Wednesday, 30 December 2009

Printing money is a game with potentially dangerous results

"If you were one of the 12 million people who reportedly went to the sales on Boxing Day, then you might be thinking this recession has not been so bad after all. Unemployment is not rising as fast as expected, interest rates remain low and the stock market is up by more than half since March.The truth is, though, that we have been living in an economic La La Land, induced by perhaps the biggest policy undertaken during the Labour Government's period in office: printing money, or quantitative easing, to use its economically correct but unlovely name."

Britain's debt now a 'riskier proposition' than Italy's

"Investors now view Britain as a riskier lending proposition than Italy, with its cost of borrowing rising comfortably above the 4pc mark for the first time this year. .....The Treasury's cost of borrowing has risen by more than a percentage point since March, despite the Bank of England spending £200bn on gilts through its quantitative easing (QE) programme. Experts put the increase down to worries that this and future governments will either prove incapable of reducing their deficit or will resort to inflation in order to erode it. The combined effect has been to catapult UK government bond yields above those of Italy and Spain in the past few weeks alone."

China and South East Asia create huge free trade zone

"A free trade zone spanning more than 1.9 billion people will come into life on January 1 as China and ten South East Asian countries join together to scrap tariffs. In another sign of Asia's ascendancy, and of its growing economic and political union, duties will be dropped on everything from steel to rubber and shoes to electronics.China hopes that the zone will quickly rival the European Economic Area and the North American Free Trade Area and provide new outlets for its goods in the face of Western protectionism."

Sunday, 27 December 2009

Experts accuse Government of 'alarming complacency' over UK's ballooning budget deficit

Daily Mail
"The Government came under heavy fire from experts today over the lack of a 'clear and credible' plan to tackle the dire state of the public finances.In a letter to the Sunday Times, a group of 11 economists said ministers were guilty of 'alarming complacency' after failing to set out detailed proposals to address the ballooning deficit in the Pre-Budget Report earlier this month. ....The letter was signed by:

Tim Congdon (International Monetary Research), John Greenwood (Invesco Asset Management)

Andrew Lilico (Europe Economics),Kent Matthews and Patrick Miniford (Cardiff Business School)

Michael Oliver (ESC Rennes School of Business),Gordon Pepper (Lombard Street Research)

David B Smith (Derby University),Peter Spencer (York University)

Peter Warburton (Economic Perspectives),Philip Booth (Cass Business School/IEA)

Chinese economy overtakes Japan

"The fast-growing emerging economy had been expected to surpass Japan next year, but the transition looks to have happened in 2009, based on China's new growth estimates. Its statistics bureau said that China grew by 9.6pc – rather than 9pc – in 2008, meaning its economic output was 31.405 trillion yuan, or $4.6 trillion (£2.9 trillion), last year."

Saturday, 26 December 2009

Debt-laden Japan shocked by £630bn spree to ‘save lives’

The Times
"Mr Hatoyama swept to power in August with grand promises that the era of wasteful public spending would end. Japan’s unnecessary and notoriously expensive “roads to nowhere” public works projects would be curtailed and the money diverted to supporting beleaguered households.Four months on from that victory and Mr Hatoyama has spent more than any of his predecessors and has yet to make any serious impact on the wider effort of repairing Japan’s shattered economy."

Thursday, 24 December 2009

Gilts sell-off as Britain joins Italy in debt house

"The cost of borrowing for the British Government has surged to within a whisker of Italian levels as global markets issue their punishing verdict on the Government’s spending plans. ....The yield on 10-year gilts spiked Wednesday to 3.97pc, 46 basis points higher than costs on French bonds. Britain and France were neck and neck as recently as last month, before Labour’s pre-Budget report raised deep concerns among Chinese, Arab, and Russian investors about the credibility of British state."

Wednesday, 23 December 2009

Bank voted 9-0 to keep rates, QE steady

"All nine members of the Bank of England's Monetary Policy Committee voted to keep interest rates at a record low of 0.5 percent and maintain the 200 billion pound asset buying programme in December, as expected.Analysts do not expect any further expansion of the Bank's quantitative easing scheme -- pumping money into the economy by buying assets -- and are now looking for an indication of when the central bank might start to tighten monetary policy.Britain is showing signs of recovery after a year and a half of recession and, although it is lagging behind other economies, policymakers expect a return to growth before the year is out.Minutes of the Bank's December 9-10 meeting, published on Wednesday, showed the MPC felt little had changed since November when they expanded quantitative easing, mostly targeted at buying British government bonds, by 25 billion pounds."

