR'S NOTE — Martin Crutsinger has covered G-7, G-8 and now G-20
meetings for The Associated Press since 1988.
OCTOBER 23rd 2009
I cannot for the life of me understand why it was 'expected' that the
recession would end now. Our exports are crippled by the collapse of
the finances of all our customers, the devaluation of the pound will
not force them to make purchases they can put off or even forgo till
their own re-growth demands. Our domestic demand for goods and services
will suffer from the severe cut back in all optional activity. Since
our main business was banking, that has been downsized and will add to
our problems. We are told 'every city analyst expected positive growth
in the third quater' - that's because they collectively talked
themselves into bidding up the stock market and were determined not to
be in on the ground floor of the rise. In fact most shares are no
overvalued. Our old economy will not and should not recover. It was not
soundy based, even if we had some great service and a few great
manufacturing industries. It was supported by a bubble of debt and
overpaid people making money out of money or administration that did
not produce wealth.
recession for UK economy
The UK economy unexpectedly contracted by 0.4% between July and
September, according to official figures, meaning the country is still
It is the first time UK
gross domestic product (GDP) has contracted for six consecutive
quarters, since quarterly figures were first recorded in 1955.
But the figures could still be revised up or down at a later date,
because this figure is only the first estimate.
GDP measures the total amount of goods and services produced by a
The pound fell sharply after the figures were released, reflecting
fact that many observers had expected the UK to have grown during the
It was down 1.7% against the dollar, at $1.6323, and down 1.9%
against the euro, at 1.0859 euros.
Quarterly growth of 0.2% had been expected in the figures from the
Office for National Statistics (ONS), although expectations had been
tempered by recent figures showing no growth in retail sales in
September, and a 2.5% decline in industrial output in August.
Hugh Pym, BBC chief economics correspondent
There's no disguising how grim these figures are. Almost every City
analyst expected there to be positive growth in the third quarter.
Instead it was negative.
That means the recession in the UK is the longest since modern
records began in the 1950s.
Germany, France and Japan have all come out of recession
technically and the UK hasn't. The decline has continued.
And the markets didn't really like the look of that. The foreign
exchange markets have been selling the pound.
There's every indication that it's going to be a long hard slog for
quite some time to come as the British economy tries to turn itself
The unexpected decline in the services sector was the key factor
the drop, with the distribution, catering and hotels sector performing
The UK economy's reliance on the service sector, and
financial services in particular, may be the reason why it is still in
recession when partners such as France and Germany exited in the second
quarter of this year.
The economy contracted 5.2% compared with the same
period last year, which was marginally better than the record figure of
5.5% in the previous three months.
It has now contracted 5.9% from its peak before the recession
The worse-than-expected GDP figures are likely to make the Bank of
England consider extending its policy of quantitative easing.
Quantitative easing is the central bank's policy of
printing money and using it to buy bonds from banks and other companies
to help stimulate the economy.
The £175bn already announced for the quantitative easing
have been spent by next month, so the third quarter GDP number will be
important in deciding whether to extend it.
Indeed, at the Bank's current rate of spending, it is expected to
have spent the whole £175bn in the next week.
As the next Monetary Policy Committee (MPC) meeting, at which
quantitative easing decisions are taken, is not until 4 November, that
would leave it with a week with no extra cash to pump into the economy.
The figures were "awful with no positive news" according to James
Knightley at ING.
"This clearly suggests that the likelihood of an expansion in
quantitative easing by £50bn or so over the next quarter is
although [it] is not a foregone conclusion."
Former MPC member Professor David Blanchflower said the negative
GDP figures should not have been a surprise.
"There's been very little sign among firms that things were very
much better," he told the BBC.
"The public seems to have some more confidence - they seem to have
believed the talk about green shoots, but actually the data haven't
really looked that way at all."
The bottom line is that we should take this as very much a first draft
of UK economic history - but clearly a disappointing one ”
Stephanie Flanders, Economics editor
Analysts said it is worrying that the decline has continued despite
stimulus measures that the government and the Bank of England have
"Continued intervention - including help for businesses
to access finance, and incentives to promote investment - is still
needed," said David Kern, chief economist at the British Chambers of
"Above all else, business confidence must be nurtured, to ensure
that recovery is not further delayed."
Chancellor Alistair Darling said he had never expected to see
growth before the end of 2009.
"Our job is to support the economy as we come through towards
recovery," he said.
"[Growth] will come - I'm confident about that - and I'm confident
businesses and people generally will begin to see a difference, but it
will take time."
Shadow chancellor George Osborne described the figures as "deeply,
"There are many millions of people who will be deeply concerned to
that Britain is still in recession six months after France and Germany
came out of recession," he told the BBC.
"It destroys the myth that Britain was better prepared."
Liberal Democrat Treasury spokesman Vince Cable said the figures
were "a cold blast of realism".
"We've had a lot of talk recently based on a booming stock exchange
prices of luxury houses in London that somehow this problem was at an
end, and it isn't," he said.
One of the measures expected to be a particular help in the final
quarter of the year is the change in VAT.
The rate of VAT is due to return to 17.5% from 15% at the beginning
January and consumers are expected to step up their purchasing ahead of
NOVEMBER 6th 2009
Today, commentators and members of the political opposition are
demanding that the Government take action to 'put the UK economy on a
sound footing'. They appear to be unaware that governments do not
create wealth, invent new products, discover new energy resources. The
modern UK economy was built by adventurers and pioneers, with
government as it gradually evolved holding the ring and creating
legislation to bring national coherence - that means peace at home and
holding the ring abroad between other nations that could bring
instability and danger to the trade that brought food and materials to
build our modern society.
These days, our European culture has spread worldwide, along with the
manufacturing and agricultural expertise that once gave us the means to
compete and win in the global games of common wealth. All our
government can do is run our domestic affairs and foreign policy in
ways such that we, the people, can come up with goods and services that
humanity demands for its survival and wellbeing. It cannot do more than
allow this to be possible unless we turn to a 'command economy' and
history has shown that this is unlikely to compete with private
enterprise in producing the goods and services that win global markets.
The Quantitative Easing programme the UK government has put in place is
absolutely essential to replace the disappearance of vast amounts of
'funny money' that had no reality. That is why it is not inflationary.
It is then up to the banking sector and individuals of talent to put
the funds to work. Up until now, the 'market' has been the desires of
those with money to purchase, with only national and international laws
on poisons and armaments and export/import controls to regulate demand
in so far as it proved possible. The ability of any government to
artificially protect its domestic industry is limited. That being the
case, the only forward-looking action the government can take is to
make sure that Britain is not hampered in developing practises and
industries that are adapted to the demands of the next century.
Quantitative easing must be enhanced by Qualitative Easing, both by
government (with legislation that favours 'green' goods and services)
and bankers who take the long term view in supporting all enterprises
that show a reasonable prospect in this area. This should be taken into
account when reading the simple analysis below.
November 6, 2009
The Big Question: Is quantitative easing creating more problems than it
By Sean O'Grady, Economics Editor - The
Why are we asking this now?
Because the Bank of England's Monetary Policy Committee - which
comprises bank officials as well as outside independent advisers - has
voted to expand its policy of "quantitative easing", colloquially known
as printing money, by a further £25bn to a staggering
£200bn. That's almost three times the initial dose agreed in
March, when the Bank thought that £75bn ought to do the trick,
though even then it thought it might take up to £150bn.
Evidently, the economy has not been responding to the medicine with the
alacrity once hoped for.
So what exactly is 'quantitative easing'?
An unlovely name for a fairly straightforward idea. The "quantitative"
bit refers simply to the fact that the Bank is directly altering the
quantity of money in the economy, rather than the price, or interest
rate, which has been set at 0.5 per cent since March, the lowest level
in the Bank's 315-year history. The "easing" bit merely means that the
Bank wants to make money easier.
Given that "negative interest rates" are very hard to engineer, and
official rates are already about as close to zero as practicable, the
Bank's minds have turned to how to inject more money and spending. The
answer - QE as it's known for short - is supposed to provide an
adrenaline shot for the economy, a direct injection of money to help
boost demand and spending and, in due course, get inflation back to the
Bank's 2 per cent target. Although it isn't far off that number now,
the Bank thinks underlying inflation in the economy will continue to
subside given the weak state of demand.
So are the bank's printing presses working flat out?
That would be an old-fashioned way of going about things. Nowadays
money is about much more than the notes and coins in circulation. Think
of the money you hold in your bank account, which is electronic money,
numbers on a spreadsheet or some other piece of software, with not even
a piece of paper with the Queen's image on it to back it up in some
vault, let alone gold or silver. Magical, really.
