Tag Archives: Budget Deficit

University or REAL Success?

Let’s get one thing straight about the Coalition’s hurry in taking the brakes off University Fees. It has less to do with the country’s  mountain of debt and much more to do with the rapidly growing  student population.

University used to be one of those words which was associated with clever people. Then we experienced the advent of large unemployment figures which seasonally self-adjusted upwards when the  school year finished and tens of thousands of school leavers joined the back of the dole queue.

Politicians had a meeting and thought ” What if we keep these youngsters in education or training and hence off unemployment?” At the time, the idea must have seemed a jolly clever wheeze. The resultant  plan was Baldricesqe in its cunning: Allow every crap institution which houses anything to do with teaching to become a university, fill it with morons and you immediately remove the mid-summer unemployment “blip” plus, you postpone these special-needs-academics’ membership of the Unemployed Club.

Then you just sit back, dish out worthless degree certificates, continue to hire immigrants for the REAL jobs and “Bob’s your father’s brother”. You have a pseudo-egalitarian education system whereby every thick pikey with a pad of paper can wear the old mortar board and Harry Potter cloak as he fills out his Jobseekers Allowance form –  three years after he should have done. What could possibly go wrong?

What was wrong was that too many wide-eyed hopefuls were hitting the university trail producing too many degrees without additional jobs having been created. All that the three-year postponement of unemployment achieved was that individuals  bagan to collect their various allowances at age 22 instead of 18.

A university degree has now lost its kudos – unless it is from Oxbridge. Don’t believe me? Walk into any London restaurant and ask any waiter who isn’t Polish whether he or she has a degree. Try the same exercise at a Tesco or Asda checkout.

10% of graduates are still unemployed six months after graduating. That is the highest proportion for 17 years, which coincidentally is when New Labour came to power. There has also been a very marked increase in graduates taking jobs which do not require a degree. That has simply meant that they have placed themselves at a three or four-year disadvantage on the career ladder compared to those who began work immediately after leaving school.

A recent survey of 225,000 graduates has shown that rising numbers are taking jobs that do not require degrees, including as waiters and checkout workers.

The previous highest percentage of  unemployed graduates was in 1992 when the number was 11.6%. At that time, the United Kingdom was approaching the end of the previous recession – which was nowhere as serious as the current economic situation.

Currently, only about 65% of graduates who are in-work achieve a degree-level job (as defined by the government) and the biggest “growth” area for university leavers is the retail and catering sector with ONE IN SEVEN graduates (15%) starting their careers within that industry.

Fine Art graduates have the lowest initial income (£15,000) which is £5000 below the average. The highest starting salaries are among students who studied Chinese. The future.

Over the last two years, it is the Public Sector which has continued to recruit a disproportionate number of graduates. That does not bode well for the future as it is this sector which will see the most savage jobs cuts. Degrees with a “Social Studies”  or Healthcare-related bias have seen the largest graduate intakes in the Public Sector, although even those have only risen by 0.5% in the last year.

Contrary to popular opinion, IT-related graduates have fared the worst with over 17% still being unemployed six months after graduation. That is even higher than the ubiquitous Media Studies graduates who managed a comparatively decent 15% unemployment rate after six months. The rest are probably flipping burgers.

12% of engineers remain unemployed after six months whereas the more generalist subjects such as Geography and Psychology produced the highest graduate  employment rates with only about 7.5% being unemployed after six months. However, many of those are working in non-degree-specific jobs.

It has been claimed by a UCU (University and College Union) spokesman that an uncertain job market and higher fees could “turn talented people away from university”.

That, theoretically, should be a good argument for not transferring any more of the cost of a degree to students. However, instead of the government paying the price for policies which have totally devalued a university degree, it is applying a uniform solution to our current economic chaos.

It is asking future generations to fund the mistakes of  successive inept administrations.

Finally, there has been a lot of Ministerial talk on the subject of entrepreneurship and “stimulating young budding entrepreneurs”. I have some bad news. The Brits make lousy entrepreneurs.

Why? Because they do not have that “merchant” mentality. We are indeed a nation of shopkeepers, advisors, accountants and civil servants. That’s what we’re good at. We’re good at telling others what to do and at measuring things.

Here’s an extract of the top  names from Britain’s latest Rich List:

Lakshmi Mittal, Roman Abramovich, The Duke of Westminster, Sri and Gopi Hinduja, Alisher Usmanov, Ernesto Bertarelli, Hans Rausing, John Fredriksen, Philip Green, David and Simon Reuben, Leonard Bravatnik, Sean Quinn, Charlene and Michel de Carvalho, Kirsten and Jorn Rausing, Samy and Eyal Ofer, Vladimir Kim, Earl Cadogan and Family, Nicky Oppenheimer, Joe Lewis, Sir Richard Branson, David Khalili, Lev Leviev, Anil  Agarwal.

Notice anything about the nature of the names?

If you want to be successful, forget university. Either inherit large tracts of London and if that doesn’t work, become either Jewish, Russian  or Indian. It is the dealmakers who shall inherit the Earth.

Most of the world’s great entrepreneurs did not attend university – they were too busy making money. Unfortunately, we in the UK still suffer from our own special brand of intellectual snobbery whereby a university lecturer on £30k per year will look-down on a barrow-boy from Essex with £10 million in the bin –  on the basis that he’s thick and cannot distinguish between a Chardonnay and a Blue Nun.

Our problem is that we care more about appearances that we do about money and we like letters after our name. Paradoxically though, if someone hands us a business card with “BSc(Hons)” after their name or worse still “MBA”, we think that they are a jerk-off. We are a complicated people.

