Tag Archives: Chancellor of the Exchequer

Government Debt: “We’re all in this together.”

Never mind all that “Debt as a percentage of GDP” nonsense. Here’s a picture of government debt on a simple picture, courtesy of ukpublicspending.co.uk.

It is OUT OF CONTROL.

All steep graphs are scary, no matter which way they’re pointing. Make no mistake, the above graph is so scary and the Chancellor is running out of options so fast, that we are about to reach a very significant and critical moment in Britain’s social and economic history.

Because Chancellor Gideon has well-and-truly painted himself into a corner and is greedy for cash, he will soon become like a schoolkid with his nose pressed up against the sweet-shop window. But what will he be looking at? Surely, there’s nothing left to plunder.

Currently, our savings are languishing in banks, gradually losing their value. Investment rates are lower than inflation and currently it seems as if the differential will continue to increase. THAT will erode our savings at an accelerated rate.

Dormant bank savings accounts have already been looted in order to fund one of the Chancellor’s rapidly growing array of “schemes” to stimulate the economy. On this occasion, the booty (up to £400 MILLION) will be destined for the Big Society Bank (remember?) which has now been rebranded BIG SOCIETY CAPITAL (BSC). Forty percent of  BSC shares are owned by Barclays, HSBC, Lloyds Banking Group and RBS (They are preference shares which means that in the event of a collapse, the banks will have preference over other shareholders).

So what could the Chancellor and the banks be planning next? What happened in Cyprus ought to give us a clue.

As a country, we are not spending enough. One way to encourage us to spend would be to threaten our savings either by way of a levy (tax) or seizure.

You may be thinking “Yes, but surely, our savings are protected?” Yes, they are. The capital is protected  but our cash is not protected against taxes.

Within four to five years, the government will have to find about £70 BILLION per year JUST in order to fund the interest payments on the money it owes. So where will it find the money?

It is there somewhere. Here’s a clue:

The richest 1% of our population, many of whom famously squirrel away  their cash offshore, won’t be affected and neither will the large corporations  – they pay tax when they want to plus they are also lucky enough to be able to decide how much to pay.

That leaves the ordinary Saver and Depositor.

The only thing that the government needs to decide is how to present the raid on our money so as to disguise what essentially will be a tax. There are several ways in which the exercise can be delivered.

For instance, a Cyprus-like levy. Simple and straightforward.

There may be some sort of government share-offer, designed to relieve us of our cash or even a mandatory Government Bond which those with a certain level of savings will be bound to purchase.

I would suspect that even Pension Funds are no longer safe.

But the really scary thing is that because this will be a concerted and choreographed international assault by governments and banks, there will be nowhere to run.

We are well and truly “All in this together”………well….most of us.

The Budget: George IV

Yesterday’s Budget had all the marketing qualities of a statement which is already anticipating the next General Election.

A few give-aways, something for the housebuyer, a little bit for the businessman and of course, a catch phrase!. In fact , the Chancellor provided three:

The Saatchiesque “Aspiration Nation” , another “nod” to Margaret Thatcher in the shape of the “Help to Buy” and  of course, “Britain is open for business!”

This was the Budget of a Chancellor who either does not fully appreciate the scale of the United Kingdom’s economic decline or who is trapped but feels that he ought to show willing and fiddle at the peripheries.

Bitter past experience has shown that direct Government interference  in the housing/mortgage market always ends in tears. On the face of it, it now looks as if the government may be encouraging house purchase by those who may not be able to afford it. That is what cause the 2008 banking meltdown. Luckily for the Chancellor, there is unlikely to be a big take-up of the “interest-free up to 20%” additional loans which the government is offering. Depending on how the £130 billion in “loan guarantees” is dispensed, it may just be more Quantitative Easing in disguise. Previous form suggests that once cash is handed to the banks by government, the difficulties arise when attempts are made to prise the money from their cold grasping hands. We’ll see!

Let us hope that on this occasion, some of the cash does end up in the hands of the house buyer rather than in Stocks or Commodity speculation by the banks.