How do you increase the amount of money in the economy?
The way the Bank of England has chosen to do it is to create "central
bank money", offering money to holders of government securities, or
gilts, at twice weekly "reverse auctions". Bodies such as pension funds
are offered a very good price for their gilts, and they sell them to
the Bank of England. The money the pension funds receive is then banked
at Barclays or wherever, and the account that Barclays holds with the
Bank of England, a sort of bankers' bank in this case, is credited.
No picturesque, nicely engraved bits of paper fly around. Even the
gilts have been "dematerialised" nowadays, so it is all computerised,
but real nonetheless. Smaller quantities of bonds and other securities
issued by the private sector have also been bought by the bank, on the
same principle of putting money into the economy.
But won't this process cause inflation?
Yes! That is the general idea, at least if you think that deflation -
falling prices - are now the problem rather than rampant inflation, as
the Bank does. The Bank is worried that demand in the economy is so
weak that we won't even see inflation going back to the 2 per cent
target as next year drags on. The Bank has to work with unusually long
and variable "lags" with QE. It doesn't know when it will make its
presence felt, as the country has never before tried this policy in
these sorts of conditions. The Bank has indicated that it takes at
least six months for the policy to work through and maybe much longer.
Some people are still worried that the Bank's policy will deliver
higher inflation over the next few years, if it isn't able to reverse
its policy easily - the so-called exit strategy.
So how does it work?
Just by putting more money, which ought to get spent somehow, into the
economy. The main effect has been to boost the capital markets, ie
shares and corporate bonds. Hence the remarkable recovery in the stock
markets since their low point in the spring, though some see this as
just new, unsustainable "bubbles". The idea is that companies are able
to raise funds and spend them on new investment, and the effects
trickle down through the rest of the economy. The mechanism is fairly
easy to see. The Bank's appetite for huge quantities of gilts pushes
their price higher and thus depresses their yield on any given
"coupon", or nominal interest rate. As pension funds and other
investors look at the pitifully small returns now offered on gilts,
they are more inclined to invest in - say - blue-chip shares or top
rated company bonds. But all securities seem to have enjoyed some sort
of benefit. Even the banks have been able to raise extra cash through
issues of new shares, and some heavily indebted companies that thought
they might go under have been able to persuade their bondholders to
swap those debts for shares. We have even seen some revival in the
market for a cleaned-up version of mortgage-backed securities, which
got such a bad name for themselves during the credit bubble.
Why isn't the economy growing then?
A few problems seem to have grown up. First, QE appears to be helping
really big companies who have access to the capital markets, but has
been less use to smaller firms and first-time home-buyers, who rely on
bank finance. There was some suggestion from the Bank at the beginning
of the policy in March that the banks would lend more as they found
themselves with more money, but that seems not to have happened -
presumably because so many of our banks are bust or nearly bust.
Second, even in the case of the bigger companies, there is some
evidence to suggest that all they are doing with the cash they raise is
to pay off their debts, rather than spending lots on new plant and
machinery or hiring new staff.
Third, we seem to have suddenly lost our historic appetite for consumer
debt. We've been paying our credit card bills and bank loans, and we
are saving more too, despite the absurdly low interest rates being
offered by banks and building societies. The argument here is that the
Bank should have done even more, and sooner, to prevent this
"deflationary mindset" taking hold.
What if QE fails?
It's fair to say that we would probably be in even worse trouble if the
Bank of England (and other central banks around the world) had not
pursued this policy - though it is impossible to imagine precisely
"what might have been". You could argue that QE cannot fail in the
sense that there is always more that the Bank can do. Mr King and his
colleagues possess a theoretically unlimited capacity to buy gilts and
other assets with money they create at the stroke of a computer
keyboard. But the efficacy of the policy isn't necessarily increased by
just throwing more money at it.
Given the parlous state of the public finances, the Government has no
scope to spend our way out of trouble, even with the Bank buying its
debts (indirectly). So - worryingly - the authorities seem to be
running out of ideas.
DECEMBER 3rd 2009
My readers will know that I approve of Timothy Geithner and his
economic policies. First things first. He did well. Now he must start
pay attention to the critics but thank goodness he ignored them earlier.
Here are the various views:
JANUARY 22 2010
As has been pointed out, the UK never had an equivalent to the
Glass-Steagall act to separate investment and high-street banking
rules. Obama is now taking on Wall Street, not by a direct restoration
of Glass-Stegall but by making it clear that there will be new
controls. In the UK, we have taken some measures which also make sense
for us. The next stage will be internationational coordination to make
the various global, European and US measures work in harmony to bring
stablistation. We do not want controls to cause spasmodic reactions.
When that is done, further sensible measures can be taken.
While unemployment is not running out oif control we should expect to
see recovery slow down now as much of such recovery as there was in the
financial sector was not particularly healthy or green or indeed
anything more than a respite from what would otherwise have been a
global collapse, enabling banks in the USA to make enough money to
repay some to the US treasury. We should expect the stock market to
steady and even fall on occasions.. Anything else would be
JANUARY 25th 2010
Although this file deals with the short term, it may be as well to bear
in mind the longer term considerations.
Whether the following makes sense depends very much on the exact
definition of Economic Growth.
Economic growth 'cannot continue'
Continuing global economic growth "is not possible" if nations
tackle climate change, a report by an environmental think-thank has
The New Economics
Foundation (Nef) said "unprecedented and probably impossible" carbon
reductions would be needed to hold temperature rises below 2C (3.6F).
Scientists say exceeding this limit could lead to dangerous global
"We urgently need to change our economy to live within its
environmental budget," said Nef's policy director.
Andrew Simms added: "There is no global, environmental central bank
to bail us out if we become ecologically bankrupt."
None of the existing models or policies could "square the circle"
of economic growth with climate safety, Nef added.
'No magic bullets'
In the report, Growth Isn't Possible, the authors looked at the main
models for climate change and energy use in the global economy.
Magic bullets - such as carbon capture and storage, nuclear or even
geo-engineering - are potentially dangerous distractions ”
Dr Victoria Johnson, Report's co-author
They then considered whether economic growth could be maintained
"retaining a good likelihood" of limiting the global average
temperature to within 2C of pre-industrial levels.
The report concluded that a growth rate of just 3%, the
"carbon intensity" of the global economy would need to fall by 95% by
2050 from 2002 levels. This would require an average annual reduction
However, the authors said that the world's carbon intensity had
"flatlined" between 2000 and 2007.
"For each year the target was missed, the necessary improvements
would grow higher still," they observed.
The findings also suggested that there was no proven technological
advance that would allow "business as usual" to continue.
"Magic bullets - such as carbon capture and storage,
nuclear or even geo-engineering - are potentially dangerous
distractions from more human-scale solutions," said co-author Victoria
Johnson, Nef's lead researcher for the climate change and energy
She added that there was growing support for
community-scale projects, such as decentralised energy systems, but
support from governments was needed.
"At the moment, magic bullets... are getting much of
the funding and political attention, but are missing the targets," Dr
"Our research shows that to prevent runaway climate change, this
needs to change."
The report concluded that an economy that respected environmental
thresholds, which include biodiversity and the finite availability of
natural resources, would be better placed to deliver human well-being
in the long run.
JANUARY 31 2010
The UK recovery is put at current growth of 0.1% - that's all I
would expect for the moment. We should be grateful recession is halted.
The economy can only be rebuilt on growing exports, world class service
industries and tourism, anda reformed banking system which can of
course take risks just as long as it is not run by self-serving crooks.
The economy is still on public life support. However, remarks by
Cameron and Osborne about the UK economy this week have been stupid and
destabilising. If the public ever put these two chumps in charge of
anything it would be a disaster.
5-day Davos forum ends on note of humility
Switzerland – The world's foremost gathering of business and government
leaders wrapped up a five-day meeting Sunday with widespread agreement
that a fragile recovery is under way but no consensus on what's going
to spur job growth and prevent another global economic meltdown.
FEBRUARY 3rd 2010
It is becoming apparent that many countries in the developed, advanced
world are having great difficulty in stabilising their economies after
the shock of the global credit crunch. All those who were hiding an
intrinsic vulnerability and living beyond their means while hiding
behind the veneer of global growth are now in danger of being exposed.
