Friday, 31 July 2009

Bad news for Brown as IMF says Britain's debt crisis is the worst among major economies

Daily Mail
"The latest IMF report has revised its estimates for the scale of Britain's deficit upwards.It predicts that by 2010, the UK's debt will equate to 13.3 per cent of gross domestic product - compared to 9.7 per cent for the US.The damning verdict will reignite the political row over the Prime Minister’s refusal to acknowledge the need for spending cuts."

Recession 'could force the unemployment toll to 4m'

Daily Mail
"The unemployment rate could hit almost 4million by the end of the recession - far worse than the post-war peak under Margaret Thatcher.A doomsday scenario by the Centre for Economics and Business Research think-tank says unemployment could rise to 3.8million from its current level of around 2.4million. At the same time national debt could soar to £2trillion."

Wednesday, 29 July 2009

Big-bank bashing is pure political hypocrisy

The Times
"The days of easy lending are emphatically over, as the Chancellor well knows. It was his Government that let debt run wild.....
The Bank of England’s Financial Stability Report, though it may not be everyone’s idea of a ripping yarn, contains some excellent explanatory material about the state of Britain’s banks. It does not make for very happy reading. In fact, it makes for very grim reading."

Five months on and Quantitative Easing still isn’t working

"The problem is, according to the latest stats from the Bank, we haven’t yet even had any convincing signs that step one is working very well. All other things being equal, one would expect a £125bn injection to increase the amount of cash sloshing around the economy (the Bank calls this M4 - no relation to the motorway) by 7pc or more. But according to figures released this morning, the growth in the key measure of M4 (including complex and noisy things like hedge funds) tailed off in June, falling 0.6pc in June following a 0.2pc rise in May."

The UK economy is still too sick to throw away its QE prescription

"Officially the Bank of England's quantitative easing programme still has at least another week and a bit to run, although to judge from the behaviour of the gilt markets and the comments of economists, you'd be forgiven for thinking the bold move is all but over. .....As Charlie Bean, deputy governor of the Bank, has said repeatedly on his tour of the UK to explain the unusual monetary medicine, it may take as many as nine months to show its full effects. But so far the results have hardly been encouraging. The fact is that the vast majority of this money is being funnelled into banks' reserves – the cash they keep with the Bank of England – and is not finding its way out again."

Monday, 27 July 2009

Britain's path to recovery will be long and protracted, Deloitte warns

"The widely-watched forecast come after figures on Friday showed the economy contracted far more than feared last quarter, dashing hopes that Britain would enjoy a quick, 'V’ shaped recovery. Roger Bootle, author of Deloitte’s review, argues that an upturn will at instead be 'U’ shaped - a period of anemic growth - at best, but admits the economy could slide back into recession."

Iceland's krona proves the magic wand as Europe ails

"The krona has fallen by half against the euro since the `New Viking' trio of Landsbanki, Glitnir, and Kaupthing strayed out of their depth and brought down Iceland's financial system. .....Those who point to Iceland as a scarecrow exhibit of what happens to a small country caught in a financial storm without the shield of euro membership have the matter backwards, as will become ever clearer over the next two years. .....It baffles me why rating agencies still talk of downgrading Iceland's debt to junk. The country should emerge with public debt of 80pc to 100pc of GDP – much like Britain. Yet Iceland also has the world's best-funded pension system at 120pc of GDP. It is the two together that counts.
In their angst, Icelanders look wistfully at the apparent safe port of EU membership. The Althingi has voted to start entry talks. But the storm will have blown over well before an EU referendum is held in two or three years. By then the delayed cluster bomb of Europe's unemployment will have detonated. Try selling EU protection then."

Sunday, 26 July 2009

Huge gilts row barely registers as the UK sleepwalks into stagnation

"The political classes obsess over the Norwich North by-election and Labour's slow-motion hara-kiri under Gordon Brown. But the news that really matters – the economic news – keeps flowing thick and fast. And it's far from reassuring. .....These GDP numbers expose the City's talk of "green shoots" as nonsense. A full recovery won't happen while the UK remains burdened by our newly created Japanese-style "zombie banks".This is the heart of the problem – yet the politicians don't want to know. The banks are ticking over on a diet of government cash while charging usurious rates on extremely limited lending books. The UK, meanwhile, sleepwalks towards a lost decade."

