Tag Archives: Recession

Chancellor’s Autumn Statement – just the facts

“We will do whatever it takes to protect Britain from this debt storm” in Europe.

Office for Budget Responsibility does not predict a recession in UK.

OBR forecast: GDP growth estimated at 0.9% in 2011. 0.7% in 2012 (down from 2.5%).

Borrowing falling but not as fast as forecast.

OBR sees additional borrowing of £5bn in 2011/12, £20bn in 2012/13 and £30bn in 2013/14.

Public sector pay awards set at average of 1% increase after the pay freeze ends next Spring.

NHS and schools budgets protected.

Deal on public sector pensions is “fair”.

Basic state pension to rise by £5.30 next April. Pension credit also uprated by £5.30.

In 2026 – state pension age will rise to 67.

Benefits uprated by 5.2% next April.

Credit Easing to help small business – ceiling of £40bn. National Loan Guarantee Scheme to use country’s record low interest rate to ease interest rates charged to firms who borrow from banks.

Country’s low rate to benefit families too through mortgage indemnities. Will reinvigorate “right to buy” to also help construction sector.

Bank Levy rate to rise from January 1st.

National Infrastructure Plan to get Britain building to improve roads, bridges, rail, schools etc. It will be paid for through”British savings for British jobs.” £20bn to come from pension schemes.

£5bn of additional Government spending on infrastructure plan – 90% of homes will have access tosuper-fast broadband.

Regional Growth Fund for England to get extra £1bn.

£0.5bn for science projects.

Health & Safety red tape to be cut further for small firms.

Corporate tax rate to fall to 25%.

Business rates holiday extended until April 2013.

8.7% unemployment rate forecast for next year by OBR.

New Youth Contract to offer work experience and assistance getting into private sector to help ease youth unemployment.

Extra £1.2bn to schools with 100 extra ‘free schools’. Maths Free schools to help UK’s science industry.

Free nursery places for 40% of the country’s 2-year olds (260,000)

Planned 3p per litre fuel duty increase in January is cancelled. August’s planned increase to be reduced.

Rail fares capped at 1% higher than CPI inflation

Gideon Floundering?

The MOST wretched Cabinet job is that of Chancellor of the Exchequer. I  spent years criticising the “Iron Chancellor”,  Gordon Brown. During his posturing days when he was surfing the economic wave created by his predecessor Ken Clarke and even when Tony Blair had declared him the “best Chancellor we’ve ever had”. I saw that he was overspending and that if he’d carried on, the solids would have hit the air conditioning even earlier than they did .

He was given the credit for keeping us out of the Euro but I suspect that the only thing that stopped him was his innate inability to make a decision. He was constantly hounded by self-doubt – and quite rightly so.

It took others several years to realise that the Iron Chancellor was more Irn Bru than of  the metallic variety and in retrospect, perhaps  didn’t quite deserve the consolation prize of the keys to No.10.

I had a sneaky admiration for Alistair Darling because he and I once shared a platform in the early 90s when he was in charge of Pensions. He came across as  a Minister who had taken the trouble to familiarise himself with his subject and anyone who can do that with Pensions earns my undying respect. Plus, when the bankers crapped their own nest, he was the one who managed to wipe their noses and bottoms, give then some pocket money and send them back to their offices without alarming the rest of us.

His contribution has never been fully recognised because his then boss was arguably the worst manager and motivator I was lucky never to come across.

Nowadays we are in the hands of Gideon “George” Osborne. His public manner and voice belie that fact that he is a shrewd operator and very bright. The only problem that he has is one of communication. He is too defensive.

The Labour Government left him NOTHING. In effect, he was (and still is) is in a start-up situation. He has to create the conditions which give the rest of us a reasonable chance to create an economy which, had it been a horse, would have been shot by now.