The collective solidarity engineered by balanced quantitative easing is
coming under strain. While Greece is an obvious case, where a
completely false accounting system lies exposed, the UK is also under
strain because it carries an abnormal defence budget, a burden many
might well see as a legacy from the past defence of the free world from
fascist and communist totalitarian dictatorship, and more recently as a
more than fair share of Europe's security.
Added to our extended military commitment and equipment (which
incidentally was only saved from earlier collapse by the discovery of
our own North Sea Oil fields) we were living beyond our means by
allowing our high street banks to make up for failing businesses and
bad debts and fraud over many years by using public funds in what we
now call 'casino banking' to great effect. It is salutary to learn that
the US abandonment of the Glass-Steagall act was prompted by the fact
that the UK had no such act and, when the stock exchange went ballistic
with the so-called big-bang, the US feared not being in the lead. The
anglo-saxon world thus lead itself over the cliff. Nigel (now Lord)
Lawson had no idea what was going on, ever, and is still behind the
The US, in a bigger bind than the UK, is also better able to blast its
way back. The UK has become overdependent on is service and banking. We
have a serious lack of raw materials other than coal, and the oil and
gas will run out. Tide, wind and nuclear can come in and water can be
improved. The advantage of being an offshore island now has some great
disadvantages as well so we have to use the advantages. It does
not help that the lure of party-political advantage leads Cameron and
his party to run-down the UK position to the whole world. He seems to
think we should start to panic about our credit rating. before doing
that we should have good look at many other countries. Our position is
complex. There is a lot we can do to improve it, but a lot of catch-22
problems as well. Our greatest asset should be our people, and that is
where a worry lies in my view. A country that is losing pride and trust
in its institutions is in trouble. We have no reason to do this, most
of our institutions are excellent - I include our Parliament - but we
are being seriously undermined by the fragmentation of our society and
perceptions of reality that are so opposed as to sew distrust and
FEBRUARY 6th 2010
I am glad to see the world's financial leaders are focusing on these
recent developments. We have avoided the abyss so far by acting
cooperatively in a balanced way. Now, when we have to see
belt-tightening in those economies that have been irresponsible and
frankly dishonest on a national fiscal scale, the difficulty of
achieving cordinated level of quantitatve easing is becoming apparent.
In the UK, Q.E has rightly been put on hold, to be revived if
appropriate. In the Euro zone, such support can only be used if honesty
is restored to some national accounting systems. What appears to be
paradoxical can be achieved for the very reason that it will force
transparency. Devaluation of a national currency can never solve the
problems that caused it if the very national economic system itself is
corrupt. So, now we shall see if markets, the name we give to herd
mentality driven by embedded key motivators with different means and
motives, will panic, oscillate wildly, or simly stagnate. We shall see
if the high flying players in the Davos set and the more staid
professionals of some standing can find common ground to help stabilise
the global scene; or we may see that control is neither possible nor
necessary. Ideas such as 'double dip depressions' are simplistic,
seeking reassurance from past patterns. We are in new territory. That
may hurt, but it's good.
World financial leaders focusing on budget crises
IQALUIT, Nunavut – A crisis in Europe
over budget belt-tightening has upended global markets and seized the
attention of financial leaders meeting in the Canadian Arctic.
and central bankers from the Group of Seven major industrial countries
also planned to try on Saturday to settle differences on banking
industry changes. There are that go-it-alone action such as President Barack Obama's
Minister Jim Flaherty hoped his choice of the remote town of Iqaluit,
population 7,000, where temperatures can dip to 40 degrees below zero
in February, would make officials focus on the task ahead.
The United States was represented by Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben
Bernanke. The G-7 consists of the United States, Japan, Germany,
Britain, France, Italy and
The agenda Saturday included on developments in the global economy,
banking reform and proposals for more debt relief to Haiti, recovering from
a devastating earthquake.
in Europe provided a sobering reminder that G-7 policymakers still face
major hurdles in repairing a broken global economy.
Portuguese parliament's defeat of a government austerity plan triggered
renewed concerns that it and other countries such as Greece and Spain were having
trouble tightening budget controls to manage their budget deficits. That
could threaten the economic recovery in Europe.
Stocks fell in Asia and Europe, while the Dow Jones industrial average clawed back
to a small gain after suffering the largest single-day drop in seven
months, on worries about the global economy.
"I think we have to be very mindful of the failure or potential
failure of domestic economies," Flaherty told reporters.
banking reform, the other G-7 countries were expected to press Geithner
to explain the announcement by Obama last month that the United States
would seek tougher rules to prevent risky actions by big banks from
toppling the entire financial system.
chief Alistair Darling
has led calls for more coordinated action. He has said that the U.S.
proposal does not address the biggest threat of the links between banks
that can quickly transmit loan troubles at one institution to the
Flaherty said G-7
countries agreed on the need to continue with government stimulus
programs to prevent the world from plunging back into recession. But
Germany and France
have expressed concern about how long stimulus aid should be
maintained. They worry about soaring budget deficits and the risk of
Obama presented a budget
plan this past week that would boost job-creation efforts and raise the
U.S. budget deficit to a record $1.56 trillion this year. British Prime Minister Gordon
Brown is also stressing government stimulus even though critics
point out that the country's budget deficit as a share of its gross
domestic product could reach 12 percent this year.
where the economy has struggled for two decades, the government
unveiled more stimulus spending last week.
Associated Press writer Rob Gillies contributed to this report.
FEBRUARY 7th 2010
Aha! I just heard Simon Johnson, former financial expert at the IMF,
put his finger on it. It is up to the EU now, not the G7 to sort put
the weak European economies with some tough support, exactly as I
recommend above and elsewhere and have for a long time. The strength
and stability of the Eurozone must be used properly. The use of
competitive devaluations within Europe is over and the quid-pro-quo is
shaping up and sticking to the Euro rules with Euro support.
FEBRUARY 10th 2010
Hedge fund managers are deriding the efforts of politicians to manage
such problems as the Greek fiasco. They are betting billions against
the Euro. Stiglitz, called in to advise the Greek government, is told
by the dealers there is no way out! There has to be, of course. These
hedge-manager viruses are very necessary, however nauseating they are
as people. They perform the same fuction that viruses perform in human
pathology, to punish the lack of integrity in systems, without regard
to perceived blame. Greece will be running a temperature soon, in fact
it already is, and its going to hurt. How much surgery will take place
is yet to be decided, how much medicine, how much assistance and how
the cost will be spread.... it's a very interesting situation.
In theory, the money made by the successful hedge fund investors (at
least those amongst them who are substantial and include serious
players, governments and institutions, should be recycled into those
parts of the Greek economy that have integrity, have estimable and
needed product and pay taxes on profits. How does the polticial and
economic world as a whole manage to direct its mechanisms to do this?
Market forces should do it when there is transparency and integrity in
national and international economic political dealings. How do we tend
in this direction? The only way is by discussing it in public in the
hope logic will emerge and obtain political support for rational
government. However, look at the Global Warming debate. The public
turns out to be useless, as it is confused and misled by the most
ridiculous of pied pipers who can point to a few mistakes, ridicule the
authorities they hold responsible, and play seductive and calming music
to lead millions into happy valley.
No doubt there are many rich Greeks, with funds in a basket of
currencies and hedge funds, who would be quite happy if either the Euro
went down or Greece reverted to its own currency, at which point they
would pounce on assets they were very familiar with in Greece. The
Greeks who riot and strike are, as in similar situations throughout
history, Greek nationalists who consider themselves slaves, this time
in the birthplace of democracy. They couldn't give a stuff for the rest
of the world or the global economy, not realising the extent to which
they depend on it or, alternatively, believing the job they are doing
could face an undervalued currency with equanimity. They will strike
and if they feel like it riot.
Not to worry, it will all come out in the wash, only trouble is many
in all walks of lifewill have gone down the plughole - not just
financially either. But as
Keynes said, in the long run.....
Here's Bernanke's next plan. Not so much a plan as going with the
inevitable flow, but that's not always stupid. While going with the
flow he aims to paddle his canoe intelligently to keep it the right way
Bernanke outlines plan for pulling in stimulus aid
WASHINGTON – Federal
Reserve Chairman Ben Bernanke began Wednesday to outline the central bank's strategy
for reeling in stimulus money once the economic recovery is more firmly
said the Fed will likely start to tighten credit by boosting the
interest rate it pays banks on money they leave at the central bank.
Doing so would raise rates tied to commercial banks' prime rate and affect
many consumer loans. Companies and ordinary Americans would pay more to
in prepared remarks to a House committee, Bernanke indicated the Fed is
still months away from raising rates or draining most of the stimulus
money it injected to rescue the financial system. He said the recovery
still needs support from record-low interest rates.