Friday, 24 July 2009

Britain facing 'decade of pain' as economists warn public spending must be cut by 16%

Daily Mail
"Now the Institute for Fiscal Studies, in an analysis for the Guardian, is warning of a 'decade of pain' that will see public spending at its tightest since 1977 - just before the Winter of Discontent under the last Labour government."

Britain's hopes of a quick recovery from recession dashed as GDP disappoints

"Hopes that Britain will soon emerge from the worst recession in decades were dealt a blow on Friday after figures showed the economy shrank more than feared in the last three months. .....The figures are "shockingly bad and firmly dash any hopes that the UK had already pulled out of recession," said Vicky Redwood of Capital Economics. "Overall, it still looks likely to be a long hard slog to get the economy back on track."

Wednesday, 22 July 2009

UK government debt: almost 9p of each £1 in tax will be needed to pay the interest

"The National Institute of Economic and Social Research said that costs of servicing government debt will rise from £25.6bn this fiscal year to £50.7bn in 2013/14, due to a combination of higher interest rates and a far greater debt burden. The warning underlines the cost facing taxpayers as the Government debt rises at the fastest rate in peacetime history."

A recession for the many, not the few

"It would be bad enough if it was merely the unskilled and poor who were suffering. But we are also facing a youth unemployment crisis of almost unprecedented proportions – indeed, any claims Gordon Brown has to have helped the youngest and most vulnerable have been shattered. The recession has created an army of dispossessed, disenchanted young men (the majority of those losing their jobs are male). It is a recipe for social chaos not witnessed since the riot-punctuated Seventies and Eighties. It also, perhaps, helps to explain the visceral public reaction to this newspaper’s revelations over MPs’ expenses: it was a sign of the widening rift, already at unprecedented proportions before the crash, between the haves and have-nots."

MPC minutes trigger jitters in the gilt market over QE plans

"The UK gilt market was alarmed on Wednesday after the minutes of the Bank of England's July Monetary Policy Committee meeting raised fears that it would not extend its quantitative easing (QE) programme beyond the £125bn already committed. .....Economists said the comments overall cast serious doubt over whether the MPC would opt to extend its purchase programme next month. "While we would by no means rule out the Bank deciding to use the final £25bn within its QE pot at the August meeting, these minutes give no indication that this is the MPC's 'default position'," said Richard McGuire, fixed income strategist at RBC Capital Markets."

UK debt rises £213 a head in a month as economists say tax rises of £20bn a year necessary

Daily Mail
"The crisis in Britain's public finances has seen the national debt rise by £213 for every man, woman and child in only a month, official figures reveal. .....Government borrowing swelled by £13billion last month - or £213 for every person in the country - up from £7.5billion for the same month a year ago.Overall net debt now stands at 56.6 per cent of gross domestic product, the biggest figure since records began in 1974."

Tuesday, 21 July 2009

UK public borrowing doubles to June record

" also takes the overall level of net debt as a proportion of gross domestic product to 56.6pc, the highest on record. The figure includes the liabilties of Northern Rock and Bradford & Bingley. “The poor fiscal backdrop represents something of a time bomb,” said Richard McGuire, a strategist at RBC Capital Markets.The scale of Britain's deficit and how to fix it is already emerging as a key issue for the next general election. The Conservatives have accused Gordon Brown of threatening the economy with financial ruin unless a plan to roll back the deficit is made clear..."

Monday, 20 July 2009

Fiscal ruin of the Western world beckons

"For a glimpse of what awaits Britain, Europe, and America as budget deficits spiral to war-time levels, look at what is happening to the Irish welfare state. ......No doubt Ireland has been the victim of a savagely tight monetary policy - given its specific needs. But the deeper truth is that Britain, Spain, France, Germany, Italy, the US, and Japan are in varying states of fiscal ruin, and those tipping into demographic decline (unlike young Ireland) have an underlying cancer that is even more deadly. The West cannot support its gold-plated state structures from an aging workforce and depleted tax base.As the International Monetary Fund made clear last week, Britain is lucky that markets have not yet imposed a "penalty interest" on British Gilts, given the trajectory of UK national debt – now vaulting towards 100pc of GDP – and the scandalous refusal of this Government to map out any path back to solvency."The UK has been getting the benefit of the doubt, both in the Government bond market and also the foreign exchange market. This benefit of the doubt is not going to last forever," said the Fund."