Tuesday, 22 December 2009

Charles Goodhart warns of return to recession as bank lending falls

"Professor Charles Goodhart, a former top official at the Bank of England now at the London School of Economics, said policymakers have neglected the flashing danger signal of the monetary data."What has happened to all the monetarists? Growth in money holdings and lending has plummeted. Thirty, or 40, years ago they would have been forewarning doom and destruction at this juncture, and casting anathemas at the authorities," he wrote in a consultant report for Morgan Stanley. "

Fitch warns that Britain and France risk losing their AAA rating

"Highlighting the "unpleasant fiscal arithmetic" facing states across the Old World, Fitch said that none of the "arguably" benchmark AAA states can safely rely on their top rating for much longer.Public debt in both Britain and France will reach 90pc of GDP by 2011, higher than the 80pc (net) level when Japan lost its AAA rating earlier this decade."

Monday, 21 December 2009

The rise of Germany belies the chaos a strong euro is causing

"The super-strong euro is having sharply varying effects on the different countries in the eurozone and causing the rift between north and south to widen further, according to a new report by Standard & Poor's (S&P). ..The headache for the ECB is that Germany seems well able to cope with a strong currency after screwing down wages and raising productivity, even if Club Med is squealing. German firms have gained some 18pc in labour cost competitiveness against Italy and 15pc against Spain since 2005, and far more going back to the mid-1990s when the exchange rates were set in stone."

UK recession to be declared over – but recovery remains distant

"However, the CBI will warn that GDP will not return to pre-recession levels until after 2011 – illustrating the depth of Britain's economic troubles. The economy has contracted since June 2008, the most prolonged recession since records began in the 1950s, and has shrunk by 5.1pc in total."The economy will be on a fragile path of very slow growth as we continue to feel the lasting effects of the financial crisis," said John Cridland, CBI deputy director general. "

Saturday, 19 December 2009

National debt hits post-war peak as tax receipts slide

"The Treasury borrowed some £20.3bn in November – the biggest monthly amount since records began – according to official figures released on Friday.The debt built up in the month alone is just shy of the annual transport budget and would take a 5 percentage point VAT increase for an entire year to recoup. However, in a sign of just how pessimistic investors are about Britain's outlook this year, the figures were described as "better-than-expected" by a range of economists, who added that it was broadly in line with the Chancellor's deficit projection of £178bn from last week's pre-Budget report."

Friday, 18 December 2009

UK hit hardest by banking bailout, with £1trillion spent to save the City

Daily Mail
"The burden of the banking bailout has been heavier in Britain than the rest of the western world, according to alarming figures published today.The UK has committed public funds worth almost 75 per cent of national income, or around £1trillion, to saving the City, according to the Bank of England.That compares with bailout costs worth just 30 per cent of gross domestic product in the Euro Zone and 50 per cent in the United States."

UK borrowing hits record monthly high of £20bn

"he £20.3bn is more than was borrowed by the UK for the whole of 2002 and on a par with International Monetary Fund estimates for the entire 2009 output of economies such as Costa Rica and Uruguay."

Thursday, 17 December 2009

There's only one escape from our debt trap

"What is far more likely, or so investors fear, is that Britain will inflate the deficit away by debauching the currency: as inflation rises alongside the money supply, every pound we owe will be worth that little bit less. This is what we did in the 1970s – and most other times we have faced a debt crisis. So suspicions that a repeat performance is on the cards are not difficult to understand: the pound has already fallen by around a quarter since the start of the crisis; the Bank of England has embarked on a quantitative easing scheme that involves printing enough money to buy the annual economic output of Denmark; and inflation is threatening to leap well above the Bank's 2 per cent target."

Wednesday, 16 December 2009

Alistair Darling in cover-up scandal as he is accused of not revealing full extent of Britain's debt

Daily Mail
"The Chancellor told MPs that the Treasury had made 'estimates' of increases to the debt interest bill - which experts predict will hit £70billion to £80billion a year within five years - but refused to release them to Parliament.The Institute for Fiscal Studies, Britain's most respected economic forecaster, has given projections to MPs suggesting the debt interest bill will hit £60billion by 2012/13, £66billion by 2013/14 and £71billion by 2014/15.Mr Darling also declined to reveal Treasury 'assumptions' showing deep cuts to public spending outside of Labour's protected areas of schools, hospitals and police numbers, despite demands to do so from the Treasury select committee."

S&P downgrades Greece while concerns mount over secret defence budget

"Standard & Poor’s has become the second rating agency to downgrade Greek sovereign debt to near junk levels of BBB+, issuing a withering verdict on Spartan plans unveiled this week by premier George Papandreou. .....Fitch Ratings precipitated the Greek crisis earlier this month with a surprisingly harsh downgrade to BBB+, accompanied by a “negative outlook”.

