Monday, 30 September 2013

Market bubble?

Home prices have been rising rapidly, so much so that there is talk that we are entering another national bubble. Is it possible that we are lapsing into a bubble mentality, a self-reinforcing cycle of popular belief that prices can only go higher?

People who are now inclined to buy a home are most often just thinking that we are gradually recovering from a recession and that this is a good time to buy. The mental framing still seems to be about economic recovery and the likelihood that interest rates will rise. People mostly don’t seem to be prompted by the anticipation of another housing boom.

That is the thinking at the moment. But whether these attitudes mutate into a national epidemic of bubble thinking, one big enough to outweigh higher mortgage rates, fiscal austerity and other factors remains to be seen.

Friday, 20 September 2013

Currency depreciation

The liquidity trap hypothesis implies that countries are unable to devalue their currencies in the forex markets. There are several ways of answering this. A liquidity trap implies the central bank cannot inflate, but currency devaluation tends to raise the price level.

We have been taught that “liquidity traps” are all about the zero lower bound on nominal interest rates, but on closer inspection it is actually another zero bound that is crucial, the zero lower bound on eligible assets not purchased by the central bank.

Keynesian objections are:

1. The central bank can only legally buy certain assets.
2. The central bank may be fearful of having a large balance sheet.

Those objections then become the real reason for monetary policy ineffectiveness, not the zero bound.

In order to peg the exchange rate at a lower level they would have to sell so much domestic currency that their balance sheet would swell to unacceptable levels.

Thursday, 19 September 2013

The new money

Hedge funds which gambled on how much money would be recovered from the bankrupt carcass of Lehman Brothers are set to make hundreds of millions of pounds from a full payout to creditors of the European arm.

Five years on from the collapse, payouts to Lehman's creditors in Europe are on course to top 100 percent sometime next year, following a recovery of assets by administrators and legal victories over other parts of the ex-U.S. investment bank.

The collapse of Lehman Brothers on September 15, 2008, plunged the global financial system into chaos. Its European arm, headquartered in London, was the largest and most complex part of the group because it was a hub for trading and investments, spanning asset classes and dozens of countries.

Closing down the business and trying to recover assets for creditors has involved unwinding thousands of derivatives contracts and share trades and figuring out who owns what, making it the most complex bankruptcy of a single entity ever. Original creditors, including hedge funds which had Lehman as their prime broker, banks, and trade suppliers such as a photocopying or legal firms, may not all be winners, however.

Wednesday, 18 September 2013

No split here!

The Lib Dem conference is living up to the title of what next!

Rumours abound of a leadership challenge and there is no shortage of media rhetoric concerning Nick Clegg’s current position, however, there does not appear to be anyone who wants to take the place!!

How on earth can there be a leadership challenge if there are no upcoming leaders waiting in the wings? There are some nice juicy rumblings most notably between Vince Cable and Danny Alexander as their tug of war as the media puts it gets even hotter. If either of these two are approached on the subject of leadership, they become rather distant.

So who is waiting in the wings?

Tuesday, 17 September 2013

What the voters want!

Our political class actively want to be out of step with public opinion, and are sorry they accurately represented it the other day. A survey of Tory MPs revealed that many actually want to vote again on attacking Syria, so that they can authorise this lunacy, even if it is only an incredibly small pinprick with no discernible purpose. And it is not just the Tories. Ed Balls, the Shadow Chancellor, also wants Another Chance To Bomb.

He confided to an elite TV show: ‘Our jaws dropped when the Prime Minister suddenly took the idea of military action right off the table. I wasn’t expecting that, nor was Ed Miliband. If David Cameron is going to put that back on the table, we will look at that.’

Well, if they so fervently want not to represent us, I will say it again.

We do not have to elect these people. I have reluctantly come round the view that we should bring in compulsory voting in this country, provided every ballot paper contains a slot at the top marked ‘None of the below’. And if the numbers voting ‘None of the below’ exceed 30 per cent in any constituency, nobody is elected for that seat. Parliament would get a lot smaller. MPs would become a lot more interested in us and in what we think.

Monday, 16 September 2013

The Liberal Democrats

As you know the conference season has started and these ^^ people do not know whether they are coming or going.

Half of them are saying the worst thing they have done over the last three years is join the Tories, half of them are saying it is the best thing since sliced bread!

Surely they should gather up all the successful polices that have been ratified into statues over the last three years that were a deliberate act on behalf of the Lib Dems and promote them?