For several years I have been saying that Economic Theory needs a healthy dose of Chaos Theory appended to it. Consequently, what has become increasingly obvious t0 some of us in the last few years is that economic forecasting has become a mug’s game. Both economic forecasters and politicians ought, by now to have learned that any projections have an inbuilt error of up to 100%. So, if growth is forecast at 5%, it is just as likely to be either 10% or Zero. This is exactly what we are finding today with inflation predictions. The Governor of England may as well hire Russell Grant or Mystic Meg to hand him the numbers.

Hence the overuse of the phrases “Higher than expected” and “Lower than expected”. In spite of the unpredictable variables – from the Japanese Tsunami to the Middle East Riots, politicians still persist in their own special brand of blind optimism. The nearest that they come to admitting that they are no longer in control of events is the occasional “Because of global economic conditions…”

Unfortunately, blaming the Global Economy now looks like an excuse, on a par with “the wrong kind of weather”. The “Global” excuse is only pulled out of the hat when things appear to be going wrong.

The fact is that  a loosely integrated global economy  contains an infinite number of variables, so Finance Ministers ought to relax and freely admit that currently, they are OBSERVERS rather than SHAPERS of economic events.

We have just seen a “surprise” increase in the United Kingdom’s unemployment figures. The figure is 2.49 million – which in reality means that there are probably over 3 million people out of work.

The Chancellor says that in spite of the “disappointing” figures, his policies “are creating jobs” – and do you know – HE IS RIGHT!

He has already cited “world markets” as an explanation – and once again, he is absolutely right! Unfortunately, after a year of unnecessary excuses, that in itself looks like yet another routine excuse.

The number of unemployed women has risen by 38,000. That is the sharpest increase in 2 years and the highest number of unemployed women for 23 years. Why is that? The truth is that no-one really knows. Unfortunately, politicians and “experts” cannot find it in their hearts to admit that they do not know. So we will have yet more pointless explanations.

The Chancellor of the Exchequer is NOT responsible for the current moribund state of our economy. That was caused by a mixture of Gordon Brown’s ineptitude, crooked Bankers and the resulting recession.

George Osborne may have the communication skills and manner of a 30s lounge lizard but, technically, he is without doubt the best we’ve got.

He deserves our support so that he no longer feels the need to sell us  what is undoubtedly the most  foul-tasting economic medicine that has EVER been dished out by a peace-time government.

Be nice to your Chancellor. The alternative sits on the bench opposite –  a Brownite about to explode out of his grey suit and it ain’t a pretty sight!

Hug a Hooray.

New Predictions 2010/2013

Alistair Darling has never looked so relaxed. David Cameron observed that if Darling and and the Prime Minister sat any closer to each other on the front bench yesterday, they would be kissing. The Labour front bench has never  looked so “at ease” and with good reason. There’s absolutely NOTHING that they can now do about the economy, NHS or any of the other major conundrums of State. They are in a good place and enjoying the rapid approach of Spring and what it will bring – the dissolution of Parliament.

The crippled economy appears to have been left to its own devices as it staggers and bumps along from crisis to crisis. The politicians, bankers and economists seem to have been reduced to the role of observers, purveyors of increasingly convoluted euphemisms and “guessers” who still have not grasped the difference between two fundamental Theories: Keynes and Chaos.

It may be an idea to try to slash a path through the current economic goings-on in order to see if we can make any sense of it all.

Our Chancellor’s current laid-back demeanour means one of two things. It means that either he has adopted the fatalistic attitude of one who cannot wait to put his hands on the severance pay, begin his memoirs  and give Gordon Brown the shafting that he has been deserving of for the last 13 years OR  maybe he really doesn’t understand the problem.

The Winter Olympics, Christine Pratt, Gordon Brown and the Coles may be hogging the front pages but perhaps that’s all for the best because what could be on the front pages is strictly Certificate X. In fact, some of what is about to happen to the world’s economy would never pass the scrutiny of the British Board Of Film Censors.  We are heading for a cross between a social  Exorcist and an economic Armageddon. So let’s begin.