Gulf petro-powers to launch currency in latest threat to dollar hegemony

"The Arab states of the Gulf region have agreed to launch a single currency modelled on the euro, hoping to blaze a trail towards a pan-Arab monetary union swelling to the ancient borders of the Ummayad Caliphate. ....“The Gulf monetary union pact has come into effect,” said Kuwait’s finance minister, Mustafa al-Shamali, speaking at a Gulf Co-operation Council (GCC) summit in Kuwait.The move will give the hyper-rich club of oil exporters a petro-currency of their own, greatly increasing their influence in the global exchange and capital markets and potentially displacing the US dollar as the pricing currency for oil contracts. Between them they amount to regional superpower with a GDP of $1.2 trillion (£739bn), some 40pc of the world’s proven oil reserves, and financial clout equal to that of China."

Tuesday, 15 December 2009

Moody’s warns of 'social unrest’ as sovereign debt spirals

"It said that in the coming years, evidence of social unrest and public tension may become just as important signs of whether a country will be able to adapt as traditional economic metrics. Signalling that a fiscal crisis remains a possibility for a leading economy, it said that 2010 would be a “tumultuous year for sovereign debt issuers”.

Monday, 14 December 2009

Biggest expansion of Bank of England's balance sheet in two centuries

"All interesting stuff, but one bit I find particularly fascinating is this chart from the section on markets and operations.It is, as far as I know, the first time the Bank has investigated just how its £200bn programme of quantitative easing compares with previous episodes of central bank balance sheet expansions in the past. ..."

Sunday, 13 December 2009

Greece defies Europe as EMU crisis turns deadly serious

"Euroland's revolt has begun. Greece has become the first country on the distressed fringes of Europe's monetary union to defy Brussels and reject the Dark Age leech-cure of wage deflation. ....Mr Papandreou has good reason to throw the gauntlet at Europe's feet. Greece is being told to adopt an IMF-style austerity package, without the devaluation so central to IMF plans. The prescription is ruinous and patently self-defeating. Public debt is already 113pc of GDP. The Commission says it will reach 125pc by late 2010. It may top 140pc by 2012.If Greece were to impose the draconian pay cuts under way in Ireland (5pc for lower state workers, rising to 20pc for bosses), it would deepen depression and cause tax revenues to collapse further. It is already too late for such crude policies. Greece is past the tipping point of a compound debt spiral."

Be proud we're giving another £1.5bn to beat global warming, says Mr Brown (just don't mention our £800bn national debt)

Daily Mail
"Gordon Brown told hard-pressed taxpayers yesterday they 'should be proud' Britain was the biggest EU contributor to a new global warming fund.In a week in which it emerged that the national debt is expected to near £800billion this year, the Prime Minister pledged £1.5billion.The amount to help Third World countries cut emissions and protect themselves against climate change is double what he had previously promised."

Saturday, 12 December 2009

(image from Burning our Money)

Friday, 11 December 2009

£2,400: the bill every family will pay to cut the deficit

"The true extent of the financial pain that will be felt by households and public services over the next few years was laid bare yesterday by the Institute for Fiscal Studies. ...To protect the "ringfenced" areas of hospitals, schools and the police, there will have to be savage cuts to defence, housing, transport and higher education budgets. Cuts of almost 7 per cent a year, 20 per cent over three years, mark the severest squeeze since the Second World War, tougher than anything in the austerity years of the 1970s or early 1980s."

Britain's ballooning public debt sparks massive gilts sell-off: Investors dump UK debt amid fears of default

Daily Mail
"Investors moved away from gilts - the bonds issued by the Government to finance its debts - amid concerns that Alistair Darling had ducked tough questions on how Britain will balance the books.Ratings agencies have warned that Britain's triple-A credit rating, which enables the Government to borrow more cheaply than less credit-worthy nations, could be at risk unless Gordon Brown and his Chancellor lay out a credible plan to cut the deficit."

Darling's plan to halt spending in Pre-Budget Report 'overruled by Brown and Balls'

Daily Mail
"Gordon Brown and Ed Balls hijacked the Pre-Budget Report and insisted it should not outline plans to rein in public spending, it emerged today.The Prime Minister is said to have wanted Labour's pledges for an extra £30billion in spending kept despite the already-gaping hole in public finances."

Thursday, 10 December 2009

Pre-Budget report: the nasty come-down

"The gilts market is having the hangover from hell this morning, as the nasty realisation dawns that the pre-Budget report was an exercise in smoke and mirrors of the Brownian type....At first glance, the PBR, as I said in my analysis piece this morning, was ostensibly convincing. But the more you dig in, the more flaws become apparent."