Fed chief used his remarks to explain how the central bank will try to
withdraw the stimulus money without tipping the economy back into
Using the rate it pays on banks' excess reserves
to affect credit would be a new strategy for the Fed. Since the 1980's,
its main lever to tighten or loosen credit has been the federal funds rate.
That rate is now at a record low near zero.
rate paid on banks' excess reserves is 0.25 percent. Boosting that rate
would give banks an incentive to keep money parked at the Fed, rather
than lend it.
It also would cause the
funds rate to rise, economists say. Adjusting the interest paid on
banks' excess reserves helps stabilize the funds rate when the
financial system is awash in cash, as it is now.
Paying interest on the reserves is a relatively new tool for the
Fed, having been authorized by a 2008 law. Many foreign central banks rely on
it. The Fed started paying interest on the reserves at the height of
the financial crisis
in October 2008.
In his prepared remarks to the House Financial Services Committee, Bernanke
lays out his most extensive details to date on the Fed's exit strategy
from record-low rates and economic
the threat of a major snowstorm, the panel postponed its hearing
scheduled for Wednesday. The hearing was intended to review the Fed's
plans for withdrawing its emergency supports. Bernanke chose to release
the prepared testimony.
and how to remove all the stimulus is the biggest challenge for
Bernanke in his second term, which started last week. Reeling in the
stimulus too soon risks short-circuiting the recovery. That could send
Yet the Fed keeps its stimulus measures in place for too long, they
could help unleash inflation.
repeated the Fed's pledge to hold rates at record lows for an "extended
period." Economists think that means for at least six more months. But
Bernanke cautioned that the Fed eventually will need to raise rates to
ease inflationary pressures.
before the Fed raises the rate paid on banks' excess reserves, it could
raise the rate it charges banks for emergency loans, Bernanke said.
That rate, called the discount
is 0.50 percent. An increase in the discount rate wouldn't affect
interest rates charged to consumers and businesses. But Bernanke said
it would help normalize the Fed's interest rate policy now that the
worst of the financial crisis has passed.
said he expected the Fed to consider a "modest" increase to the
discount rate. Such a move would not raise rates for households and
businesses and would not signal any change in interest-rate policy,
The Fed is still weighing the order of steps it can take to reel in
one scenario, the Fed would first use its tools to drain money from the
financial system. Then it would start pushing up rates throughout the
economy by boosting the rate paid on banks' excess reserves, Bernanke
But if a faster exit is needed,
the Fed could raise the rate on reserves even as it's using its other
tools to pull money from the financial system.
The Fed is fine-tuning one tool to withdraw money: By selling
securities from its portfolio with an agreement to buy them back later.
Those operations are called reverse repurchase agreements.
And the Fed is moving ahead on a proposal to let banks to set up the
equivalent of certificates
deposit at the central
bank. This, too, would help the Fed mop up money pumped into the
economy and prevent inflation from flaring later.
Together, those two operations — reverse repos and the CD-like deposit accounts
— would let the Fed "drain hundreds of billions of dollars of reserves
from the banking system quite quickly, should it choose to do so,"
Bernanke said he doesn't expect the Fed to sell any of its
securities anytime soon.
To fight the financial crises, the Fed pumped so much money into
the economy for lending programs that its balance sheet swelled to $2.2
trillion — more than double the pre-crisis level. The Fed will need to
mop up that money to prevent inflation later.
Bernanke said another economic support program aimed at driving
down mortgage rates and bolstering the housing market is on track to
end in March. By then, the Fed will have finished buying $1.25 trillion
in mortgage securities from Fannie Mae and Freddie Mac. It will also
have finished buying $175 billion in debt from the mortgage giants.
But the Fed hasn't ruled out continuing to buy mortgage securities
after then to support the economy.
FEBRUARY 11th 2010
The EU's Eurozone members have taken the right move. The markets have
given up on Greece, so it will be a loan not a guarantee if Greece asks
for financial support. With that loan will go some extremely serious
conditions, and the means of enforcing them will have to be planned.
Such means are perfectly possible providing transparency is enforced on
banks through out the EU, Switzerland and various other countries. The
world is awash with money because colectively it can indulge in
Quantitative Easing to replace some of the imaginary wealth that went
down the plug, and it has done so. It just needs great care and honesty
at the highest levels in order to avoid this being creamed off by three
general elements in society: the dealers who wish to
capture it and play it in the financial casino at speed rather than
sound investment, the wheeler-dealers at the other end of the scale
who play the street cards and the manipulation of the systems designed
for the support of those in genuine need, and the tax avoiders. Other
countries in the
Eurozone will have appropriate measures applied should they persist in
what I would call the mediterranean approach to accounting. This is a
problem that should be welcomed.
No need for the rest of Europe or the US to be smug as we each have our
own ways of hiding the truth and exploiting systems in order to justify
our pet theories about life, the universe and everything.
This sort of thing hardly helps:
EU assembly rejects U.S. bank data deal
BRUSSELS (Reuters) – The
rejected on Thursday an agreement with the United States on sharing
bank data, snubbing appeals from Washington for help in
The nine-month interim agreement went into force provisionally at
start of February but some deputies opposed it on the grounds that it
failed to protect the privacy of EU citizens.
Washington will now have to seek other ways to access information on
money transfers in
It says such data is vital to track terror suspects.
(Reporting by Justyna Pawlak; Editing by Dale Hudson)
FEBRUARY 25th 2010
I have filed a print of wisdom on the UK Treasury and 'How to Survive
as Chancellor' from The Independent here
It is worth reading.
FEBRUARY 26th 2010
It seems UK is certainly now growing again as an economy, however
slowly. Meanwhile the media are obsessed with The Chancellor's remark
that when he decided some time ago to point out that we were heading
into the worst recession for 60 years that 'The forces of hell were
unleashed' against him. He must now be regretting what was meant to be
a humourous exaggeration. Of course at that time anybody with more thah
2 working brain cells knew he was right, what shocked some was that he
came out and said it. However he was quite right to have done so. As
chancellor, it was his duty when the facts were clear and the global
situation beyond doubt, to be the first, not the last to put words to
the reality and address it publicly for the UK public and others to
hear. It is possible that Gordon Brown voiced the opinion, overheard by
his minions, that it was perhaps not the moment or the language to use
at that precise moment, for purely tactical reasons. It is possible
that his aides jumped up and down for a bit. But why this should be
thought of any consequence or evidence of a battle between Brown and
Darling is beyond reason.
MAY 4th 2010
The situation in Greece will not help the European financial recovery,
though they may not be a big purchaser of UK exports. There were three
The arguments against the first were
stronger than the arguments against the last, which meant the 2nd was
reached as an option.
- let Greece remain in the EU and in the Euro
but go bankrupt
- force Greece to leave the Eurozone
- support Greece through the ECB and the IMF
and the ECB with agreed participation by the main EU countries
The problem is the drastic cost-cutting required in return for the
support will be very deflationary and recessionary unless it were to be
reflected quickly in falling prices that aided the tourist economy. The
IMF and EDB support will reduce global liquidity even further as it is
filling a black hole revealed when the bogus Greek economy was exposed.
However, the fall in value of the Euro on the foreign exchange has only
occurred because dealers thought it would occur. They have to behave
like sheep or wait it out, and those who can't wait it out sell some on
principle. The reports of the death of the Euro are based on an
old-world economic view.
MAY 26th 2010
A high degree of panic afflicts stock markets right now, but only
because all fund managers are running for safe havens because if they
are last through the gate their future employment is at risk. God help
us from the managers of other people's money, whether the other people
are us, or not. The 'Motley Fool' whose spam many of you may
receive is betting on a crash and hoping to profit from it. There is no
need for a crash, for a double-dip, or for mass unemployment, yet we
could have all three. Commentators in the media are saying 'we shall
all have to work harder and longer!' - but this is not so at all. Some
of us could work better, but we have the means to serve all of our
needs with less working hours per person than ever before.
Unfortunately by panicking, dashing around and getting in each others
way as we try to always be in pole position we are causing significant
waste of energy, food, talent, good-will and opportunity. Admittedly we
have to compete, in the supply of many goods and services, with the
offerings of global resources with far lower standards of welfare. But
it is the abuses, not the uses we needs to cut down on, and the absurd
habits which drive us to do, buy, eat or demand what we really do not
need, in quantities we do not need.
As far as the Euro is concerned, there is no real threat to it BUT, as
Dominique Strauss-Kahn has said so succinctly; "Markets are asking
Europeans to work better together.