I have either observed or worked within the Financial Services Industry for over 30 years and remember the days before the present circus of  exotic financial instruments and comedy accounting. Stockbrokers and Fund managers were not riding financial tigers  or unbroken investment mustangs that were impossible to dismount without a great deal of pain. There were long bull markets interspersed with the occasional short sharp shock of a quick bear. There was order with only the occasional panic which would always be sorted out without the aid of the Bank of England’s printing presses. Those were the “My word is my bond” days.

Investment banks would never have cooked a country’s books in order to replicate what the banks themselves were doing in order to hide gargantuan unsustainable debts. They would not have  charged Greece 0ver £190 million for their trouble so that “on paper” Greece woud look financially fit enough to join the Euro.

Four months ago, Greece’s 10-year bond was trading happily, it was stable and rising.  Then,  global investors began to dump Greek bonds in huge volumes and with unprecedented speed. The whole thing was so brutal that the custodians of the Greek economy did not realise the full extent of the disaster until their economy was exhibiting all the symptoms of near-death. Thanks to Goldman Sachs who had (legally) helped them to cook the books, Greece had been living and borrowing in an economic cloud-cuckoo land. Currently, they are standing on of the equivalent of an “event horizon” at the edge of an economic Black Hole.

Three months ago,  Portugal’s 10-year government bond also peaked. That is also being dumped by global investors. Nobody wants it. Portugal’s problem mirrors that of Greece.  To put it very simply: overborrowed with no collateral. Just like our banks.

Investors are dumping Greek and Portuguese paper because they are nearly 100% certain that their current economic positions  are unsustainable and that both countries will default.

Italy is keeping afloat through the medium of creative accounting. The next economy to tumble after Portugal and Greece will be Spain  which is running out of both time and cheques with which to support its 20% unemployment rate. The ship that is probably going to support the sinking rats is the holed twin-hull of France and Germany who both know that they need to bail out Greece. After that is achieved, there is severe danger of a Euro-queue forming.

The Euro is doomed because France and Germany will be breaking that most sacred of rules which states that “Thou shalt not bail out thy Euro neighbour”. That rule was enshrined in statute so that a Euro economy in trouble would never drag down any other Euro-user.

Both the French and the Germans are continuing their own spending orgies and instead of doing something now, they are following the United States’ and United Kingdom’s lead. They are postponing the day of reckoning and merely watching the final death throes of the Greek economy.

It looks as if the Euro is about to be sacrificed.

The American dollar will also soon be needing  some sort of life support. Rating agency Moody’s  has already warned  the States about its giant but still accelerating debt.

Dollars  and Sterling have been pumped rather over-enthusiastically into both the American and British banking systems and that has directly resulted in an overvalued stock-market and the feeling is that we are now about to witness a fall in market values which will continue into 2013. That will be mirrored by the highest-ever percentage rise in the price of Gold, Platinum, Palladium and even silver. Gold may well cross the $2000 per ounce barrier.

The dollar will continue its slide which will accelerate by the middle of 2010 , with its downward journey picking up speed by the end of  the year. The pound sterling will follow because currency speculators will be falling over themselves to buy currencies such as  Australian and Canadian dollars. From flashy and weak to unexciting but solid.

At the front-end of 2011, we will see the beginning of the dreaded second dip in the recession which many commentators  seem to think is gradually exhibiting those iconic green shoots of recovery. Those shoots will turn brown and atrophy.

All this will happen because back  in 2009,  whole states made the decision to sacrifice themselves in order to  save their dead  banking systems. History will probably judge these to be the worst economic decisions ever made.   A country has never sacrificed its economy and welfare of its citizens in order to save a broke and discredited banking system which it had itself allowed to expand without proper control.

By the end of 2011 and into 2012, most countries will follow the Greek economy – which is currently exhibiting the green shoots of a civil unrest which will soon spread throughout Europe and the Americas .  That will happen because of of an exceptional set of events which will all take place more-or-less simultaneously . Western economies will collapse as their GDPs, currencies and stock markets all bottom-out .

That will finally signal the inevitable dawn of the wealth-shift from West to East.