Wednesday, 9 December 2009

Pre-Budget report: national debt will hit £1.5 trillion

"Figures in the Treasury’s pre-Budget report documents reveal that in 2014/15, the national debt will be £1,473 billion. That is 77.7 per cent of gross domestic product
The debt currently stands at £798 billion, or 55.6 per cent of GDP."

It's worse than we thought, admits Darling

"The Chancellor admitted today the recession was far deeper than he had predicted as he announced a public sector pay squeeze to help curb soaring national debt.Alistair Darling laid out plans to slash public spending in real terms from 2011 - after the General Election - as he revealed the economy would shrink by 4.75 per cent in 2009 compared to his April Budget estimate of 3.5 per cent.He also said the public finances were deeper in the red with a deficit of £178 billion this year compared to the £175 billion he had predicted."

Looking Down the Toilet Bowl

"And Osborne had the best lines. The Prime Minister wants to get the forecasts wrong on purpose; the Chancellor wants to get them wrong by accident.And he nailed the Labour "core vote" strategy, which defines as I pointed out yesterday a party that is going down the toilet:If you want to get on in life, the Labour Party is not for you."

Pre-Budget Report: Darling unveils stealth tax and public sector pay cap

The Times
"In fact, the national insurance change will hit everyone earning more than £20,000 – less than average earnings – and the public sector pay cap will also hit low earners.
Vince Cable, the Liberal Democrat Treasury spokesman, said that the wage freeze and national insurance changes could hit low earners in a similar fashion to the 10p tax."

Darling hits everyone earning over £20,000 with 0.5% NI increase (but public spending just goes on and on)

Daily Mail
"Alistair Darling today gambled Labour's future on a highly political Pre-Budget Report that targets the better-off to help reduce Britain's collossal debt."

Pre-Budget report 2009: the key points at a glance

"Alistair Darling's third pre-Budget report comes amid the worst recession in decades and within months of a General Election. Here are the key points at a glance."

Pre-Budget report: middle-class, bankers and public sector staff will all suffer

"Middle-class workers, City bankers and public sector employees will have to sacrifice billions of pounds to pay off Britain’s record debts, Alistair Darling, the Chancellor has announced in his pre-Budget report. ...But he also admitted that the recession has been the worst in modern history, forcing him to borrow more than £700 billion over five years. ...In the Budget in April, Mr Darling said the economy would shrink by 3.5 per cent. Today, he admitted the decline will be 4.75 per cent, the worst since the Second World War."

Pre-Budget report: A shocker in every line

"Even before we’ve trawled through the small print on pensions and tax changes, the pre-Budget report has lived up to the billing. Scorched earth, poison pill, you can choose your metaphor but the key point is that this was a political statement designed to protect Labour’s sectional interests, boost its core vote and stuff the Tories at every turn."

Tuesday, 8 December 2009

UK backs £167bn of overseas bad debt

"British taxpayers stand behind more than £167bn of toxic assets in the US, Ireland, the Middle East and beyond, it has emerged as the Treasury disclosed details of what Royal Bank of Scotland has dumped in the state insurance scheme for bad debts."

UK manufacturing output stagnates unexpectedly in October

"IHS Global Insight's Howard Archer said: "This highlights the fact that the UK still faces a difficult battle to develop a sustainable, significant recovery." ...Mr Archer said: "Serious doubts remain about the strength of demand for manufactured goods over the medium term, particularly once stimulative measures start being withdrawn." .
ECB begins to turn off the liquidity tap (Telegraph)
"There are particular worries about Greece and Ireland, where banks have relied massively on ECB support because they cannot raise money cheaply on the open market. The ECB has let them use a wide range of low-grade mortgage debt as collateral for loans. Private markets are unlikely to be so forgiving, raising the risk of a roll-over crisis for weak lenders."

Warning over UK economy sees pound and FTSE take a dive

Daily Mail
"The pound fell against the dollar and the euro today after rating agency Moody's described the British economy as weaker than Germany and France.A report today said Britain and the U.S. had 'resilient' AAA ratings, as opposed to the 'resistant' top ratings of Canada, Germany and France, mainly because of the dreadful state of the public finances in Britain and the United States."

Monday, 7 December 2009

Iceland reveals worst economic slump on record

The Times
"Iceland's economy recorded its worst-ever fall, tumbling by 7.2 per cent in the third quarter, as the collapse of its banking sector and its currency continued to lay waste to its finances.Official figures revealed that national output in the third quarter fell by 5.7 per cent from the previous quarter. Year-on-year gross domestic product was down 7.2 per cent — the biggest decline on record."

