Monday, 31 August 2009

UK will grow sicker until it swallows the bitter pill of economic reality

"Millions of ordinary Britons are worried sick about debt and falling incomes. Unemployment and house repossessions are soaring – glib statistics which mask a welter of human misery. Countless UK firms are struggling with cash flow as they try to balance the books. And we're all sick of the grim economic news. No wonder the UK's "imminent recovery" is getting a lot of coverage. Last week, I returned from holidays abroad to find our media banging the "recession is over" drum. In truth, though, the UK remains in economic dire straits"

Sunday, 30 August 2009

Our quarter-century penance is just starting

""The current financial crisis is unlike any others," says the Bank for International Settlements. Lasting damage has been done. The "cumulative output loss" is likely to reach 20pc of GDP in the major economies.The message is the same at the International Monetary Fund. "The world is not in a run of the mill recession. The crisis has left deep scars. In advanced countries, the financial systems are partly dysfunctional," said Olivier Blanchard, the Fund's chief economist."

Friday, 28 August 2009

The Bank of England,inflation and printing money.

John Redwood
" Like many economic theories, the answer to that is it all depends. The Bank should take more seriously these points:One, if the pound starts to fall again as it did last year, we will experience substantial price rises on the many goods we import. The authorities should not be so lax that they jeopardise the currency.Two, this severe recession will remove capacity, as well as temporarily reducing it. Today we hear that the last TV manufacturing plant in England is closing for good. Many factories are being shut down, not to re-open.Three, quantitative easing on both sides of the Atlantic, and the huge monetary stimulus in China, is boosting commodity prices. This will exert some upward price pressure on finished goods.Four, because many companies cannot get more bank credit they are taking a tough line on price levels despite falling output. Some may continue to do so in the upturn."

Thursday, 27 August 2009

Fresh recession fears as investment by British business in biggest fall for 44 years

Daily Mail
"Investment by British businesses has suffered its biggest annual slump since records began 44 years ago, prompting fresh fears about the depth of the recession."

Fears for economy mount as business investment falls

""The further sharp decline in business investment signals serious threats to Britain's long-term recovery. In the face of weak demand and mounting financial pressure, businesses have little choice but to cut investment and stock," said David Kern, chief economist at the British Chambers of Commerce. "Unless this trend can be reversed, the long-term productive capacity of the economy will be damaged, and the country will lack the necessary capital stock to sustain a recovery. This must be kept in mind when the government plans a fiscal strategy to repair the public finances. It is critical not to impair the business sector's ability to invest and create wealth."

Tuesday, 25 August 2009

The troubling side of Ben Bernanke

"Ben Bernanke has proved himself a heroic fire-fighter, saving world from a calamitous spiral into debt deflation by showering markets with liquidity.A good thing too. He helped cause the raging fire of 2007-2009 in the first place. As a Princeton professor and then a junior Federal Reserve governor, Mr Bernanke was the intellectual architect of his predecessor Alan Greenspan's policies that so distorted global finance and pushed debt to historic extremes."

Monday, 24 August 2009

Hold on, we won't be out of the woods for years

Daily Mail
"But in Britain the behaviour of the banks was so egregious that the Government is still £3.3billion in the red on these shareholdings. And the Treasury doesn't have a clue how to rid itself of them.However, the biggest drag on a durable recovery for Britain is the Labour Government itself."

Sunday, 23 August 2009

UK's payments to EU jump by 60 per cent

"Britain's payments to the European Union will soar by almost 60 per cent next year, according to figures "buried" in government documents."

Friday, 21 August 2009

Tax rises and spending cuts are the only way to stave off greater pain

"One of the biggest misconceptions about the crisis facing the public finances over the next few years is that it is all a consequence of a spendthrift Labour Government and its recidivist debtor tendencies.Yes, that is an important part of it. When he took control of the UK economy in 1997, Gordon Brown had public finances that were among the best in the world: low levels of national debt, budget surpluses each year. He inherited a well-oiled machine.Thanks to his spending spree at the turn of the millennium, Britain went from a state of fiscal virtue to having the worst structural deficit in the G7 before the onset of the crisis. "

David Cameron: Cutting spending and debt 'will make or break my Government'

"He also signalled that the Tories will fight the next election on a clear pledge to reduce public spending. “I can’t think of an opposition party going into an election promising spending cuts since 1929,” he said. .....Mr Cameron has said the scale of Britain’s borrowing is a “disgrace” and warned that the Government runs the risk of defaulting on its debts."