China will begin to call ALL the shots because Western economies will have  been painted  into an economic  corner with no way out.

Our Chancellor knows that after the next election, he will probably be on the Opposition benches. In the unlikely event of a Labour Prime Minister being asked to form a government, Darling will probably be “reshuffled” out of the Treasury.  Either way, he will be able to continue what he has already started to do – observe the  sunset of the Western economies.

The green shoots of economic recovery? We’ve been looking in the wrong place. They’re in China.

Straw-Clutch Economics

“I don’t think so!”

The Office for National Statistics (ONS) tells us that during October, November and December 2009 (Q4), the economy, or more specifically UK’s production and service sectors grew by 0.1%.  That’s the good news.

The bad news is that  during the whole of 2009, our Gross Domestic Product (GDP) fell by a record 4.8%.

You have to remember that the above figures are derived statistically with a plus/minus margin of error and in addition, that today’s announcement is not based on all the available data . Therefore if the margin of error is, say +/- 0.1%,  then  that should  put today’s announcement into perspective. The growth figure is so minute as to be meaningless.

Officially, after 18 months of negative growth, the government is telling us that we are now officially “out of recession”. The Chancellor has said that “confidence is returning” but there seemed to be a bit of a “whistling in the dark” aspect to his statement.

The car scrappage scheme and  cash handouts to the banks have treated the economic symptom but definitely not the cause.  In spite of  £178 billions-worth of public borrowing during the last 18 months, economic output fell by 6%.

Had the announcement said that the  0.1% economic growth been as a result of increased spending and increased production then we might have been more inclined to show a bit more enthusiasm. As things stand, it is impossible to extrapolate from such a weak figure and agree with the government that the United Kingdom’s recession is over.

Some commentators are agreeing with the government and saying  that the economy has just crossed the line in coming out 0f the recession. The economy has definitely not crossed the line on its own steam – it was pushed by a panicked government. Because current figures have too much “static” in them, primarily as a result of the government’s monetary intervention, it is difficult to see how we can claim to be witnessing real economic growth. Real growth will only come when the government backs off and allows the economy to stand on its own shaky feet.

It is not even 100% certain that 2009 Q4 figures are either accurate or that they represent any meaningful trend.

What the media have not fully explained is that the 0.1% figure is only preliminary and therefore more of a “guesstimate” rather than a “set-in-stone” absolute.  The ONS has to strike a balance between accuracy and the pressure on them to produce some sort of number. Consequently, the figure given today is only based on about 40% of the available data. The 0.1% figure will definitely be revised with the real possibility of a downward revision. That could mean that technically we are still in recession. Two more revised figures will be published – on 26th February and 30th March.

Most analysts and commentators (and, one suspects, the government) had been expecting  and hoping for a decisive upward swing in the economy but what has been delivered is the economic equivalent of a damp squib. The economy is still operating at way below pre-recession levels – and will probably continue to do so for a long time yet.

The pound-sterling will now get a pasting on the foreign exchanges and the best that the Chancellor will probably come up with, will be that “it will be good for exports”.

As usual, this is a lacklustre result from a lacklustre economy, led by a lacklustre government which seems to be doomed to the political equivalent of a Jolly Boy’s outing to the Dignitas Clinic.

 

 

What economy?

 

 

 

 

Mervyn King and friend

This week, Mervyn King, the Governor of the Bank of England made a very muted, cautious and quite frankly, borderline-pessimistic statement on the state of the economy – and he was right. There is a long way to go.

The banking system is still on life-support, courtesy of the Treasury and the Bank of England. At some time in the not-too-distant future, a decision will have to be made whether to continue with the treatment or whether to switch off the Quantitative Easing  machine which is keeping the banks alive.

Once that happens, the credit system may gasp at first but theoretically, it should be able to breathe unaided. It is only a matter of time and timing but so far, no-one seems to be willing to make the difficult decision. The final decision is difficult. We can all see the currently paltry bank lending volumes – and that is WITH Treasury and BoE support. Imagine  what might happen when support is withdrawn. Initially, there would  be a severe slowdown in lending, which at current lending rates does not bode well.

