Friday, 29 March 2013

Supply Creates Its Own Demand

It is not a slippery slope argument to say, “Developing the capacity to X makes X much more likely.” Beyond the tautology that you cannot do X if you cannot do X, we find that humans are more likely to pursue options that are readily available. Once you have the ability to do something, you start finding occasions for it. This is a driver of progress and source of anguish.

You bought the cell phone “just for emergencies,” but it quickly became easy to say you would be five minutes late or to ask whether you should also pick up eggs while you are at the grocery. The snow blower was for your driveway, but Mrs. What’s-her-name across the road just broke her hip, and then another neighbour wanted to borrow it after the big storm. My last job transitioned from mostly project management to mostly data analysis when they realized that I could translate databases to English. You never needed it before, but now that the option exists, why not?

Today's balance of payments figures show Britain's current account deficit last year was an eye-popping £58bn, up from £20bn in 2011. It means the gap between what we earned in the global economy last year, and what we spent, was 3.7% of GDP. That's the highest since 1989 and only the fourth time since 1948 that our current account deficit has been greater than 3% of GDP. So our investment earnings have simply caught up with our declining net asset position - the fact that our claims on the rest of the world are now worth less than the world's claims on us, and when investors see what is happening in Cyprus today, where are they going to place their investment capital in the future?

Thursday, 28 March 2013

Moral obligations

Yesterday the banks found out how much they have to keep in stock to prevent another 2008 financial crisis and the amount is £25 billon in capital, staggering. It is said that Cyprus should come up with 7 billion Euros on their own as condition for receiving 10 billion Euros from Europe, largely financed by Germany. That is like, if you want a mortgage on a £170,000 house, and the bank asks you to come up with £70,000 on your own as condition for receiving a £100,000 mortgage.

Protesters in Cyprus claim that having to come up with 7 billion Euro is ruinous for the country, and they want Germany to give them the whole 17 billion without conditions and preferably without interest. But maybe the realization that they cannot even afford 7 billion should have come before enacting policies which required a 17 billion bailout package. What the critics are saying is that Germany will earn money from lending money. Just like a bank does. But the fact that you have to pay an interest on a bank loan doesn't result in a moral obligation for the bank to give you a loan under any conditions. In fact a bank has a moral obligation to only lend money responsibly, because giving out loans that have little chance of getting repaid would be a disservice to those who paid money into the bank, in this case the German taxpayer.

The "threat" from Germany is not German bombers, but simply the Germans withholding loans. Which would be no threat at all if the countries in question would run their economies in a way where they could get loans from regular investors. The money that is flowing from Germany via Europe to these countries is in fact cheap compared to the prohibitive interest rate they would have to pay on the free market, in addition to the fact that there aren't enough free market loans available for these countries due to their existing debts and deficit.

In the end, if somebody has large debts and still spends more than he earns, that doesn't give him the moral right to protest against the evil banks who at some point refuse to lend him even more money. People do understand what a "credit rating" is in their personal finances, and that their loan application can be denied by a bank. We just need to get to the point in Europe where countries understand that same concept.

Wednesday, 27 March 2013

London is for foreigners

There are more and more stories appearing where councils are releasing property to building associations for a £1. The general picture of property value in the UK is going down, except in London, where it has risen 19% since the financial crisis. This is the one and only location where property prices are on the rise and it appears that this is where the foreign money goes.

Lord Heseltine wrote a report last year "no stone unturned" which highlighted the issue of centralisation and how the provincial cities could do with more powers to enable the UK to creep out of recession, localism as he put it. This report was widely accepted although I do not see much action happening, which is not surprising as it is going to be difficult for the civil service in London to release it's grip on power voluntarily.

It has been five years since the start of the financial crisis and three years since the coalition started their plan for recovery labelled "plan A" by the critics, and the time scale is getting extended as previous forecasts are not working out as expected. Just handing over power to the provincials overnight is unreasonable and impractical, perhaps a slower more gradual approach could be effective as it appears we have the time to make a start moving towards creating LEP's [Local Enterprise Partnerships].