Thursday, 20 August 2009

Government's £800bn overdraft is worst ever as company tax revenues plunge

Daily Mail
"Today's figure brings total net borrowing to £49.7 billion in the four months of the current financial year, compared with £15.9 billion last year.The nation's overall debt, at £800.8 billion, now accounts for 56.8% of gross domestic product (GDP), its highest since the measure started in 1974.And the public sector budget deficit, of £5.1 billion, was the first negative figure for July on record.Chancellor Alistair Darling has indicated net borrowing over the year as a whole will reach £175 billion as recession hits tax revenues, while spending on unemployment benefit soars."

Wednesday, 19 August 2009

Cameron Says U.K. Running the Risk of Debt Default

"“You run the risk of not being able to meet your obligations,” Cameron said at an event in London with Nassim Nicholas Taleb, author of “Black Swan.” “I’m not predicting that it’s going to happen, but as government borrowing goes up and up and up, you start running that risk.”In April, the Treasury said it will borrow 269 billion pounds ($437 billion) more than previously forecast as the recession cuts tax revenue. This year’s shortfall, 12.4 percent of gross domestic product, is the most in the Group of Seven.In May Standard & Poor’s warned that the U.K. may not be able to keep its AAA credit rating as its debt nears 100 percent of gross domestic product, or $2.1 trillion, changing its view to “negative” from “stable.”

Double digit inflation...

Guido Fawkes
"The MPC voted to print £50 billion more this month. Which is very convenient for Gordon Brown and Alastair Darling, it allows them to justify printing money, which they can then use to buy their own escalating government debts. Which is a little like eating your own leg to stop you starving."

Tuesday, 18 August 2009

IMF: recovery has started but could be derailed

The Times
"But the old status quo of Asia supplying American demands must change or the global recovery may be derailed, Mr Blanchard warned in a paper published today."The turnaround will not be simple," he said. "The crisis has left deep scars which will affect both supply and demand for many years to come."With America’s national debt hitting a record high last month of $1.27 trillion, the country cannot continue to inject stimulus funds into the economy indefinitely, Mr Blanchard said."

Record numbers of under-24s join the Neets' - not in education, employment or training

"Overall, one in six 16 to 24-year-olds (959,000) are now officially described as Neets, with the figure set to top the million mark in three months’ time as school leavers fail to gain university places. A record 60,000 are expected to be disappointed this year."

The real jobless total under Labour? SIX million, new research reveals

Daily Mail
"Six million are out of work and claiming benefits, according to research which lays bare the true scale of joblessness under Labour.The figure dwarfs the official rate of unemployment, which this month hit 2.4million, and is four times the number claiming Jobseeker's Allowance."

Inflation confounds expectations of a drop

"Inflation held steady in July, confounding expectations of a decline, as price rises in games, toys and hobbies offset falls in food, official figures showed on Tuesday. ....Charles Davis, economist at the Centre for Economics and Business Research said that inflation had remained higher than expected partly because of sterling's relative weakness and partly because signs that the worst of the global recession is drawing to a close were pushing up prices."There are signs of recovery in global demand which has led commodity prices to rebound. Japan, France and Germany all emerged from recession in the second quarter of 2009; whilst key emerging Asian economies China and South Korea are accelerating," he said."

Monday, 17 August 2009

Pound slumps as recovery hopes weaken

"The pound continued its slide against the dollar as traders continued to digest Bank of England's comments last week about the headwinds still facing the UK, and increasing scepticism about the likely strength of a global recovery."

Sunday, 16 August 2009

Iceland: what ugly secrets are waiting to be exposed in the meltdown?

"Eva Joly, the French-Norwegian MEP and fraud expert hired by Iceland and now working with the Serious Fraud Office, now believes it will be "the largest investigation in history of an economic and banking bank collapse".Many of the banks' secrets are likely to be inextricably bound up with corporate Britain and the success of these investigations in tracing and recovering assets is likely to affect every UK household."

Thursday, 13 August 2009

Unemployment: The mounting scrapheap

The Guardian
"This grim statistical pageant comes in spite of big and bold actions by policymakers. Over the last year, there have been rate cuts, a devaluation of the pound, a giveaway budget and the programme of pumping money into the financial system known as quantitative easing. In normal times, any of these measures would have constituted a big boost; but the lay observer could be forgiven for asking whether they have done any good at all. Unemployment is a lagging indicator – that is, one of the last sets of statistics to improve in a recession. Companies do not tend to go hiring until they are confident about the economic outlook. After the American dotcom bubble burst in 2001, it took around 30 months for the US job market to recover. This is a much bigger recession."