JUNE 7th 2010
The threat to the Euro which I described as unreal 2 weeks ago is was
the external one. However, an internal one is another matter. If
European economists and politicians decide there is not a
European Community that stands as one, that internal trust is not
soundly based, then of course the Euro is threatened. Europe could
destroy itself economically in the equivalent to the way it destroyed
itself militarily in two wars that involved the whole world.
In his latest message to the nation, our new Prime Minister has said
quite rightly that for the UK to get through the current financial
crisis means a serious change in our economic expectations. A lot of
pain, he forecasts. The purpose of the actions he aims to take is, we
have to assume, to reduce government borrowing while at the same time
not putting at risk the efforts to grow all those goods and services
that contribute positively to the balance of trade and the true balance
These actions can legitimately include a significant reduction in
public sector budgets where there are overpaid or underworked
functionaries, or inneffective organisations that need to be wound up
as a whole. There will surely be some that are not performing. However,
it would be well for Mr Cameron to remember that very little of the
past government's programmes were actually opposed by the Tories on the
grounds that they were doing too little or spending too little. Fixing
the roof while the sun was shining required a colossal investment for
reasons that are well known to all.
What is required now is a change of a very specific nature. It requires
us to cease our assumption that we can demand and expect levels of
national wealth and facility that increases year by year regardless of
the world outside our shores. While the private sectors is held to
account globally unless featherbedded by government, the public sector
is now in a trickier ball-game. It is subject to public demand that
wields a stranger weapon than money, that of supposed rights to service
that the nation as a whole should guarantees. Few Europhobes understand
the deeper reaches of the theories of money that lay behind the
contruction of the EU, the original iron and steel agreements, the
common agricutural policy, and all the subsequent treaties. Few of the
greatest movers and shakers in industry understand more than the basic
imperatives that drove them to success. "If we can put a man on the
moon we can get a midwife in every village", I have just heard some
American lady say. Melinda Gates, it is, I now realise. Such a nice
lady. But there is no train of logic here whatsoever. It is possible to
do both, even both at once, but one does not prove the other possible
or indeed have any influence on a reality that gives meaning to each or
The Euro can survive as the main European currency, Greece can get its
citizens to pay their tax, we can go again to the moon and build a base
their in due course but, more important, we can either do the immediate
things now to bring some stability to the economy, or we can let the
global economy self destruct, fragment, become a wasteland where
players with their fingers in various tills make fortunes and attempt
to stash them away. If Cameron governs this country properly, the UK
will still attract investment and be able to borrow at good rates
because it is moving on proper path.
11% of GDP is our deficit. It has to diminish, not rise. At the same
time we need the economy to grow, not shrink, and grow green. This will
require government action, government expenditure, and government
coordination to set the legislative framework in which market forces
and private enterprise can then do the necessary.
JUNE 27th 2010
The 'Structural Deficit' is the term used to define the imbalance that
growth will not cure because it is built in to the spending commitments
and the tax commitments. These two have to be balanced over a cycle of n years, n to be agreed in advance of course
and not too long! For Growth get rid of an actual deficit, it has to be
applied in such a way as to assist a steady move to get rid of the
structural deficit in such a way as to convince the many arbiters and
arbitragers of global finance that a given national economy is a
competitive risk when it comes to lending it funds, buying its bonds
and holding its currency.
Much of Europe has decided to swing suddenly from quantitative easing
to savage cuts on government spending. Timothy Geithner at the US
treasury has quite rightly said that ceasing to ease aybe OK, but to
follow it immediately by competitive, savage cuts is asking a bit much
of the world outside Europe to maintain a level of trade to support a
world accustomed to growth. Surely, what he says makes sense. We should
do the right thing, but carefully.
JULY 15th 2010
As part of the means of convincing the UK public that they have to
seriously reduce their expenditure (i.e. their relative standard of
living on the world scale) the government is acquiescing in, even
encouraging, the new fashion amongst economists of using all sorts of
statistics to explain to the unsuspecting the way modern national
finance has been working. By adding together all debts and calculated
future commitments, and calling them all liabilities, they come up with
a figure that averages £200,000 per household and have called
This is not strictly true, but it is useful to make people aware of the
extent to which the infrastructure of society is sustained through the
acceptance of the value of our currency, and tbe distribution of this
currency in terms of liquidity and debt is the result of myriad
decisions by our financial and monetary organisations, and decisions by
the Treasury and Bank of England on how to match liquidity to the
monetary requirements and the financial reality. Against the 5 trillion
debt there are to be counted some very considerable assets and their
earning power as well as their sale value. These assets are both human,
systematic and structural resources. Naturally the sale value of all
resources can collapse in times of depression, but that is no more
realistic than an assumed high value in times of an expanding and
stable economy. If our new government does not fully understand the new
economics, which are based ion the old but have some important new
aspects, and if this understanding is not shared in Europe and
elsewhere, we could cause a lot of unnecessary trouble. If they
understand it, we can be OK.
JULY 18th 2010
The UK MPC take their job very seriously and I do not wish to
criticise, but in these special circumstances the right policy is to
now set the basic rate at 1% with the declared intention that it will
remain there for 6 months (barring completely unforeseen and
extraordinary circumstances), and not subject to monthly revision based
on a mass of complicated and sometimes contradictory facts and
forecasts. It might remain at 1% for longer, but that should be decided
when the time is ripe. The current rate is in danger of creating
JULY 22nd 2010
Bernanke has stated the obvious - we are not out of the crisis by any
means. We have blown up a bubble on which the global economy depended
and those who seek 'realism' have no idea how to build a real economy.
We have never had one. Before globalism we had a 'wave economy, which
rolled around the planet causing local booms and busts and even wars.
Then we went global with a global bubble fuelled by lies to prove
political points. We now have to BUILD an economic project consistent
with global employment, global restraint, global warming and global
resources. We have to put aside the learning period and understand that
new growth cannot be like the old growth.
JULY 23rd 2010
A fair amount of hogwash is being talked about the 'stress tests' whixh
have been run on the banking system. It was a useful exercise to the
extent that it got banks to expose their positions, to themselves as
much as to the outside, but as regards confidence is concerned it
really is about time that the world's capitalists understood that when
there is only one race and one horse running, betting against it it
pretty damned stupid. That one horse is the global economy on which all
the sub-economies depend. Natuarlly, any sub-economy can screw up; but
many sub-economies can be screwed up by investors running for gold or
safe havens. In the new global economy there are no safe havens except
short term, indeed ever shorter term.
We are told that the banking problem has become a sovereign debt
problem. That is true only within the limits discussed above. Sovereign
debt problems will be resolved, as they always have been even if it
hurst, and the world will be a lot wiser when it understands that money
is a convention, gold is a commodity, and the value of any resource is
decided by the actionable demand for it, its security and how the
dynamics of transfer and satisfaction are managed.
AUGUST 11th 2010
Today the Governor of the Bank of England predicted a 'Choppy'
recovery for the UK economy. I am sorry to say these pronouncements are
only made so that the speakers can justify their own existence, salary
and supposed wisdom. Seeing the obvious problems ahead, the Governer
does not want to be accused of not seeing them coming. Not seeing
things coming was, you will remember, the stinging rebuke Her Majesty
The Queen came out with a while back, aimed at all the experts and the
government of the day. In fact most people saw it all coming, they just
had't a fucking clue what to do about it without taking the blame for
making it worse.
The present government doesn't give any indication they know either but
by kicking the hell out of some over-stuffed areas they might improve
the corporal circulation so that the body might heal; itself.
Personally, I would adopt a far more hands-on approach nationally and
internationally. Maybe, just maybe, behind the scenes this is what it
happening; but the verbiage I hear gives no clue to the presence of a
brain directing any of this stuff.
I was amused to hear the Governor talking of (although it would take a
very long time) a return to a 'normal' economy. I have news for him:
there is not going to be a 'normal economy' of the kind we had in the
past. However I was reassured to learn that he takes seriously that our
future economic health will be linked to the balance of trade and the
balance of payments. So long as we run an independent currency that
will be unavoidable, and if we join the Euro on the future basis on
which the Euro is run, our economic integrity will be just as
rigourously tested and controlled.
I said in another file on this site some days ago that the Interest
rate should be lifted to 1% but that this change should carry a
guarantee that it would npt be raised again for a very long time. I see
that the US administration has come today to the same conclusion: that
a very low nterest rate should be fixed as the only way to stop
position chasing (well, I invented that phrase unless it exists in this
context, let it go). All they have to do now is decide where to fix it.