What is really making Mervyn King twitch though, is not the lack of banking activity but the rapidly accelerating UK Budget Deficit – the amount of money that the Government owes. King is very aware that there are only two main instruments which the Government can apply in order to repay the money that it has borrowed. The first is to increase its income, i.e an increase in Tax revenue.

The Government’s other alternative is to cut costs – fewer individuals employed in the Public Sector. Regrettably, that would inevitably result is a fewer public services and a lowering of standards.

The reason why the Government has not implemented either alternative is because it is playing a “wait and see”  game, in the hope of an economic upturn arriving sooner rather than later.

Yes, “hope”.

One of the great tenets of capitalism is that the consumer is empowered to spend.  Goods produced and services provided have to be bought – otherwise the economy grinds to a shuddering halt. Currently , there is little appetite for the profligate spending which  we all enjoyed  on the back of the twin temptations of a rapidly inflating housing market (The Remortgage Years), married to credit by the bucketload.

The 2009  pre-Christmas season will provide another distortion to the figures and disguise the fact that many of us currently prefer to save, rather than spend.  Economic uncertainty creates savers whilst an over-supply of credit creates over-spenders.

Currently, the economy NEEDS spenders but the paradox is that because of uncertainty, the banks will not lend us the spending money and because of our own uncertainty, we want to hold onto what little money we have. Meanwhile, the Government  crosses its fingers as it sits between a rock and a hard place. Hence the occasional dollops of “good” news which are thrown out by the Treasury spin-machine and the occasional politicians’ statements. They are all variations on the theme ” Confidence seems to be returning”.   Is it?

The Stock Exchange is another fine example of “Confidence returning”.  Currently, there is an over-supply of money to the banks. They are either lending the money to Fund Managers who are buying shares or the banks themselves are buying shares. The Stock Market is a self- amplifying system which means that the more money that is thrown at it, the better it responds and consequently, there is an increase in the value of shares.  That gives the false impression of an economy  that’s regaining consciousness. However, if you look carefully , you will notice that the volume of shares traded is comparatively low and that much of the activity is in two main sectors – Banks and Miners. That is hardly representative of the UK economy, especially  as most of the mining is offshore. The Stock Market Illusion.

The Treasury-Bank-Producer-Consumer-Economy is  a vicious circle of interdependence which is controlled by the money-supply –  which is soon set to dry-up . At the point when the Treasury stops handing Monopoly money to the banks, the economy will HAVE to self-support – or to be more accurate, it MIGHT self-support.

That is why the word “hopefully” is used so often by commentators, bankers, economists and politicians and why two sets of economists are producing two sets of interpretations based on the same economic data.

All commentators are saying ” The worst COULD be over.” 

Here’s a new twist: The worst is NOT over.

 

Dementia sufferers and Drugs

Surprisingly this is not about our economy and its guardians but about a recent survey of Dementia sufferers.

Its seems that many Dementia sufferers are ending their days  being  controlled and pushed into a near-vegetative state through wrongly-prescribed Anti-psychotic drugs. Consequently life is much easier for their carers because the carers are now looking after what is effectively an inanimate object.

Over 180.000 sufferers are being given these drugs. The report which  highlighted the scandal recommends that two-thirds(!) of these patients should be taken-off the medication.

Hopefully, that will decrease the number of strokes and deaths and let us hope that the GPs who are prescribing  inappropriate drugs can explain their diagnoses.

Until today, we thought that Harold Shipman had been working alone.

 

FTSE 100-99-98…….

The FTSE 100 index held its value yesterday – that’s in spite of the bad economic news and the announcement that the United Kingdom is still very much in recession.  The FTSE 100 seems to be almost impervious to any bad data that can be thrown at it. GDP data should have shocked the market because it showed that the UK economy unexpectedly contracted in the third quarter. Sterling tumbled more than a cent against the dollar and gilts jumped.  On the face of it – nothing seems to make sense any more.  Continue reading FTSE 100-99-98…….