Britain’s (degree-free) working class parents dream of their Wayne or Waynetta attending university and “becoming someone” through the magic medium of a degree. “Get some QUALEEFEECATIONS behind you.” is the working class Mantra. Notice that it is “qualifications” and not education. Often we sacrifice the latter for the former.

It doesn’t happen, folks. In the United Kingdom, it is class and contacts that matter – alternatively, you need the credibility of a foreign name.

The university “thing”  has been the biggest-ever con of the last twenty years and it continues to be so.

This time though, the government’s actions are driven by the very real need to reduce the number of university places so that a degree reverts to being a privilege for the very very  clever poor, the very clever rich and the quite clever very rich . The  government doesn’t really want our money, it needs to close those ridiculous pretend universities with the Mickey Mouse degrees.

If the Browne (another cunning disguise?) review which recommended the lifting of the current tuition fee ceiling has the effect of drastically cutting our graduate intake, it will be the best thing that happened to this country for a generation. On this occasion, support your government – and don’t go to university. Start to make your fortune three years earlier!

All those Aarons, Benjamins, Jacobs, Lakshans, Ashoks, Gregoris and Nikolais can also have an early start towards that first million.

If you think about it, when  Nick “Tough Choices” Clegg,  our Deputy Prime Minister changed his mind about University Fees, he wasn’t being a duplicitous spineless bastard.

He did our future economy a very big favour!

Double economic Trouble

The UK’s 2009 budget deficit  is  the worst in its history  and the present government is doing very little to alleviate the potential problems and collateral damage  because it is playing a waiting game. Instead of taking hold, the government is still bleating about bankers’  bonuses with most of its energies focused on an impending General Election.

It is very doubtful whether the government has finished handing money to the banks and it is very likely that the UK budget deficit as well as the rate of inflation will rise over the next two years.

The  explosion in the supply of gilts would be bad enough if the Treasury  only had to borrow enough to equal each year’s budget deficit but the time will come when the Treasury has to borrow enough to replace  maturing gilts  as well as enough to fund its deficit— and that means an even greater avalanche of gilts will need to find buyers each year.

The Law of Supply and Demand dictates that when you get a massive increase in the supply of anything, its value plunges — and United Kingdom gilts as well as  US  Treasury bonds are no exception.

So far, most investors have been willing to pay a relatively high price and accept lower yields but now even that is changing!  The most ominous “noises” are coming from  China which is the  the single largest holder of U.S. debt. Last month China dumped more Treasuries than in ANY month since the US government started tracking the data in 2000. Unfortunately for the USA, China holds nearly one half of its debt.

Last week’s US  Treasury auctions turned out to be a monumental failure, with demand extremely weak. The 30-year auction was especially weak: Indirect bidders — mostly foreign governments and investors — took   just 28.5 percent of the bonds sold, compared to a ten-auction average of 43.2 percent percent. That is ominous.

As a result, prices slumped and yields surged. In effect, the U.S. Treasury had to bribe investors with higher yields to get them to buy. Immediately alarm bells began ringing at the Fed.

Four days ago, the U.S. Federal Reserve raised the discount rate on loans made directly to banks. The 25-basis-point  (0.25%) increase was the FIRST hike in the discount rate since early 2006. Secretly, the Fed is in a panic to ward off a bond market collapse and the UK Treasury is concerned about a similar collapse in its own gilt market!

Sooner or later, the Americans MUST send the message that they’re serious about cutting back on their money printing. The same applies to the UK’s “Quantitative Easing”. There has been an announcement from the Bank of England to the effect that Quantitative Easing has stopped – for ever! The sad fact is, however that they don’t know whether to p**s or climb off the pot.

The danger of course, is that foreign investors could  get an entirely different message: That Washington’s  and London’s efforts to fight the most severe recession since the 1930s are waning or that they are deluded enough to think that their work is over.

If that happens, there will be turmoil — not just in the bond/gilt market, but in every other asset class. The two governments are between a rock, a hard place and more rock.

The Chinese are beginning to flex their muscles and have been especially vocal about surging U.S. deficits over the last year and have repeatedly warned that such deficits  are unsustainable.  As America’s largest financing nation they have also asked the Fed for some sort of guarantee on Treasury bonds. China owns over 40% of all outstanding U.S. Treasury supply – or more than $1 trillion dollars!

If U.S. Treasury bonds are an ideal short then Britain’s gilt market is probably an even better speculation on the short side. The United Kingdom is amassing piles of debt and there does not appear any end in  sight. The transition to a “do-nothing” system is further compounded by the fact that some economists say that the UK should spend its way out of trouble whilst others say that government spending should be cut. Some say that the government should start making inroads into its deficit while others say that it should wait.

The U.K.’s financial system is essentially bankrupt – no matter what cosmetic pronouncements are made by a frightened  government. In 2008, the aggregate cost of bailing-out its banks exceeded the entire value of England’s gross domestic product. 

Quantitative Easing (QE), the Bank of England’s euphemism  for a massive credit expansion, is no greater anywhere than in the United Kingdom and  the Bank of England’s multi-billion  bond purchases have triggered a rise in inflation.   The BoE has been an aggressive buyer of British gilts since the end of last year – especially longer dated gilts.

 
The big question for gilts is what happens once the Bank of England finally terminates or slows its QE program? Who will absorb this supply? The odds are pretty high that the UK will have a hard time finding buyers to finance its ballooning budget deficits. 

 
Both Anglo-Saxon economies represent the worst long-term inflation scenarios and shorting their respective government bonds ranks as one of the greatest speculations over the next decade. There’s lots of fun to be had by the Investment banks and foreign investors and yet another opportunity for the banks (once again) to destroy (at least) two economies.