The UK should go for 1%, do it now, and hold it.
SEPTEMBER 3rd 2010
I see no evidence that current UK government policy will give is the
growth we need. I do not see inflation as either the risk or, any more,
as a problem to be dealt withj by adjusting interest rates. There are
different ways not to stem inflation in different parts of the economy.
Interest rates should be kept very low, BUT NOT TOO LOW TO PRODUCE
STRANGE ANOMALIES. I am afraid the new economics is not understood by
our dear leader.
SEPTEMBER 5th 2010
The danger ahead is not just double-dip recession, it is greater than
that. Over the past decades, there has been common cause between
governments and investors, banks and brokers, entrepreneurs and even in
some cases hedge-fund managers to boost the economic growth world-wide.
Globalisation was seen as an end to beggar-mt-neighbour and an end to a
zero-sum game; there could have been some truth in this but it was
grossly abused. Now we have the reverse state of affairs where the
proper efforts of governments do not inspire the same cooperation of
the private sector, which is for ever looking fpr short term exits
after pocketing rewards made possible by either quantitative easing or
support through guarantees by or loans by the IMF, World Bank,
ECB or the US Federal Bank. There is no trust.
Without economic growth, a world with increasing population will see a
rise in unemployment. But the growth must be of a new sort. This cannot
come about suddenly, yet it must come about consciously, steadily,
securely, progressively, deliberately and globally. This requires a
plan to be formulated and circulated throughout the top echelons of the
government of the major powers. Is this happening? Let us hope the
sherpas are working.
SEPTEMBER 14th 2010
Stephen King writing in The Independent has laid out the essentials of
what we need to understand. He has also put the facts into some useful
historical context. It needs to be read, marked, learned and inwardly
digested. Then we (that is all the people, institutions,
industries and societies that associate their future with the health
and wealth of the UK) need to work out what to do about it,
individually and collectively. Our economy is complex, it's rebalance
cannot be achieved by just allowing market forces to play or by trying
to buck them. We need to use our assets wisely, apply our
organisational skills to world needs and above all avoid any relapse
into an industrial relations fiasco.
Stephen King: The UK economy won't rebalance until
we recognise the world has changed
Outlook: The UK didn't go into
recession alone, and exports therefore were unable to make any headway
even as imports collapsed
– or latest three months' – numbers are in
historical context. As the balance of payments is merely an accounting
identity, this is a slightly odd state of affairs. Apparently, deficits
are bad and surpluses are good. At the global level, this is rather
unfortunate because, for every nation which runs a current account
surplus, others must, by definition, be running deficits.
By now, I'm sure you're waiting on
tenterhooks to know how the UK's trade position stacks up at present.
For goods and services in total, the July deficit, at $4.9bn
(£3.20bn), was the worst since August 2005, when the trade data
were distorted by the global effects of Hurricane Katrina. Taking the
total over the last three months (and hence reducing the Katrina
effect), the deficit stood at £13.2bn, the worst since, well, the
worse ever, in fact.
To be fair, as we become richer
and our incomes rise, so we should be able to cope with a larger
deficit. Adjusted for the size of the economy, the largest deficits
were recorded in the late-1980s during the Lawson boom. Today's numbers
are nothing like as big. But the UK's trade deficit has been steadily
deteriorating over the past couple of years (yes, I have made the same
mistake as the Office for National Statistics. I should say "steadily
widening" rather than "steadily deteriorating").
This is surprising for one notable
reason. Britain's exchange rate collapsed in 2008 and that collapse, in
turn, was supposed to mark the beginnings of a major "rebalancing" of
the UK economy. No longer were we going to rely on the debt-fuelled
consumption of old. Instead, we were about to embark on an export-led
recovery, supported by a newly competitive exchange rate.
A year ago, in remarks made to The
Journal, of Newcastle, Mervyn King, the Governor of the Bank of
England, reinforced this view by observing that the "rebalancing of the
UK economy that I have been talking about for about 10 years is very
necessary. I think the fall in the exchange rate that we have seen will
be helpful to that process but there's no doubt that what we need to
see now is a shift of resources into net exports, whether directly or
in producing things that compete with imports that help to reduce the
With a newly widening deficit, it
increasingly appears that the fall in the exchange rate has not
achieved quite as much as Mr King was hoping for. Of course, the
deterioration in the trade position might have been even worse in the
absence of a major sterling decline, but that's hardly an encouraging
conclusion. The bottom line is this: with a major decline in sterling
and with an economy which, having collapsed in 2008 and 2009, has
barely recovered subsequently, the trade position should have improved.
So, why hasn't it? The most
obvious explanation is that the UK didn't go into recession alone. With
other Western nations also succumbing to a financial crisis, UK exports
were unable to make any real headway even as imports collapsed. It
would have been far better to have gone into recession alone because,
that way, imports would probably have fallen faster than exports.
But this argument can be taken
only so far. No one is suggesting that the cure for the UK's trade
deficit is entry into perma- recession even as nations elsewhere in the
world continue to enjoy economic growth. That would be too costly.
Rebalancing is not a story about persistent slump. Rather, the idea is
to do more of one thing (exports) and less of something else
(consumption) so that we can pay our way instead of being dependent,
year-in, year-out, on borrowing from the rest of the world which, as we
discovered in 2008 and 2009, can be switched off with remarkable speed.
This is where the exchange rate
comes in. A fall in sterling adjusts relative trade prices. In sterling
terms, imports become more expensive while, in foreign currency terms,
British exports end up cheaper. We end up consuming less of what's made
abroad and foreigners end up consuming more of what's made in Britain.
That, at least, is the theory. Yet it appears not to have worked.
Part of the reason relates to
British business's lack of ability to determine global prices. In a
competitive international market, the price of British exports is
likely to be set in dollars or euros, not sterling. If sterling
declines, the foreign price remains unchanged but the sterling price
goes up. British exporters are more profitable as a result.
Economically, what then matters is how the higher profits are used. Are
they invested in expansion plans or used to pay down debt? Are they
frittered away in higher wages or do managers take it easy and choose
to use Friday afternoons for a round of golf rather than a solid few
hours of work?
Other factors are also important.
Although a decline in sterling may help relative price competitiveness,
sterling is not the only determinant of relative prices. Over the past
year or so, oil prices have risen dramatically. Our oil import bill has
risen as a result. Partly, this reflects the enduring success of
emerging nations such as China, which have weathered the economic storm
far better than western nations and which have continued to increase
their demand for the world's scarce resources at a rate of knots.
But if emerging nations are
growing so quickly, their success surely creates opportunities for
British exporters. What we lose on the oil price swings we should gain
on the export roundabouts. If only that were true.
While other nations have increased
their connections with the emerging world over the past 25 ears,
Britain has seriously lagged behind. The economic and financial crisis
seriously upset trade patterns around the world but, pre-crisis, it's
clear that Britain had been heading in the wrong direction. Exports to
emerging nations fell from 4 per cent of UK GDP in 1985 to 3.5 per cent
in 2008 (and to just 2.6 per cent in 2009, as the collapse in world
trade reached its nadir). US exports to emerging nations went up
marginally, from 1.5 per cent of US GDP to 3.7 per cent.
The really big changes happened
elsewhere. Germany's share went up from 5.3 per cent to 11.6 per cent,
Japan's from 3.7 per cent to 6.7 per cent, Australia's from 3.5 per
cent to 7.1 per cent and Switzerland's from 5.3 per cent to 8.2 per
cent. And emerging nations have continued to expand trade with each
other: China's exports to other emerging nations rose from 2 per cent
of GDP to 9.5 per cent over the same period.
So part of Britain's problem is
its ongoing habit of exporting the wrong kinds of things to the wrong
parts of the world. Focusing on the exchange rate as a source of
"rebalancing" gives completely the wrong message. Our economy won't
rebalance until we recognise that the world has changed.
It's as if British industry has
been asleep for the past quarter of a century, seemingly unaware of the
emergence of economic superpowers which already are promising to become
the biggest markets for western products. It's about time we woke up.