The Chancellor’s “Rabbit out of the Hat” 20% Corporation Tax Rate already applies to businesses earning up to £300,000 with a marginal rate being paid by those earning up to £1,500,000. So, for several years, this will mean very little. Yesterday’s CT announcements were for big business only.

The Chancellor’s headline-writers  may have had a good day but in reality, commerce has NOT received the shot in the arm which it needs TODAY.

Finally, here’s a bit of lateral thinking: How about the government having the courage to make a massive investment in agriculture. The returns would be in the Exchequer’s coffers far sooner that having to wait for those “forced entrepreneurs” to contribute.

p.s.  Gideon……sack your voice coach.

Gideon’s Last Stand?

Regrettably, I will not have the pleasure of hearing the hubris-fired reading of the Budget Speech by Chancellor Gideon…..and I do SO enjoy hearing fiction read out-loud!

Today’s press is full of advice for him but unfortunately, he will not be able to stray far from the path he has already chosen for us.

The components of today’s Budget will be cosmetic low-cost “initiatives” , largely fueled by Public Service casualties. Gideon WILL brazen it out by feeding the nation carefully chosen and spun statistics but since he painted himself into Austerity Corner, he cannot move. He will try to give the impression that he is able to somehow warm the economy……. but this one-trick pony Chancellor will do it to the accompaniment of: “Throw another Public Servant on the fire!”

Yes, there may be talk of  “saving through efficiencies” but we know that efficiencies are a myth.

“Need a quick £2.5 billion? Sack a load of Public Servants and slash services.” The arithmetic is very simple!

By the way, don’t just blame Gideon. The Cabinet of “yes men” is fully supportive of his fiscal fumbling. They’re right behind him!

Incidentally, the OBR is  publishing  its latest growth and borrowing forecasts today. More ripping yarns!

The government’s  target for the elimination of the structural deficit, in keeping with tradition, continues to slip further and further into the future – where it will remain for many years to come. At the moment, the projected target is 2017/18.

We can already predict that the next estimate may be headed towards 2018/19……and so on.

p.s. I wonder if he’ll mention the banks?

Might as well make it £200 billion, Merv .

“WTF ???!”

Below is the statement issued yesterday by the Bank of England’s Monetary Policy Committee. It defies comment because it runs out of facts after Line 2 of the first paragraph.

Paragraph 2 is no more that the usual retrospective “No shit, Sherlock” statement which has become the Bank of England’s trademark.

Within the statement, I have highlighted the words which give a clear indication of the overall  wishy-washy tone which Mervyn King and the Monetary Policy Committee have made their own.

The £75 billion which is being pumped into the system is more-or-less an arbitrary figure and  purely cosmetic  – because it was deemed time for someone to take action.

Why Quantitative Easing? Because this is the only item remaining in the monetary toolbox.

Politicians and Central Bankers are out of ideas. This latest initiative is the Bank of England’s own version of Pin the Tail on the Donkey.

An increasing number of individuals who understand the mechanics of the global economic system agree that we are rapidly approaching a time when governments should simply guarantee bank customers’ deposits and allow certain banks to finally fail and introduce a more direct form of QE to stimulate production and encourage consumers to consume.

Attempts to stimulate an economy by filtering cash into moribund banks merely pushes the recovery horizon further into the distance.


MPC STATEMENT 6TH OCTOBER 2011:

The Bank of England’s Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5%. The Committee also voted to increase the size of its asset purchase programme, financed by the issuance of central bank reserves, by £75 billion to a total of £275 billion.

The pace of global expansion has slackened, especially in the United Kingdom’s main export markets. Vulnerabilities associated with the indebtedness of some euro-area sovereigns and banks have resulted in severe strains in bank funding markets and financial markets more generally. These tensions in the world economy threaten the UK recovery.

In the United Kingdom, the path of output has been affected by a number of temporary factors, but the available indicators suggest that the underlying rate of growth has also moderated. The squeeze on households’ real incomes and the fiscal consolidation are likely to continue to weigh on domestic spending, while the strains in bank funding markets may also inhibit the availability of credit to consumers and businesses. While the stimulatory monetary stance and the present level of sterling should help to support demand, the weaker outlook for, and the increased downside risks to, output growth mean that the margin of slack in the economy is likely to be greater and more persistent than previously expected.