The rats were digging – now they’re leaving.

karadzic.jpg Alistair Darling

We have devoted quite a bit of time and space to Mervyn King, his band of funsters and their effectiveness in doing anything at all to the economy. Currently, they are totally boxed in. 

They cannot attempt to stimulate the economy by dropping rates because inflation is running away –  it is out of control and as usual, the BoE is just an expensively suited observer.

There is as saying:


1. There are those who make things happen.
2. There are those who watch things happen.
3.There are those who wonder what happened

The BoE has just slipped from Two to Three. They never made it to One.

The USA has responded aggressively because after three years and a gradually collapsing housing market they had to stop it.

Here in the United Kingdom, interest rates will not be seriously played with until 2009.

That will not help our collapsing property market and unlike the States, we are still in the early stages of the collapse-the USA are about two to three years ahead of us.

The main growth driver of the UK economy is the financial services sector.  That sector is running for cover and because the economy is manufacturing-light, we are in deep trouble.

Past Chancellors have made a great deal of the fact that we are the world’s commercial centre and that London is that the epicentre of world trade.  That is all very well  when the world’s economies are booming but leaves us very vulnerable when they are not.

Unlike the States-all that we can do is sit and wait.

Rats deserting the sinking ship.

We thought that things were bad when Eastern Europeans started heading back home. The real reason that they are disappearing is that our own (domestic) unemployment rate is gathering pace which means fewer jobs for foreigners.

Looking at the G8 group , the best-off at the moment are the “resource economies” such as Russia and Canada. They have something to sell.Our problem is that we have nothing to sell – we are as service-based economy.

What Gordon Brown should do is to take back control of interest rates but not give them to Alistair Darling.  Alistair  can go away, grow his hair and beard, put on a large pair of  glasses and work as a new-age therapist.  No-one will recognise him.

Finally, the Securitisation of mortgages should be outlawed. It is far too easy for bad lenders to hide bad lending by bundling mortgages up and flogging them off on the open market. It is like buying a box of bric-a-brac at an auction and when you get home , discovering that you have bought a load of crap.

Lenders should take responsibility for their own lending -like they used to.

By the way…. Northern Rock….Covered Bond issue?  One thing to say. No.

Money,money, money.

Great fun was had on the various stock exchanges around the world last week. Lots of  yoyo investment activity.  Shares were up and down like a bride’s nightie.

In the US, there was good news from banks such as JP Morgan and Wells Fargo but not so good from Lehman Brothers and Merrill Lynch. Citigroup was keeping its head down.

Fat Fannie Mae and Fulsome Freddie Mac are still sitting there in the corner, quivering and thinking “Feed me”.  Freddie is thinking of raising capital by selling something like 10 billion dollars worth of new shares which will be a good scam if they can pull it off , bearing in mind that in 2008 they managed to lose their investors about three-quarters of their money.

But if they were allowed to go to the wall , property prices would disintegrate and the US housing market would grind to a shuddering halt. Nice.

There is even  more fun and games over in the States  : the US securities regulators are issuing subpoenas for Deutsche bank, Goldman Sachs and Merrill Lynch . They are looking  at suspected manipulation of Lehman Brothers and Bear Stearns shares.

The banking sector has always been institutionally incompetent and now, to add to that wonderful endorsement, they are regarded as irresponsible, cynical and crooked. Gone are the days of the honest banker who had your interests at heart. There has been a  comparatively recent proliferation of sharp-suited self-serving MBAs  and other prats who have overcomplicated a venerable institution  and turned it into a financial all-singing all-dancing circus.

Many of these people do not have a clue how to deal with the sort of crisis that they are now emeshed-in because they have only experienced the “ups”. Many will crash and burn. Sorry – Many will negatively optimise.

There appears to be no good reason why Sovereign funds or anyone else should rush to the aid of these discredited institutions unless there is a substantial change in their governance and competence.