Enjoy eurozone's fragile stabilisation while it lasts

"The eurozone economy is stabilising. While the first estimate of the region's GDP in the second quarter showed a tiny 0.1pc decline, there were increases of 0.3pc in both Germany and France. But cheers should be muted."

Labour's jobs miracle has been a disaster for a whole generation

"As Frank Field, Labour's voice of sanity, readily concedes, the Government's New Deal and making-work-pay strategies have failed, costing the taxpayer £75 billion since 1997. Its record on youth unemployment is shameful. There are well over one million "Neets" – those not in education, employment or training – which is a greater number than when Tony Blair's first landslide was celebrated with D.Ream's pop song, Things Can Only Get Better.
For Mr Brown, a more appropriate anthem is Ray Charles's Busted. Because, unlike Mrs Thatcher, who had to battle against institutionalised defeatism, having inherited an economy that had been run into the ground by outdated, inefficient and over-manned nationalised industries, Mr Brown took over a golden legacy. Britain's reformed labour laws had made it one of Europe's most flexible locations for investment, a new spirit of enterprise had been injected into the veins of commerce, and an explosion of activity in London's financial sector brought a tax-revenue bonanza. Much of that has been squandered. Creeping taxes are choking hopes for a quick return to growth. Public spending is out of control. Private pensions have been wrecked. It's a tale of unimaginable incompetence."

Wednesday, 12 August 2009

Unemployment at highest level since 1995

"UK unemployment is now at its highest level since the summer of 1995.The data from the ONS showed that the number of people claiming jobseeker's allowance increased by 24,900 in July to 1.58 million - its worst level for more than 12 years.This marks the 17th month in a row where the "claimant count" has increased in the UK.Many experts predict dole queues will stretch past the three million mark next year - but an even gloomier forecast from the Centre for Economics and Business Research says it could approach four million.This would be far worse than the 1980s peak under Margaret Thatcher."

Bank of England: recession was deeper than feared and recovery will be slow

"In its widely watched Inflation Report, the Bank's Monetary Policy Committee said that the recession 'appeared deeper than previously estimated'. ...The unprecedented programme of QE has been criticised by some for storing up future inflation, but new forecasts from the Bank suggest it does not believe inflation poses any imminent threat. Mr King said that the Bank's preferred measure of inflation, which it uses to set the level of interest rates, could slow below 1pc this year."

Monday, 10 August 2009

Does the Bank of England know something the rest of us don't?

"Arguably, the reason we are seeing green shoots is precisely because a crumbling international banking system has, in effect, been replaced by the activities and efforts of central banks. Should they walk away, fledgling recoveries might curl up and die.If, therefore, central banks know something which markets don't, it's the extent to which the central banks themselves are keeping our economic system on life support."

How the Bank came to get things so wrong about the crash

"According to a recent Gallup poll, Ben Bernanke, chairman of the US Federal Reserve, is held in lower regard among Americans than the Internal Revenue Service. I doubt the Bank of England is blamed by the UK public for our economic woes to the same degree. The British are natural cynics, and never had the same blind belief in the presumed divine powers of the central bank to produce happy outcomes. There has therefore, been less room for disappointment.Even so, the Bank's credibility and authority have been greatly undermined by the events of the past two years. Whatever the Bank of England has to say about the future at tomorrow's Inflation Report press conference will be treated with appropriate scepticism."

S&P downgrades Baltic states' debt ratings

"Standard & Poor’s, the credit-rating agency, cut Latvia’s rating to “BB” and warned that its economy will contract by a further 16pc this year. The public debt will vault from 19pc of GDP last year to 80pc by 2011. “This very fast increase in debt is unprecedented,” said Moritz Kraemer, S&P’s head of sovereign ratings."

Sunday, 9 August 2009

IMF puts total cost of crisis at £7.1 trillion

"The staggering total is is equivalent to around a fifth of the entire globe's annual economic output and includes capital injections pumped into banks in order to prevent them from collapse, the cost of soaking up so-called toxic assets, guarantees over debt and liquidity support from central banks. Although much of the total may never be called on, the potential outlay still dwarfs any previous repair bill for the global economy."