CPI inflation rose to 4.5% in August. The present elevated rate of inflation primarily reflects the increase in the standard rate of VAT in January and the impact of higher energy and import prices. Inflation is likely to rise to above 5% in the next month or so, boosted by already announced increases in utility prices. But measures of domestically generated inflation remain contained and inflation is likely to fall back sharply next year as the influence of the factors temporarily raising inflation diminishes and downward pressure from unemployment and spare capacity persists.

The deterioration in the outlook has made it more likely that inflation will undershoot the 2% target in the medium term. In the light of that shift in the balance of risks, and in order to keep inflation on track to meet the target over the medium term, the Committee judged that it was necessary to inject further monetary stimulus into the economy. The Committee therefore voted to increase the size of its asset purchase programme, financed by the issuance of central bank reserves, by £75 billion to a total of £275 billion. The Committee also voted to maintain Bank Rate at 0.5%. The Committee expects the announced programme of asset purchases to take four months to complete. The scale of the programme will be kept under review.


THIS is yesterday’s  letter from the Governor of the Bank of England to the Chancellor of the Exchequer. Perhaps the letter-writing ceremony, together with ribbons on MPs’ coathooks into which they can hang their swords, ought to be consigned to the poubelle of history!

This statement about the British: ” Crap food but such LOVELY manners” should be rewritten: “Crap economic policy but such LOVELY letters and statements”

Janet and John Economics

 

The Chancellor of the Exchequer has been allowing the electorate to believe the fiction of “ring-fencing”, consequently, we are beginning to  think that  the NHS and Education budgets are somehow ‘protected’. Unfortunately, it appears that in many respects Health and Education  do not need ring-fencing – just propping-up because they are failing.  They are not failing because of too little management  but because of too much management, too many management  accounts and the demands for too much management information. That particular “malaise” is not exclusive but belongs to all of the United Kingdom’s service industries – both private and public. Too much expensive admin.

The NHS and Education  budgets wouldn’t need to be protected if the government stopped trying to centralise everything. It should simply  empower those at the sharp-end to get on and do the job.  For instance, let’s assume that Ed Balls’ department voted itself out of existence and the total budget was divided  by the number of students and then divided pro-rata between all schools and Universities. That per capita amount would probably buy the best education on the planet. Now imagine doing the same with the NHS.

Why do the bureaucrats think they should control education and health  from a  Whitehall bunker? It does not work and the current over-populated administrative bedlam is a massive fiscal drag on the economy. These bureaucratic edifices are a massive cost and do nothing at all to increase the country’s wealth – on the contrary.

Wealth must be generated in order for an economy to work properly. That means people delivering something that someone else is prepared to pay for . Making stuff or delivering services just to ourselves in the UK won’t pay for our energy, food, imports, foreign holidays, foreign films, or even the dividends to foreigners and ex-pats who own most of the United Kingdom’s businesses.

One-pound’s-worth  of imports from China needs to be paid for by £1 earned in the United Kingdom and NOT paid-for with a pound borrowed from China because then we owe China £2. It’s simple arithmetic and here’s a phrase that we don’t hear much nowadays – the Balance of Payments.  Remember the phrase? It is the difference between what we buy and what we sell. We haven’t heard that phrase for so long that it appears “quaint”.

Nowadays we don’t have a Balance of Payments any more – just debt. We don’t even strive for a Balance of Payments.

Since the current economic crisis began, the one thing that stands out is the total lack of credibility amongst any of the so-called experts in predicting the way the economy and businesses are performing. The most often used phrases are  “better-than-expected” and “confidence seems to be returning”. Many experts believe that  the economy is “at last stabilising” – whatever that means. The weird thing is that none of the experts saw the current crisis looming. In spite of its size, the crisis appeared to hit out of the blue. Yet the experts still pontificate and take the money.