This of course is only one route as there are several which need to be taken to deal with the current situation, but surely it cannot be a bad idea to put in place more opportunities for unemployment to be reduced. I have a worry that unemployment will hit 50% in Cyprus with their current situation, and there is no precedent available to show how the Island’s economy will cope with such a huge problem. The UK’s unemployment is about 7%, consider how bad things would be if it rocketed.

People need work, work comes from employers, employers need confidence to hire, confidence comes from a strong economy, our economy is not strong at the moment and needs a significant boost. Enabling LEP’s across the country would release the central burden and utilise the enthusiasm of the local population of each province.

Tuesday, 26 March 2013

Post - budget

Considering what was announced last Wednesday, it appears that public expenditure is going to increase by about 3%, whereas in Ireland since the crisis they have reduced public spending by about 19%.

I think the fact that we have a coalition is damaging in getting the national deficit down...

Monday, 25 March 2013

Another bailout

Luckily I had a bet on with William Hill that this would go ahead.

When is the Euro zone going to start to understand that once they have bailed out every country within, there will not be anything else left for them to do? Apparently there is going to be legislation in Cyprus and the parliament there is not going to get a vote on it. Democracy eh!

Now is this because they want to be lovey-dovey and keep the Euro zone together? Or is it because as we speak the Russians are preparing to move in? It is not as daft as it first sounds.

One of the mysteries of the Cyprus crisis has been the lack of response from Russia, despite the obvious strategic opportunities, not just to protect its offshore deposits, but also to exploit the island’s strategic location and its military and energy potential. A possible explanation is that Europe’s indecision also paralyzed Russia - until last night. As long as Europe’s policy on Cyprus kept shifting, it was impossible for Russia to intervene, since any help it offered could be rejected or outbid by the EU.

One of the biggest losers in this affair are the bond holders. Investors who have in the past helped out business, helped out governments and now must be considering their position. I believe it is going to become much harder for investments in the future to be available and there is going to be a considerable amount of currency movements over the next few days.

Friday, 22 March 2013


Why is it so difficult to get work?

The top three excuses I have received in the last twelve months: - Obviously the CV is perfected for each position applied for and includes all previous achievements.

When applying for a position I have been successful with in the past
"As you have been out of work for four years, your up to date knowledge no longer exists"

When applying for a lower position I have been previously done
"It is perfectly obvious to me you will be looking for another position before the end of the week, and I will have to advertise again"

When applying for a bottom of the ladder type position
"Why should I give you work when there are a million 18-24 year olds out of work"

It seems pretty tricky trying to convince an employer to supply a job nowadays...

Thursday, 21 March 2013

The Budget

Before we address the Budget, let's look at the facts...

Earnings growth = 1.5% and Inflation = 3%

UK house prices down 20% for the last two years

UK GDP = 0% for the last two years except for a spike after the Olympics which is now over

Unemployment never hit 10% as predicted, it peaked at 8.5% a and is currently at 7.7%

Mortgages at their lowest because of 0.5% base rates

UK Debt climbs from 35% to 75%

UK Household saving ratio was 4% now 8% because of fear of loss of employment, not a good time
for a retailer as households are saving and not spending

What does all this mean for us?

There is a dilemma which we expect the government of the day to address, in 2008 it was called the global economic crisis which caused a recession. The country has huge debt and needs growth to climb out of it. The old fashioned way was to spend your way out of debt, something that does not work for a single person, but does work for governments. However, we have been told that is not possible because of the size of the debt, so why has another answer not been forthcoming?

Despite all the negativities in the news today. the Chancellor seems to have produced a package of hope for many people. He does not have much to work with, however there are several initiatives that are going to be introduced to help business and people alike, one of them should introduce 600,000 new jobs during 2013, I hope I can get one of them...

Wednesday, 20 March 2013

Cyprus, is it part of Europe?

Firstly, Cyprus has succumbed to the same issue as Greece, Ireland, Spain, Italy, the list just gets longer.

One difference is one of the conditions to their bail out is to pull a one off levy on the countries savers. This has no precedent. Naturally it has caused an uproar and the public anger was so strong, the Cypriot parliament has voted against it.