The word on the streets is that the recovery period of the banking sector is going to take much longer than was generally believed. In fact, put two bankers in a studio, ask them about “the downturn” and you will get three opinions – all of them different.

In spite of the fact that they deal in numbers, it is remarkable how much guesswork and conjecture they rely on in their day-to-day activities.

The mechanics and decision-making behind last week’s announcement by the Bank of England to maintain the bank base rate at five percent demonstrate that institutions such as the Bank of England are not adding to the creation of an economy- they are merely myopic observers.

They are like the 1993 Grand National starter who was waving his flag at the horses when they  false-started and were a hundred yards down the course.

The bank’s monetary policy committee consists of both bankers and proper economists. It was very interesting to note that one of the economists suggested that the base rate be raised by 25  basis points and the other wanted it lowered by the same amount.

Whether bank rates  are raised  by a quarter percent or lowered by quarter percent would make absolutely no difference to the economy because the Bank of England  is lagging behind the economy.

The equation should be quite simple. Inflation is a consequence of rising energy and food prices which in turn are a  function of too-rapid economic growth. We NEEDED a slow-down in economic growth because it was  and still is unsustainable.

Interest rates cannot control economic growth. One day, central banks will realise this.

Nevertheless, through habit more than logic or science, inflation is still regarded as enemy No 1 – the Bogeyman.

The United Kingdom budget deficit in the quarter ending June 2008  was £24.4 billion. That is the biggest deficit since just after World War II. House prices are falling at the  fastest rate since the Great Depression of the 1930s and United Kingdom share prices have fallen by 20 percent in the last 12 months.

The general feeling is that things will continue to head south to the end 2008 and possibly beyond. I reckon about 10 years beyond – with of course the occasional rally fired by bouts of illogical euphoria.

The whole scenario is not helped by the fact that currently the City wide boys have not only got themselves themselves into a right old state but have also managed to get themselves into a totally negative mindset.

Traditional thinking has it that in order to solve the problem, more money needs to be thrown at it . Imagine a small businessman on the verge of bankruptcy going to his bank and saying , ” OK, I screwed up. Let me have more money and I’ll see if I can sort it all out.”

Yet, that same small businessman is in the hands of an institution which dishes out business advice whilst losing millions. Takes your breath away! Plus that institution wants more money because it did not take its own advice!

The sad fact is that the banking system is run by incompetents who  in turn are regulated by ineffectuals.

We have a financial system that was a Frankenstein. We now have a financial system which is an ailing Frankenstein.

There is only one solution and that is to dismantle the whole system and start again. Sounds extreme but all that it needs is lots of legislation or possibly the repealing of the legislation which turned Banks into  a combination of Bank, Investment House, Building Society, Insurance Company and anything else to do with cash that you can think of.

The modern “name of the game” is called Client-bank Optimisation. That means that once you have a banking client, he is your prey and you can flog him anything! If you haven’t anything to sell him, invent something! That approach is a time-bomb which WILL eventually go off.

Having said all of that, there are still many in the city who are making money. Unfortunately, they are only making money for themselves and adding nothing to the general flow of the economy- apart, of course when they buy the next Aston Martin or penthouse pad.

Over the next few years, the  dying bodies of financial institutions  will finally float to the top.

There are some who at this moment are covering their losses and holes in the balance sheet thanks to either a fine Finance Director or CEO with a strong self-preservation instinct.

Their grey bloated bellies will finally be visible. They will be twitching in their death throes but as we have seen over the past few weeks, they will still be offering their grasping  fat hands and asking for more money to be inserted by the taxpayer.

Time to stop.

Something is heading for the fan and it’s Brown!

tortoise_big.jpg

Mervyn King

The phrase “Boom Bust” will always be associated with the Tory years. It was the Socialists who embedded the link in our minds. That means that they need another phrase to explain the current  Boom-Bust cycle. Uprecedented Growth/Credit Crunch looks good.

Make no mistake, by the end of 2008, inflation will be at 10-12% per annum, house prices will have fallen even further and by the end of this year, unemployment will have reached (but not peaked at) two million and the FSA and bank-induced rigor mortis  will have all but finished-off the British financial services industry.