The budget deficit is the latest “bête-noir” and is interesting the politicians, economic experts and soothsayers. The budget deficit interests them far more than the economy. What is symptomatic of this government is that in order to try and deal with the budget deficit and to balance the books, all that they can focus-on are some peripheral and largely irrelevant tax adjustments plus some cuts in public spending. Whereas, the only REAL long-term way to tackle a deficit is to produce more and thus earn more.

Nevertheless, it is good of the government to admit that it has allowed public-sector spending to get out of hand – that is why hopefully,  the public sector will be the first recipient of the long-overdue Treasury chainsaw.

The private sector has always been any country’s wealth-generator whereas the public sector has tradiaionally been the cost-generator.

For instance, the public sector’s current biggest bottomless money pit is the banking system. In fact, the banking system has never really been a wealth generator, except for the short time when it attracted foreign money into the country but judging by its current state, it did it without noticing the American sleight-of-hand which lost all those billions. So it is safe to say that the profits that the banks were booking for the last ten years were false. Therefore, it is also safe to say that the banking industry has never generated real wealth. The only thing that it has generated is largely illusory profit and because of their “smoke and mirrors” accounting practices, even that looks debatable.

However, even the foreign money that the banking industry and the City of London brought to the United Kingdom is slowly ebbing away  and it is unlikely that the banks will ever re-achieve their former wealth-generating status.

Somewhere along the way, banks have lost or forgotten their primary purpose which is to attract savings and then to lend those savings to business and commerce in order to  support the country’s economy and help it to grow. Its primary purpose is not to generate profits at any cost and at any risk – preferably by gambling on the Stock Exchange.

Real wealth is created by growing things, extracting things, or making things. If we want German and Japanese cars, we have to import them.  Saudi oil – import it.  American computers, Japanese games consoles, Finnish telephones, French wine – we import them.  We are a net importer.

Other countries don’t give us their stuff for nothing so we have to pay with money or swap it for home-produced goods. The point is that we we don’t have much to barter-with. We don’t dig much coal, make much steel, build many cars, etc. etc.  Our wimpish acceptance of all Euro-dictats means that  we don’t catch many fish or grow many crops or animals.

Look in any  Estate Agents window and see how many farm houses are for sale with tens of acres of empty fields. Check the southern counties and look at the number of old mills and barns that are now house conversions. It is the  politicians who have destroyed our industries by their myopic rush towards the new age of the service industry.

Now, our “products” are computer services, financial services, etc and we were going to sell them to everyone. That was the original plan – we were going to have a service-based economy. Unfortunately, in spite of the fact that we decided to go down the “service route”  and committed to it by expecting it to generate at least one-third of the country’s revenue, we even managed to screw that up. Today, instead of the service industries generating wealth here in the United Kingdom, we have farmed-off  an unfeasibly-large proportion of them  to India and China. We have begun the process of wealth-building , not for the United Kingdom but for the emerging eastern economies.

Financial Services was the dream service industry but after the battering that it has had in the last year-or-so, it does not look like a strong contender. All that foreign currency that we were going to attract, all that profit from international banking did arrive for a short time but unfortunately, even that has since been exposed as a sham. An illusion that even David Blaine would have been proud of.

So, as far as service industries are concerned, we are left with the NHS, the Army, the Civil Service and  local authorities. We can’t swap local authority services for Hyundais or Audis. We can’t swap Social work for Chinese-made computers. We can however sell Education services to foreigners (which is why our universities are short of places for British students) and we can sell medical treatment to foreigners (which is why we get that kind of tourism)  – but this doesn’t really benefit the rest of us to anywhere near the extent that we need.

When we weren’t looking, the world economic “balance of power” has shifted. We used to call China and Japan “The Far East” because there was a time when the rest of the world was referenced from the British Isles. It is now very likely that as the “eastern” economies prosper and we become no more than what we are – a small group of islands in the North Sea – we and the rest of Europe will become the Far West. 

This is the reality check: There is very little that we have to offer the world that the world cannot find or buy cheaper and better elsewhere.

To demonstrate the adage that there is never anything new – do you know who said this: If the American people ever allow private banks to control the issue of their currency, first by inflation then by deflation, the banks and the corporations will grow up around them, will deprive the people of all property until their children wake up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”

It was Thomas Jefferson.