It has become apparent that Russians have HUGE deposits in Cyprus and the Cypriot government has now approached Russia with a view to ask them to back a loan that would cover their deficit. If the rumours are true, the Russians have said yes, however, they [the Russians] now run the country!

How does that stack up with Europe?

Tuesday, 19 March 2013

City becomes bankrupt

A stunning headline, although nowadays, perhaps not so stunning as economically the world seems to have gone mad.

However, how does a city like Detroit become bankrupt?

At it's high point, the 2 million population had a settled way of life and it was seen as one of the driving forces of Northern America, now with a population of 700,000, it isn't making enough money to pay for basic public services.

Kevyn Orr has been chosen for emergency manager of Michigan's largest city, while the Mayor has been arrested on corruption charges.

Monday, 18 March 2013

China's new president

Xi Jinping has just started his 10 year term after an election where there was only one name in the ballet. No, I am not going to drone on about Communism, just because I do not believe in it, but I would like to point out some facts that are known.

People in China are more aware of the outside world now than ever before, partly due to communications, but perhaps more importantly, people's access to communications.

The middle class in China has increased substantially, and these people while being brought up their whole lives under Communism are now seeing how the rest of the world lives. Of course it is not all good news outside China, but they must see how other people live and how they have control over their lives. I wonder if over the next 10 years if China's middle class will start asking for more of a say in how their country is run, and more importantly will they be allowed to express their feelings openly?

Apparently another first in China last week was the military budget was increased, whereas in the rest of the world everyone else is cutting theirs. Now I doubt very much that China is thinking of invading someone, I suspect that the military build up is for internal use rather than external, which does not bode well for those affluent middle class who now think it is time they were allowed to speak out.

His message to the armed forces was that they must continue to pledge allegiance to the Communist Party. China's military is expressly political, controlled by the party not by the state. Its duty is to uphold the rule of the party. So when Xi Jinping says he is about reform for the next decade, he is not talking about Communism  or politics he is talking specifically about the party. I doubt an open forum will exist at the end of this decade.

Saturday, 16 March 2013

Comic Relief

The 25th Red Nose Day has raised £75 million pounds.

What recession?

Friday, 15 March 2013

Astonishing betrayal

First the complaints, then the arrests, now the back down!

The Prime Minister has rejected Leveson absolutely.

There is not much point in writing what Leveson said, as it is in his report, which in my view is excellent, however, it is now perfectly clear instead of implementing the answer, David Cameron is just going to satisfy the press moguls.

So when Lord justice Leveson said this is the eight and hopefully the last enquiry, he could not have foreseen the betrayal that has happened.

Wednesday, 13 March 2013

NHS shame still...

Sir David Nicholson, who is still at the head of the NHS has just appointed his number 2, Dame Barbara Hakin.

She receives £70,000 a year as national managing director of the NHS Commissioning Board. 'Reported' to have forked out £500,000 for a gagging order to silence United Lincolnshire hospital trust, where 670 patients died needlessly. Believed to have quashed a report investigating why so many had died at the trust. Promoted to interim deputy chief executive of body in charge of the NHS, deputy to David Nicholson.

She should fit in rather well to his <elite> coven...

Friday, 8 March 2013

China has a problem

China is a growing economy, apparently the fastest growing Asian country at the moment. They are buying up all the metals in the world, huge quantities of scrap, in fact huge quantities of everything. So what are they doing with all these materials?

They are building towns & cities, roadways and infrastructure routes, shopping centres and business parks. So who are all the people who are populating these new settlements? Well, that's the problem. There aren't any!

All these new locations are empty and the reason why is the average wage is $2 a day, so the people cannot afford to move in.

Now how do we know about this? Some of these locations are now being dismantled so that the resources can be used elsewhere. This unfortunately can only lead to trouble on the streets and as we know with the history of the east, when people without guns meet people with them, there is only one result.