I am curious what the keynote speech is going to be about.

Friday, 13 September 2013

erm, why no news?

The Davos economic forum is held every winter in the Swiss Alps, I have just found out about the summer one which is held in China.

The biggest surprise at this week’s Dalian forum was the East-West divergence of opinion on the economic outlook, both in the months ahead and in the very long term. Western economists mostly believe that developing countries in general, and China in particular, are threatened by serious financial crises as U.S. monetary policy begins to be tightened, probably as soon as the Federal Reserve Board’s meeting next week. The consensus view is that emerging economies have invested and borrowed too much, taking advantage of the Fed’s easy money and will now face painful de-leveraging similar to what Europe and the U.S. experienced five years ago. This de-leveraging means, in turn, that the glory days for developing economies are probably over, and most of these countries, perhaps including China, may never escape the “middle-income trap” that has prevented further progress in many developing economies.

Surprisingly, however, the Chinese economists in Shenzhen seemed largely unperturbed by the Western warnings, preferring to concentrate on environmental, governance and public health issues and the details of financial market design. In Dalian, too, the sense of financial foreboding was strangely absent, as speakers from other developing countries agreed with their Chinese colleagues that higher priorities than debt management were structural issues such as demographics and education, governance and corruption, bank regulation and competition, energy and urban design.

If China can manage and control its way to ever-greater prosperity, despite the sudden outbreak of skepticism among Western analysts, the same will probably be true of many other emerging economies, which increasingly look to China, instead of the West, for support and guidance.

Thursday, 12 September 2013

Economics of austerity

Paced by housing and energy, the U.K. recovery is likely to accelerate this year and budget deficit projections have declined as well. Unfortunately the European economy remains stagnant though there is some evidence that 'stimulative' policies are gaining traction in Japan. Around the world the idea of “austerity” is fiercely debated. This all makes a reconsideration of the principles that should guide fiscal policy opportune. This requires recognising that policies need to be set in light of economic circumstances.

A prudent government must over time seek to balance spending and revenue collection in a way that assures the sustainability of debts. To do otherwise leads to instability and needlessly slow growth and courts default and economic catastrophe. Equally, however, responsible fiscal policy requires recognizing that when economies are weak and movements in interest rates are constrained as has been the case in much of the industrial world in recent years changes in fiscal policy will have significant effects on economic activity that in turn will affect revenue collections and social support expenditures. In such circumstances, aggressive efforts to rapidly reduce budget deficits may actually backfire, as a contracting economy offsets any direct benefits.

It is a truism that deficit finance of government activity is not an alternative to tax finance or to supporting one form of spending by cutting back on another. It is only a means of deferring payment for government spending and, of course, because of interest on the debt, increasing the burden on taxpayers. A household or business cannot indefinitely increase its debt relative to its income without becoming insolvent, and neither can a government. There is no viable permanent option of spending without raising commensurate revenue.

Wednesday, 11 September 2013

Let the economic arguments begin...

George Osborne has just said "I told you so".

What the speech gave was higher than predicted growth now proved, he claimed, that the cuts did not strangle the recovery as Labour had said they would. Next he insisted that the recovery was not based on "the wrong sort of growth" that is, a return to spiralling house prices and consumer debt. Finally he argued that it was only by sticking to current economic policies that living standards will be raised.

What George Osborne doesn't want you to know about the economy:-

1. This is still the slowest recovery for more than a century
2. The economy is 2.9% smaller than before the crash [the US is 4.5% larger]
3. Unemployment hasn't fallen for six months and underemployment is at a near-record high
4. His deficit reduction plan failed and he's forecast to borrow £245bn more
5. Most people are still getting poorer and that won't change soon

Tuesday, 10 September 2013

Botched vote

Even before the Syrian crisis the question was, is Ed Miliband the most disliked leader in recent British history? No-hopers ranging from Michael Foot to Iain Duncan Smith failed to attract such odium, while the loathing directed at Margaret Thatcher and Tony Blair was always balanced out by worship.

Ed Miliband, by contrast, is attacked from all sides. As Labour critics worry that his policies are imprecise and his vision hazy, David Cameron has seized on his opponent’s failure to project a clear public image, painting him as weak. Such objections are minor, however, compared with the widespread wrath unleashed by Labour’s role in blocking any chance of military action in Syria.