Stephen King is
managing director of economics at HSBC
OCTOBER 3rd 2010
The revelation of the size of the Irish deficit and its small tax
revenues have brought renewed fears of further troubles ahead for
Ireland and Europe. Ireland was sustained in its growth by a great deal
of confidence by lenders, with Irish banks believing in their home
property boom. The confidence was essential and that was why when the
crunch first struck, Ireland took the step, deplored by many orthodox
economists, of standing behind its banks with a guarantee to savers and
investors. Now the situation has had to be exposed and that confidence
has gone, certainly so far as the ability to pay, without given a fair
length of time, what is owed; but it must be remembered that of the
true growth in industry, much was export trade which will survive if
the global economy holds together. There is talk of a double dip
recession gaining ground, but in my view we are looking at very slow
growth rather than more recession. A lot depends on China. It must
support the European economies in their hour of need, because it can. That will
require a good deal of trust on both sides in the future. But stranger
things have happened. In this new situation we can choose strife or
OCTOBER 7th 2010
DOMINIQUE STRAUSS-KAHN is on the button
warning of currency war 'real threat'
Global currency wars
pose "a real threat" to economic recovery, the head of the
International Monetary Fund, Dominique Strauss-Kahn, has warned.
In an interview with the BBC, he said currency disputes showed
countries were not co-operating as well as they had during the
In recent weeks both the US and Europe have led criticism of China
over its undervalued yuan.
Meanwhile, Japan been forced to intervene to curb rises in the yen.
Mr Strauss-Kahn said there were signs that countries were trying to
use their currencies "as a weapon".
"The willingness of the countries to work together, which was very
strong at the climax of the [financial] crisis is not as strong today,"
"'Currency war' might be too strong, but the fact the countries want
to find domestic solutions to a global problem is really a threat to
He added that China would have to revalue the
yuan in order for the country's economy to reduce its reliance on
foreign export markets.
Mr Strauss-Kahn agreed that China should act to raise the value of
its currency "the sooner the better".
But he warned against placing too much importance on it.
"We have been saying for years that the [yuan] was undervalued," he
"[China] will go in this direction - the question is the speed.
Certainly they can go faster than they are today.
"On the other hand we shouldn't believe that all the imbalances in
the economy today will be solved if the value of yuan was changed."
The US has been at the forefront of criticism of China's currency
It claims that China is keeping its currency artificially low in
order to aid its exporters, hurting US competitors.
OCTOBER 25th 2010
Meanwhile on the home front, as government and public sector spending
is cut, at least we have some words about 'intelligent' and 'green'
growth; but they are nothing new. How the developed world can expand
and grow intelligently and cooperatively, while at the same time every
private company and every country is playing with its cards close to
the chest or hidden in the cause of competitive advantage, is a mystery
to me. We are hearing intelligent noise from the coalition on some
matters but there is much juggling. We are still in the age of the 'old
economics' with no indication, to my mind, of an understanding of the
new. However I have no doubt of Cameron's sincerity and I hope he
David Cameron: "It is a plan to completely update
and modernise our infrastructure"
David Cameron has promised a "forensic,
relentless approach" to ensuring the UK's future economic growth.
OCTOBER 26th 2010
Once again Stephen King puts the problems clearly
In my view, if the Eurozone was run the way it should be, its problems
would be self solving. Each country could benefit or lose in terms of
wealth according to its performance without risking the currency. We
need to understand what Stephen King is saying here and take the
argument a stage further so that we put a stop to currency games. All
they do is put off reality and risk, in the current system, developing
situations where countries can end up so much in debt their assets and
even land would have to be sold to creditors. This is absurd, so the
pain must be felt much earlier. A country living beyond its means
should not feel international poverty through devaluation but through a
reduction in domestic salaries and disposable income above subsistence
levels. Quantitative easing can be done legitimately aand properly
without incurring debt if the 'new economy' is understood. It is the
change from old to new which is the tricky bit as each nation seeks
advamtage. Domestically, taxation must be made fairer and tax avoidance
through havens ended.
NOVEMBER 4th 2010
The second bout of Quantitative Easing in the US is not a choice, let
alone the wrong choice as critics claim, but a necessity.
NOVEMBER 9th 2010
The 'respected economist' Roger Bootle claims that Germany and China
are to blame for the recession by not importing enough from the rest of
the world. Is this guy feeling all right? Does he want Germay to
increase government spending on infrastructure and make sure it buys
imported manufactured materials? Or does he insist Germans take more
import more cars fro other EU countries? Does he wish the boiling
Chinese economy to vapourise? Germany and China are NOT to blame for
the current world financial distress. Bootle is on stronger ground when
he says Merkel is not very economically literate. She does not
understand many economic possibilities. America may have caused much of
this mess but its policies right now are not crazy. On second thoughts,
since Merkel is a very intelligent lady, what she does not understand
now she soon will and maybe come up with new ideas.
NOVEMBER 10th 2010
SEOUL, South Korea – President
Barack Obama said a strong, job-creating economy in the United States
would be the country's most important contribution to a global recovery
as he pleaded with world leaders to work together despite sharp
Obama is being well advised, but the growth
must be green. That's where he can do great things, or be buggered up
NOVEMBER 11th 2010
I good leading article in The Independent
An unbridgeable gulf in economic thinking
Mercantalist nations seem to believe every country
can cut and save its way to renewed prosperity
NOVEMBER 12th 2010
Leaders of the G20 group of major
economies have agreed to avoid "competitive devaluation" of currencies
after a second day of difficult talks in the South Korean capital,
JANUARY 25th 2011
It is hard to credit the absurd thinking behind the reporting of the
latest figures on the UK economy from the Office of National
Statistics. I am amazed the figures for the last quarter were not
worse. The weather is lagely to blame because manufacturing, which
showed healthy growth, including good growth in exports due to the
competitive exchange rate, is anly about 15% of the UK economy. The
rest is services. Anyone resident abroad with a brain who had a choice
of avoiding travel to the UK, even for shopping, would have done so in
the last month of 2010. A mass of seasonal goods were held up in ships
unable to dock at congested ports such as Felixstowe where the roads
were blocked. Heathrow caused air travel chaos. The UK economy, we are
told, only shrank by 0.5 percent in spite of the fact that the Irish
economy to which we are umbilically linked had recently virtually
collapsed! I think this is amazing! Yet commentators are expressing
amazement that it did not expand!
I have never
doubted by own relative sanity in the 73 years I have been alive and I
still trust it. All I can say is that if the ONS had reported any
growth at all in the last quarter of 2010 I would have advised them to
look again. How could it have been possible in an economy so dependent
on personal options and possibilities that can vary quite substantially
at short notice, when exposed to such events?
APRIL 27th 2011
The ONS figures now show good gowth in manufacturing, very modest
growth in services and retail but a fall in building and construction.
The opposition claim the recovery is being strangled buy the cuts in
government spending. The hard truth is that the growth the opposition
wants cannot be afforded. It would be neither green nor helpful to the
debt, the deficit or the balance of payments. It was the 'wrong sort of
growth' that nearly capsized us and which sank Greece and Ireland. I do
not blame Gordon Brown for it, as a long period of growth was
desperately needed to repair Britains neglected infrastructure. The
growth he allowed was the only game in town to get the tax and the
private investment to do it; but now the rules of the global game are changed, and Labour
should wake up and quit their second rate politicking.
MAY 19th 2011
The IMF is the key institution in managing the global avoidance of
recession and balanced green growth.
Strauss-Kahn has resigned and is giving his full attention to clearing
his name. I am now of the opinion there is no sting operation here,
just a cultural chasm and very likely a language barrier. It is a
tragedy to lose this man from the world of international finance.
Fortunately he will have helped to ensure there is a good team at the
IMF who have a good idea how things can proceed. I would be happy for
Christine Lagarde or Gordon Brown to take over but Brown has problems
and other EU countries like Germany may want a turn rather than another
French candidate. Singapore and South Africa and S. Korea have strong
candidates. It does not follow that the problems in the Euro zone
require an EU candidate being chosen.
JUNE 6th 2011
The IMF report on Britain's economy released today endorses the
government's policy. The reason for this is simple. While we need
growth as soon as possible, the financial eating habits of the old
economy were not sustainable. Our economy was borrowing to feed and
like the nation had become obese. We need to lose the fat, reconstruct
and build a new, muscular economy that can balance its trade and its
payments, and is green to boot. Just as with any diet, we must not
damage vital organs. That means Osborne and his advisers must keep
their ears and eyes open, and move swiftly if needed, but the course is
Meanwhile Strauss-Kahn has pleaded
not guilty to all the charges. I cannot imagine any other plea. If he
had actually intended to force himself on this unfortunate woman, he
would have known he had to murder her to stop her either accusing him
or blackmailing him or both. The whole scenario fails to add up except
in the minds of people capable of rape, or imagining rape themselves.