Saturday, 8 August 2009

Big four banks reveal gaping wounds from reckless lending

The Times
"Britain’s top four banks laid bare this week the huge damage inflicted by the reckless lending that led to the credit crisis — but offered hope that the worst of the losses were behind them.The banks reported combined losses of £34 billion, but HSBC and Barclays, which did not take taxpayers’ money, disclosed healthy profits. Royal Bank of Scotland and Lloyds Banking group, the banks bailed out by the taxpayer, reported losses of £4 billion."

Thursday, 6 August 2009

Rate-setters pump £50bn more into economy

"Bank of England rate-setters doused hopes of a rapid recovery today after a surprise move to pump an extra £50bn into the flagging economy.The decision - taking quantitative easing efforts to boost the money supply to £175bn - is the clearest sign yet that policymakers think the UK is still deep in the mire. ...The move confounds speculation before the Monetary Policy Committee's (MPC) latest meeting that QE could be paused amid encouraging signs from industry as well as rising house prices.But the MPC, which also left interest rates unchanged at their 0.5 per cent record low, said the recession "appears to be deeper than previously thought".

Bank of England signals recovery is far from assured as it prints £50bn more

"The decision by the Bank's Monetary Policy Committee (MPC) to increase the scale of the unprecedented programme of printing money, or quantitative easing, from £125bn to £175bn was consented to by Alistair Darling, the Chancellor of the Exchequer. ....The stock market also rose but sterling fell on fears that pumping money into the economy will stoke inflation."

Tuesday, 4 August 2009

The banks must be forced to put their house in order

"The economy might not be experiencing a V-shaped recovery, but the banks which helped to cause this crisis certainly appear to be. Some of the largest investment banks on Wall Street have reported hefty profits in recent weeks. They were followed yesterday by Barclays and HSBC. .... Barclays and HSBC did not take capital from the Government, but they did avail themselves of the Bank of England's Special Liquidity Scheme. This support, along with the blanket public guarantee of their liabilities, has driven down the banks' cost of capital. New evidence also suggests investment banks on both sides of the Atlantic are making a killing from central bank quantitative easing schemes.In this context of massive public sector support, it is scandalous that the practice of paying staff excessive bonuses persists. These bankers should really be paying back their bonuses of previous years which, as we now see, were based on illusory profits, not raking in new ones."

Tullett Prebon chief says economy is a 'mega disaster'

"Terry Smith, one of the city's leading financiers, has called into question the grounds for the recent rally in equities, saying it is likely to be "soaked up" by a flood of new share issues, while the real economy is a "mega disaster"."

The Bank must keep the presses rolling

"A growing number now think the MPC will leave its Quantitative Easing programme unchanged. I have to say I suspect otherwise. It will be a close decision, and clearly it could go either way, but I feel the Bank has little option other than to extend the programme, raising the amount it will buy in bonds from the market from £125bn to at least £150bn."
Comment: "Quantitative Easing" is devaluation in all but name

Nationalised Northern Rock's £724m loss as homeowners struggle to pay back mortgages

Daily Mail
"Government-owned lender Northern Rock reported a half-year loss of £724.2million today.
The Newcastle-based company also said the share of its mortgages in arrears had risen to 3.92 per cent by June 30, from 3.67 per cent three months before.Northern Rock - which was taken into public ownership in February 2008 - said it incurred an impairment charge on its loans of £602.2million and expected that figure to be similar in the second half."

Monday, 3 August 2009

Warning: Oil supplies are running out fast

"In its first-ever assessment of the world's major oil fields, the IEA concluded that the global energy system was at a crossroads and that consumption of oil was "patently unsustainable", with expected demand far outstripping supply.Oil production has already peaked in non-Opec countries and the era of cheap oil has come to an end, it warned.In most fields, oil production has now peaked, which means that other sources of supply have to be found to meet existing demand."

Sunday, 2 August 2009

Factors that inhibit chances of rapid recovery in the US

"The 1pc drop in second-quarter GDP makes this the US's worst recession since the Second World War.Government stimulus spending has helped a bit, but US personal savings are still depressed and the federal deficit is huge."

Saturday, 1 August 2009

IMF puts UK banking bail-outs at £1,227bn

"Fresh calculations from the International Monetary Fund have revealed the full scale of assistance meted out to Britain's collapsed banking system. The Fund said that when one combines all the support for banks, including capital injections, the buying of frozen assets, Government guarantees and Bank of England liquidity provision, the total bill amounts to 81.8pc of gross domestic product – equivalent to £1,227bn."