Sunday, 19 July 2009

Audit chiefs refuse to pass accounts for 5 Government departments

Daily Mail
"Gordon Brown was accused last night of trying to ‘sneak out’ a flurry of bad news about the Government’s finances – just as MPs break up for their summer holidays....The most damning disclosure is likely to be the level of public debt and collapsing revenues. Sources suggested last night that the reports would reveal a record drop in taxrevenue for 2008-09.Vince Cable, Liberal Democrat Treasury spokesman, said: ‘It’s clear the public finances are in a serious mess. The very least we should expect is a clear and honest statement of the position but the Government seems to be doing its best either to conceal the position or is simply being incompetent.’

If the Government fails to make cuts now it will be racked with gilts

"Why is it suddenly a good idea to spend our way out of recession and print money? The debate over the Bank of England's "quantitative easing" scheme – or QE – has been practically non-existent.Those benefiting from QE – and the associated recapitalisation of insolvent, failed banks by the back door – have instead endlessly repeated the mantra "we simply must beat imminent deflation". In that context, the June CPI number bears closer examination – because it has about as much to do with deflation as Gordon Brown does with fiscal prudence.The credit crunch has been in full swing since the summer of 2007. Yet June was the first month during that two-year period in which CPI inflation even fell below target, let alone risked going negative."

Friday, 17 July 2009

Oil price slips below $62 a barrel and could fall to 2002 lows

Daily Mail
"But Veteran advisor to the U.S. government Philip Verleger, who has built up a following for predicting last year’s $147 a barrel 'superspike' and then the six-month 'reverse spike' to $34 last winter, says the recession will force down oil to prices last seen in 2002, at around $20 a barrel."

IMF warns that Britain's soaring debt is 'testing the limits'

Daily Mail
"In a major blow to Gordon Brown, the Washington-based fund warned the UK is ‘testing the limit of the market’s confidence’ by pushing the national debt towards 100 per cent of gross domestic product - or close to £1.5trillion.If Britain does not do more to tackle public spending, faith in the Government’s ‘solvency’ could be damaged, it said in an economic health check."

Thursday, 16 July 2009

IMF warns pound could be at risk from uncertainty

"In a report published yesterday following a staff mission to Britain in May, the IMF said that a "credible plan" was needed to reverse the rapid deterioration of the public finances if confidence in the UK was to be upheld. ....The IMF said the structural fiscal position was weak even before the financial crisis erupted and predicted gross debt is set to double over the next five years to 100pc of gross domestic product.George Osborne, the shadow chancellor, said: "The IMF could hardly have delivered a more damning verdict on the Brown years - and it vindicates Conservative warnings about the debt crisis."

Wednesday, 15 July 2009

Record job losses push unemployment level to 14-year high of 2.3m

Daily Mail
"The figure rose by 281,000 in the three months to May, the biggest quarterly increase on record, taking the total to 2.38 million - the highest since 1995."

Tuesday, 14 July 2009

Like Mr Micawber, Britain finds itself in a debtors' prison

"...Mr Micawber ended up in a debtors’ prison. The UK economy is arguably already in it. The long, credit-fuelled boom is over, leaving Britons with mountainous debt which will take years to work off. To that must now be added burgeoning public debt.Rewind a decade, and the health of Britain’s public finances was the envy of Europe. In little more than two years, those advantages have ruinously been blown away. Even the Treasury admits that national debt as a proportion of GDP will rise to 80pc over the next several years . Many outside forecasters think it will be worse — more like 100pc."

Pound at risk from state of UK public finances, says UBS

"The pound is a riskier investment than its current value against the dollar and euro reflects, because of the state of Britain’s public finances, according to Swiss bank UBS."