Within the last month, we have entered the “Bust” phase of the economic cycle – or “Credit Crunch”. (Sounds much friendlier – almost like a breakfast cereal.)

One good thing has come out of the whole sorry affair:  we have come to realise that the futile posturings of the Bank of England  are irrelevant and that the BoE is no longer a “shaper” of the economy. It is merely an observer.

During “Boom” years, having lots of meetings and tinkering with the Base Rate is a harmless enough pastime. However, come the “Bust” phase of the cycle, the old chestnuts ” We are in a Global Economy” , “Downward slope of the Economic Cycle” , “Sorry mate, we didn’t see that one coming” and “It was those fucking Americans and their securitised mortgages” are trotted out.

What bankers practise is not an exact science – that is why there are usually several opinions as to whether or not rates should be changed or who to blame for the latest screw-up. What they practise is best described as a combination of “bucket chemistry” and “guesstimation”.

The Bank of England has no more effect on  inflation than my wife  recycling plastic bottles has on global weather systems.

In the good old days when the BoE did as it was told, successive Chancellors would order a change in Base Rate in the full knowledge that  in the grand scheme of things, their machinations and fiddling would have absolutely no long-term effect on the economy. (Are you reading this, Norman Lamont?)

When government does finally intervene and shake up the financial system, they will have to do very BIG things such as nationalisation. The days of futile fiddling with interest rates are over.

Under Mervyn King, the BoE Monetary Policy Committee has become an irrelevance.

There is no longer any correlation between Base Rate and what happens to real borrowing rates. The banks are out of control and more-or-less doing what they damn-well please.

Everyone is reluctant to use the word “recession” which , just for the record, applies to a period when the economy experiences negative growth for two consecutive quarters. Or, to put it in plain English: when the economy shrinks for six months. The economy is now shrinking.

Some may say that certain “sectors”are not in recession while others are.

That’s like being slightly pregnant. Either you are pregnant or you’re not.

Sometimes it seems that even the economists and bankers don’t understand what is going on. Nowadays we live in a much more immediate and unstable age and therefore , the old economic principles are ceasing to apply. A single unpredicted event can have a major impact on either all , or on individual economies. More Chaos than Keynes.

The fact is that we can no longer manage Macro Economics through Micro Management. Interest rate tweaks, sugared by soothing political noises and underpinned by blind panic are having little effect .  For instance, The Americans have decimated their interest rates recently with  no particular effect on their economy although they “think” that they have had a slight effect on their inflation.

Bush staged a big dollar “giveaway”. Brown has now done the same. Both were decisions based in Politics rather than Economics. Perhaps the time has come to move Economics from the Politicians’ reach?

Looking on the bright side, in a few years, all this will be history. Mervyn will be gone, another Prime Minister’s hand will be up another Chancellor’s lower alimentary canal and in spite of the BoE’s and the Government’s ineffectual tinkering and rhetoric, those of us who survive will be enjoying another “Boom” but not before we have struggled through another recession/depression.

By 2013, the new Government will tell us that it was their policies and prudence that led us to the New Prosperity. The old Government had got it all wrong.

Economists and Bankers will tell us that they did not see any of this coming.  I am not a banker or economist but reckon that we are headed not just for a recession but a full-blown , very painful Depression – à la 1930s. The hazy and illusory days of plenty will be over.

Finally, I don’t think that enough has been made of Tony Blair’s excellent timing.

He ruled over us during a time of “virtual” plenty (it wasn’t real because it was funded by debt-ridden banks funding increasingly debt-ridden companies and individuals).In spite of Gordon Brown’s mithering, Blair held on until the rubber-band of economic growth was at maximum stretch. Finally, he handed it to Gordon………

The real worry is that at the time Gordon Brown was the Chancellor of the Exchequer and should have forseen certain things.

Not only did he not see what was flying through the air but even when it whistled past his ear, he did not notice that it was heading straight for the fan.