Going one step further, North Korea today [7-Mar-2013] has closed the communication line to the west that has been open for over 60 years. This is not a tantrum, and while the media are making a big thing of camouflage on public transport and public rallies in support of leadership, the most important point is lack of communication. Both sides are performing exercises at the moment and if one of those exercises touches another, there is now no way to scale back the operation, which means an automatic escalation.

This is not a good position to be in...

Thursday, 7 March 2013

Vince Cable

Has written an article in the New Statesman called “When the facts change, should I change my mind? ”

The media have summed it up as the Business Secretary's dramatic suggestion that the government should borrow for growth, the media of course will try and show that he and the PM are at odds, but as they are interviewed today, they will both probably just smooth things over.

However, is he right?

Stock markets have continued to take off in recent weeks. The UK and US markets are now back where they were before the 2008 crisis, having risen more than 9% since the start of the year. The record level of the Dow Jones industrial index, and the very close-to-record level of the much more important S&P 500 index, are partly a reflection of the good news that has been coming out of the US economy.

The UK markets are at a similar level only the pound is suffering at the moment, with a million new jobs being created in the last four years and albeit stagnant growth, most of this has been achieved because of base interest rates being held at 0.5%. This situation cannot last, as about two-thirds of the earnings of the companies in the FTSE come from outside the UK.

Sooner or later we do need the real economy to start to catch up with all these enthusiastic investors, otherwise those stock prices might very well come back down to earth.

Banker's bonuses

George Osborne the Chancellor of the Exchequer is up against it in Europe at the moment as he stands alone against 26 countries who want the salary / bonus cap to go ahead.

His objection of all financial services will leave Europe was not believed by the others, as they consider it is politically accepted by all residents of Europe.

The EU is proposing to cap bonuses to 100% of a banker's annual salary, or to 200% if shareholders approve. There will be further talks, but all other countries backed the plan.

Wednesday, 6 March 2013

NHS joke

OMG Sir David Nicholson is still in his job!

How many more peple have to die before he is sacked?

Tuesday, 5 March 2013

Funding for lending fails


Well the statement comes from a quarterly report, the last 3 months of 2012, and only 3 months after the fund started, so is it fair?

The BoE bank announced the scheme jointly with the government in June 2012, as a way to unblock a credit log-jam which some economists say is a big factor behind Britain's weak economic recovery. However, banks and building societies cut lending by a net £2.4bn between October and December.

The BoE has consistently tried to encourage banks to lend, but after Basel III the banks have to keep more cash on hand in order to prevent another 2008 financial crisis.

So what is the happy medium?

Stop kicking the banks. When they have bolstered their balances, I am sure they will be more than willing to lend to business of all sizes and even governments again.

Monday, 4 March 2013

Roman Catholic religion crisis

The heading is a bit misleading.

The head of the Catholic Church in Scotland, Cardinal Keith O'Brien resigns, admits to sexual impropriety and apologises.

Now we have had in the past the huge paedophile scandal of thousands of children, the Magdalene laundry girls scandal, and now someone who has publicly condemned homosexuality being caught out in the act.

Pope Benedict XVI accepted the resignation of Cardinal Keith O'Brien after allegations of inappropriate behaviour were made against him. This means O'Brien won't attend the upcoming Vatican conclave to elect the Pope's successor.

However, while I am sad for the 1 billion Catholics round the world, and I appreciate their faith is being tested more than usual, I cannot believe that a thousand year old religion is going to fail over night. Do you really think these people will just stop practicing what they do because of some dodgy geezers at the top? It is not the religion that is bad but corrupt officials who administer it.

Friday, 1 March 2013

Iran's Plan B

Rumours abound about an old facility in Iran that has been revamped and currently being feed huge quantities of heavy water in order to develop a second plant to produce plutonium.

This is not good.

Inspectors from the International Atomic Energy Agency have been unable to visit the facility since August 2011 and Iran has refused repeated requests for information about the site, which is 150 miles south-west of the capital, Tehran.

The details of Iran’s plutonium programme emerged as the world’s leading nations resumed talks with Tehran aimed at allaying fears over the country’s nuclear ambitions.

The Institute for Science and International Security says if the heavy-water plant reaches full capacity, it would produce about 20lb of plutonium a year.