House prices - 'No full recovery until 2020'

Daily Mail
"Property prices in 2015 in real terms - after adjusting for inflation - could still be below average 2008 levels, it says, with a 30% chance this might still be the case by 2020. It notes that in cash terms, prices may appear to have recovered."

Monday, 13 July 2009

Lobbyists in scramble for Tory insiders

"There are a lot of desperate lobbyists suddenly deciding that they’re going to try and suck up to the Tories as hard as possible, in a very overt and slightly vacuous kind of way,” said Neil O’Brien, director of Policy Exchange, a think-tank with close links to the Tory leadership."

Europe digs its economic grave while the ECB answers to no one

"Without a radical change of strategy, the ECB risks pushing the weakest states into a debt-compound spiral that can only end in bond crises and/or the disintegration of Europe's monetary union – whichever comes first.
....Professor Tim Congdon from International Monetary Research said the eurozone money figures are "horrifying" and portend a serious crunch ahead. "My verdict is that the senior people in the ECB [and the Fed] have little organised understanding of the debt-deflationary processes initiated in late 2008," he said."

Saturday, 11 July 2009

Time to rip QE oxygen mask from the banks

"Since QE began in March, Economic Agenda has railed against this ridiculous policy – in stark contrast to the vast majority of other professional economists and financial commentators. ......While the public is deeply suspicious of QE, the majority of economists seem to support it. Why? The reason, in my view, is linked to the fact that the UK's insolvent banks, by selling gilts back to the authorities, and receiving cash balances in return, are using QE as an oxygen mask.As such, QE is recapitalising, by the back door, banks that should fail – and at everyone else's expense, given its impact on future inflation. That's why the City economists who work for such banks and who dominate the airwaves are so adamant QE is great."

Friday, 10 July 2009

The Bank of England's resolve will soon be tested

"Whatever its colour, the next government will have to take some extraordinarily unpopular decisions. Attempting to inflate our way out of the problem, the traditional fall-back of Labour governments, offers no kind of solution. Inflation is socially divisive, because it destroys savings alongside debt. The profligate are rewarded, and the prudent punished. To the extent that wages lag behind prices, and disposable incomes become depressed, it is tantamount to higher taxation anyway. What's more, it raises interest rates for years to come."

You can bank on the Hand of Gord to create another disaster

"The problems of having a failed chancellor as prime minister were highlighted again this week, when Mr Darling unveiled his hybrid White-Green Paper on financial regulation reform. He was in the unenviable position of having to explain (but not criticise) what went wrong under the previous system, and propose changes to it, but without being able to do what was really necessary: scrap Mr Brown's ill-conceived tripartite arrangement."

Thursday, 9 July 2009

Bank of England to continue interest rate freeze but economy set for another £25bn boost

Daily Mail
"Meanwhile revisions to official data showed the economy contracted 2.4 per cent in the first three months of the year - the worst quarter since 1958 and almost equivalent to the entire fall seen during the 1990s recession."

Quantitative Easing - the beginning of the end

"Think of it rather like an extra invisible interest rate cut. Indeed some economists estimate that the effective interest rate, when QE is borne in mind, is actually around minus 2pc .....But – and it’s a big but – this clearly is something of a watershed moment, inasmuch as the Bank has now gone from talking about an “exit strategy” to actually getting closer to carrying one out."
Comment: "Quantitative Easing" is devaluation in all but name.

Wednesday, 8 July 2009

Some Find U.K. Bailout Too Onerous

"Six months after the U.K. government scrambled to launch new bailout measures for Britain's foundering banks and economy, several of those efforts are languishing with few takers. .....The snubbed bailout programs are a testament to the difficult balancing act governments face when attempting to aid their financial sectors and economies: They don't want to give banks and businesses a free ride, but fail to accomplish anything if their terms are not attractive enough."

Tuesday, 7 July 2009

US lurching towards 'debt explosion' with long-term interest rates on course to double

"The US economy is lurching towards crisis with long-term interest rates on course to double, crippling the country’s ability to pay its debts and potentially plunging it into another recession, according to a study by the US’s own central bank. .....The study is damning because Mr Laubach was the Fed’s economist at the time, going on to become its senior economist between 2005 and 2008, when he stepped down. As a result, the doubling in rates is the US central bank’s own prediction."