Clearly the woman in the case could, and also the police and judges who
are familiar with such things. How far humans are apart, particularly
from those who think we are all the same.
This issue is covered on this web site in the FRANCE
Lagarde get the IMF job. I am relieved.
AUGUST 4th 2011
The EU currency crisis and the US debt fiasco have together sent the
international investors looking for the next victim, so they can be
first out. The EU governments have play the awful game, like it or not,
or call the investors bluff. But it is the UK situation that is
beginning to annoy me. I realise that puttng up the interest rate can
send the wrong signal to people who act on signals, like sheep; but the
fact is our interest rate should be at least at 1% and preferably 2% if
the ordinary banks are to attract deposits on the one hand and service
the legitmate demands of their business customers on the other. We have
got stuck in a silly hole. It is not appropriate to do more
Quantitative Easing, this is not the time. But paralysis is a killer.
AUGUST 10th 2011
France is next on the list as the dealers and speculators are driven by
fear. Some are playing with their own money, some are playing with
pensioners money, some on behalf of democratic governments, hedge
funds, one thing alone is certain: they are all in fear of either their
jobs or their cash and gold is now 1800 dollars and ounce. The money in
gold alone is starting to dilute the liquidity of both markets and
I have to tell you, dear reader, that all this is absolute bollocks.
Nobody wins except the people who actually pick up gains because of the
activities being indulged in, and a few who can stay ahead of the
fluctuations and trade cheaply because of privileged positions. It is
all meaningless. France is not particularly vulnerable even though it
bdoes have a 'true' budget deficit even when debt repayments are taken
out of the balance.
However, the global market system is infested by people who want to
destroy the Euro so they can play a different game, the game in which
they are expert. They will try to force EU governments to take actions
that they can both milk in the short term and in the long term lead to
EU electorates calling for abandonment of the Euro. Then we have the
morons. In the UK we have UKIP, in the US they have the Tea Party. All
these players will have their say until they run out of puff and the
tide of events shows their irrelevance in the larger scheme of things,
even though they will have had an effect. It really does take all sorts
to test civilizations to destruction.
SEPTEMBER 8th 2011
Since I am hampered just now by an upload speed of 0.02 mbps thanks to
Vodafone's inability after 25 years to supply better in Central Milton
Keynes, all files on this site will lack updates for a day or two. It
is a pity the world's stock and currency traders could not be so
restricted to stop their hysterical spasms as they try to catch the
waves to make a profit in a sea they have polluted with trash.
SEPTEMBER 19th 2011
Vince Cable has told the Lib Dems the economic situation is the
equivalent of a state of war. He is not wrong. That is a good way to
look at it. It will be a serious battle to hold it together and we
should realise this and get on with it.
SEPTEMBER 21st 2011
Meaningless calls for a plan B are repeated on the air and in the
press, with the IMF staff being misquoted in the headlines as being
behind such calls. When will Ed Balls get it into his head that there
is no 'austerity package', there is a serious attempt to restructure
the economy so that employment is created, and salaries paid in a
framework that does not make a serious problem (faced by many
It is absolutely true that targetted quantitative easing as part of
plan A is called for in the UK and possibly in other countries, but it
needs international coordination and an understanding of the 'new
economics' and that is thin on the ground in both the public and
OCTOBER 3rd 2011
A little way into the Conservative Party Conference in Manchester and
Hey Presto, at last, we approach the moment. QUALITATIVE EASING. You
heard it first on this web site many moons ago. George Osborne will not
use the phrase of course but that is what he will come up with, six
months late (or years late by another criterion). The banks must be the
judge on investment chances, but the government and Bank of England can
ease the way by
buying bonds in a discriminatory way, as well as by legislation that
affects planning and investment. Remember, as pointed out often on this
site, discrimination is the key to success individually, collectively,
nationally and globally. First we have to deal with the national
problems for which we are responsible. I look forward to the
announcement later today or tomorrow.
OCTOBER 6th 2011
economy through quantitative easing (QE).
That's all very well, but it is the
Qualitative targetting of this that is now required. Government
guarantees, the purchase of corporate bonds and all necessary measures
to 'turn the ship around'. We do not need growth of the kind we had
before, thank you very much. Bankers, High St and Investment, can do
their work in evaluating business plans and risk by all means; but it
is not their bottom line but the nation's that we have to watch and as
we know, that is not the same thing other than when it suits them -
when suddenly we are all in the same boat.
It can't be only myself and Peter Mandelson to whom this is obvious.
an active government industrial policy. His epiphany
occurred while he was Europe's trade commissioner. "Working closely
with all the national governments, I observed the scale and scope of
the backing that industries in other European countries received from
their governments. This was much more substantial than in Britain," he
says. "The realisation struck that there was a 'third way' between
nationalisation, a policy applied between 1945 and 1979 and considered
a failure, and the laissez-faire policies adopted in reaction and
applied in Britain ever since.
OCTOBER 31st 2011
I find it absurd that people are concerned now
that 'there isn't a plan for growth' when the problem of employing the
youth of the developed, western world in any way other than the blind,
destructive growth of the last 50 years has never been looked at by any
We needed dramatic plans for green growth. Since the Chinese government
are more in tune with global realities I have no doubt they will
address the liquidity problem for us, but we still have to do the
'qualitative easing' to get the growth where it is needed. Of course it
is immensely difficult to do, properly, in the time now left. That is
because we should have started 10 years ago.
NOVEMBER 11th 2011
The Euro-zone problems centred on Greece and now, on a much bigger
scale but different, Italy, have started a new panic in the UK about
the lack of growth. Those who advocate more tax-breaks ignore the fact
that these will not result in more spending of a helpful sort, or help
the genuinely needy. It is the wrong approach. The economy needs
QUALITATIVE EASING to direct growth in areas that are sustainable,
green, export-oriented and also have an element that is directed toward
the training and employment of UK-born youth.
Iain Duncan-Smith has the right idea. He is relying on private
initiative though, and it is not evident the government or the
financial systems are backing him.
NOVEMBER 26th 2011
See my entry of June 24th 2009 about Qualitative Easing. Then search
this file [CTRL-F] for the word 'qualitative'. Then go to this link:
Then, commiserate with me that it takes over 2 years to get things
understood and done.
Of course government should not step in and do what banks should do, or
have to risk public money where banks do not. But please remember it
was not taking worthwhile risks in mnaufacturing and enterprise that
brought about the banking crash. It was trying to make huge profits
betting on financial manoeuvres and instruments and mortgages with a
rotten personal foundation. We need to grow the new economy. An
important part of it must be locally coherent, community based, green
and renewable, giving employment and needing less transport.
NOVEMBER 29th 2011
The Chancellor's 'special' budget introduced today as an 'Autumn
Statement' to deal with the
financial and employment crisis was in my view very well thought out
and very well presented. We face some awful problems and hard times for
many, but Osborne's plans for infrastructure and 'Qualitative Easing'
are good. Not green enough, but passable, just, in the circumstances.
NOVEMBER 30th 2011
At last a sensible move for
global financial stability. I am sorry the
markets 'surged', but there was a logic in it. They should just hang
tough for the moment.
some of the world's big central banks launched
plans for co-ordinated action aimed to support the financial system.
saw its biggest gain since March 2009, rising
4.2%, after jumps on European bourses.
Federal Reserve, European Central Bank, and the
central banks of the UK, Canada, Japan and Switzerland acted to improve
DECEMBER 1st 2011
themselves to withstand the "extraordinarily serious and
threatening" economic situation, the Bank of England governor has said.
Policy Committee (FPC) said
crisis was the biggest threat to the UK's banking system.
should build up their financial buffers to withstand that.
This is one of those moments when I am
going to disagree violently with the Governor of the Bank, unless the
restrictions he means are only on bonuses and dividends. The UK
should support the EU in the only possible future: to stay with the
Euro and manage it properly. The Eurosceptics are the most ignorant
people that have ever gained credibility on the world stage. It is
almost impossible to explain the realities to them, such is their
ignorance. There is only one good way forward. The very last thing
banks should be doing right now is filling their coffers by either not
lending or squeezing profits out of a non-expanding economy. There is
NO SAFETY is building buffers of cash in banks whatsoever. The
situation is as dangerous as he says, but the refunding of the EU is
essential and the UK should not hinder but help.
JANUARY 17th 2012
David Miliband has stated unequivocally that pay-rises must be capped
to preserve jobs. Bravo. We are in he real world. Some union leaders
are still in cuckoo-land. Next they will say they should strike to save
jobs. Men in white coats needed soon....