Elusive and fragile recovery threatened by soaring deficit

"As the Chancellor adds the final polish to his pre-Budget report on Wednesday, some of Britain's leading business organisations have warned that the recovery will be fragile and that soaring public borrowing threatens the UK's international credit rating. Britain runs a high risk of a "relapse" into recession next year.The Engineering Employers' Federation says that conditions in the British manufacturing sector have continued to improve, but that signs for a strong rebound in 2010 "remain elusive."

Sunday, 6 December 2009

Pre-Budget report: UK ‘faces decades of debt’, warns Treasury

"Britain faces decades of rising public sector debt, increasing taxes and, potentially, falling living standards unless it tackles the growing costs of its pensions and health bill, the Treasury will warn this week."

Saturday, 5 December 2009

A rudderless economy and a once great Treasury that's now not fit for purpose

Daily Mail
"Today, however, Britain faces economic and financial crisis on a scale that far outweighs even these catastrophes of the 1970s and 1990s.This time the Treasury is utterly unable to cope. Indeed, it is facing the greatest crisis of confidence in its history. ...But such is the degradation of Treasury competence and morale under Gordon Brown, Alistair Darling and the department's supine Permanent Secretary Nick Macpherson that it is now considered normal to sub-contract out this kind of work, which ought to be meat and drink to Treasury mandarins. .....In other words, even as late as October 2008, and therefore after the collapse of Lehman Brothers, Treasury officials were clueless about what was going on in financial markets."

Friday, 4 December 2009

£40,000 a family: The taxpayers' cash used to fund the £850billion bailout

Daily Mail
"The extent of taxpayer support for Britain’s banks is revealed today to be £40,000 for every family in the country.An official report concludes that bailouts, guarantees, insurance and loans offered by the Government and the Bank of England reached £850billion."

Ben Bernanke says Gordon Brown hurt Britain's ability to resolve banking crisis

"Ben Bernanke said that Mr Brown’s decision to strip the Bank of England of its supervisory role over banks had led to a “destructive run” and a “major problem for the British economy”. "

£850bn: official cost of the bank bailout

"Government support for Britain's banks has reached a staggering £850bn and the eventual cost to taxpayers will not be known for years, the public spending watchdog says today.
The National Audit Office (NAO) revealed that £107m will be paid to City advisers called in to work on the rescue because the Treasury was too "stretched" to cope with the sudden financial crisis which broke in the autumn of last year."

Wednesday, 2 December 2009

It’s déjà vu all over again as Sarkozy takes aim at City of London

The Times
"One senior banker said: “Surrendering control of the City of London to the French in return for some nonentity getting a non-job [Baroness Ashton of Upholland’s appointment as EU foreign affairs chief] is one of the biggest fiascos of British diplomacy since Suez. The fact that Sarkozy is now being gleeful makes it worse. The Prime Minister must explain how he will protect the City from EU meddling or lose what remaining credibility he has in the City.”

China wary of gold 'bubble’ danger after quietly doubling its reserves

"The Chinese authorities have given the clearest indication to date that they view the surge in gold to an all-time high of $1,217 (£730) an ounce as a speculative frenzy."

Tuesday, 1 December 2009

There is still no evidence QE is working

"In fact, the data that will really have worried the PM yesterday was released not in Ottawa but at Threadneedle Street, where the Bank of England's latest report on bank lending and money supply advances the case that its £200bn quantitative easing programme is working not a jot."
At midnight last night, the United Kingdom ceased to be a sovereign state (Telegraph)
"At midnight last night, we ceased to be an independent state, bound by international treaties to other independent states, and became instead a subordinate unit within a European state.Yes, a European state. Take a quick dekko at the definition set out in Article One of the1933 Montevideo Convention on the Rights and Duties of States: “The state as a person of international law should possess the following qualifications: (a) a permanent population; (b) a defined territory; (c) government; and (d) capacity to enter into relations with the other states.”

The last G20 nation still in recession is... Britain

Daily Mail
"Britain was shamed yesterday by official figures showing it was the only country in the G20 group of the world's most powerful economies still in recession.Canada, the other country lagging behind the rest, had resumed growth in the three months from July to September, going up 0.1 per cent.This has left Britain as the only G20 country where the economy is still contracting."

Chancellor needs an extra £15bn, ITEM says

"The Chancellor needs to find an additional £15bn over the medium term if he is to meet government borrowing targets set out in the Budget, a respected group of economists has warned."