Britain gives French £15million to police their own border

Daily Mail
"Gordon Brown was last night accused of striking a bad deal for the taxpayer after agreeing to give France £15million to help tighten its borders."

Sterling hit as UK manufacturing dips

"The euphoria over the green shoots that brightened the economic data in April is being replaced by a recognition that a recovery for the UK economy will be long and hard. The British Chambers of Commerce warned today that the path out of recession will be fragile and cautioned against complacency."

Monday, 6 July 2009

Bulgarian stress test for the Balkans

"The Baltic trio of Latvia, Lithuania, and Estonia are lucky. At the end of the day, they can count on Swedish banks and the full might of the Swedish state to shield them from economic disaster. ...The picture is messier in the Balkans, a region with eight times the population (55m) and no obvious Big Brother at hand, and messiest of all is Bulgaria where Sofia mayor Boiko Borissov inherits what he calls "the complete collapse of the country" after crushing the ruling socialists in elections over the weekend."

Saturday, 4 July 2009

QE just acting as a sugar rush for insolvent banks that deserve to fail

"The UK is in the midst of the most dangerous economic experiment for generations. Yet it's the subject of no debate. Since March, the authorities have been using "quantitative easing", or QE. This involves the Bank of England expanding its balance sheet from nothing in order to purchase debt instruments from the market." .....Over the past three months, the Bank has spent £106bn of QE funny money. By the end of July, it will have purchased the £125bn of assets it has so far been authorised to buy. At this week's meeting of the Monetary Policy Committee, interest rates will be held at 0.5pc. But, with the original QE "pot" almost gone, the Treasury and Bank could well signal there's more to come."

Gordon Brown out of step as Labour's chance slips away

"Sequestered in an economic and political Neverland of his own devising, surrounded by a dwindling coterie of sycophants, with a very angry chimp called Balls, Wacko Gordo lives out the last months of this Government in a world of his own. He talks about his upcoming "General Election" tour of Britain as his big comeback, and about his exciting plans for a "zero per cent rise" in public spending. Staring at their shoes in embarrassment, Wacko's Cabinet colleagues wonder whether he will even make it to the comeback trail."

'Rogue oil trader loses his firm £6million by single-handedly pushing price to eight-month high'

Daily Mail
"A suspected rogue trader allegedly caused a British oil broker to lose £6million by making unauthorised deals.The trader, believed to be Steve Perkins, was blamed for pushing prices to an eight-month high.He has now been suspended by his firm, London-based PVM Oil Futures, which places bets on the future price of the commodity."
The "rogue trader" who is suspected of moving the price of oil by up to $2 on Tuesday would have cost his employer $650m (£400m) if the trade had not been discovered and closed, according to sources. (Telegraph)

Thursday, 2 July 2009

Gordon Brown's attack on Tory cuts has backfired in spectacular fashion

"Their attack on Tory plans for a more responsible budget has backfired spectacularly. For, instead of undermining David Cameron's claim to a caring Conservatism, it has invited academics, the City and the media to scrutinise Mr Brown's insistence that (in the unlikely event of the party winning a fourth term) Labour will keep state spending on an upward curve.Few, it seems, accept a word of it. John Kay, Oxford don and founder of the Institute for Fiscal Studies, and one of the country's most respected economists, told me on Sky News that spending cuts by a re-elected Labour administration would be unavoidable. "Spending has got to go down and taxes as a proportion of national income must go up. There's absolutely no way of avoiding that as the central truth," the professor said."

Wednesday, 1 July 2009

Brown is in denial. The public expect cuts

The Times
"It seems to be obvious to everyone except the Prime Minister that spending has to be reined in. ......Mr Brown apparently thinks he can win the next election by emulating the Tory campaign against “Labour’s tax bombshell” in 1992. But he has, as usual, drawn the wrong lesson. Mr Brown has convinced himself that the Tories won in 1992 by lying about Labour’s tax policies — and that he can now do the same about Tory cuts in public spending."