Blaming Mr Miliband serves, ironically, to bestow upon him the very power that his enemies claim he lacks. The country is crying out for statesmanship, and the Labour leader will have no better chance to silence his critics. Much as he might prefer to focus on British living standards, voters may judge the calibre of their leaders by what they have to offer the Syrian refugees fleeing with nothing and bound for nowhere. Both Mr Cameron and Mr Miliband are self-professed upholders of public virtue, explicitly committed to creating a better society. No wonder that the public, detecting a whiff of double standards, reviles the political classes.

Today Mr Miliband is making a keynote speech to the trades union conference, will this be strong enough to turn the tide? It was Mr Cameron who failed to get the vote passed the previous week, let's not forget.

Monday, 9 September 2013

The tail wags the dog

The unions have started to reign back their contributions to the Labour party and the Labour party now says that there was no impropriety at the Falkirk selection process!

Friday, 6 September 2013

End Syrian conflict

The G20 is in full swing and rather than discuss world poverty they are chatting about Syria, and chatting is about as strong as it gets. There are two sides, let’s go in and bomb the shit out of them and the do nothing side. Neither of these two sides are remotely close to an agreement.

Then I heard someone [whose name I have sadly forgotten] from the UN yesterday say that one way to stop the current aggression in Syria is to get the supplies of arms on both sides to cease supplying.

Well who are they?

For the government it is Russia & Iran and for the opposition it is Saudi Arabia & Qatar. Can the UN talk to these four countries and get them to stop?

Thursday, 5 September 2013

Universal Credit

A devastating report from the public spending watchdog has said it [the IT programme created to control UC] has been beset by "weak management, ineffective control and poor governance". The National Audit Office said the government had embarked on the flagship project without knowing how it would work. We are back to the bad old days where projects are not given tests to prove whether they are worthy of development. Although it appears it is even worse than that and for the last three years the only reports coming out of the IT team have been good ones where all the bad news has been suppressed. How is this not corruption?

A lot of figures have been thrown round today and I do not have access to the inside details, but when a government body produces a report that states the left hand has no idea what the right hand is doing and the mind in the middle has given permission for a project to proceed where there is no path for it to follow, it beggars the question who knows what and why are you spending tax payers money on it?

The auditors found the IT system could not identify potentially fraudulent claims, meaning manual checks were needed on claims and payments. "Such checks will not be feasible or adequate once the system is running nationally".

Citizens Advice chief executive Gillian Guy said: "Even as Universal Credit is being rolled out, we still do not know what support will be put in place to help people to move on to the new system." <<< more disaster waiting to happen…

Wednesday, 4 September 2013

Monetarism lives!

Keynesians often regard monetarism as a relic of the 1970s, with no real presence in the modern world. In one sense that is true. But in another sense it could not be more wrong.

Bennett McCallum is a long time proponent of a policy rule that would adjust the monetary base in such a way as to stabilize GDP growth. Ideas have consequences. He published his proposal way back in 1980. Don’t let anyone tell you your plan is “politically unrealistic.” If it’s the right thing to do keep fighting for it relentlessly.

Japan is the only developed country where GDP growth in 2013 has recently been well above the 20 year trend, but to get there we would have to have the last 5 years again for another 5 years...

Tuesday, 3 September 2013

I used to support Jamie Oliver

Jamie Oliver has made the news a number of times this week, perhaps not unrelated to the fact that he has a new book out. On Tuesday he claimed the poor were spending their money on ready meals and large plasma televisions rather than on nutritious cuisine. On Wednesday he then lamented young British workers who were, he said, “whingeing” and “wet behind the ears”. He went on to unfavourably contrast them with their Eastern Europeans, who are apparently putting in 18-hour shifts without so much as raising an eyebrow.

Jamie Oliver’s curiosity as to why the poor appear keener on dining out at the local chippy than staying in and eating rotten bread and homemade potted duck received a great deal of [largely disparaging] media coverage. This is as it should be, for as George Orwell explained in The Road to Wigan Pier, “The ordinary human being would sooner starve than live on brown bread and raw carrots. And the peculiar evil is this, that the less money you have, the less inclined you feel to spend it on wholesome food.”

Jamie Oliver may well boast that when he was in his 20s “the average working hours in a week was 80 to 100”. The mistake is the corresponding assumption that the proceeding reduction in labour time and its replacement with leisure has been in any way a bad thing. As well as 100-hour weeks, for much of Oliver’s 20s there would also have been no minimum wage and prior to that no effective laws preventing employers from discriminating against disabled workers.

Working 100-hours a week is what happens when employment protections are insufficiently strong and employers excessively greedy. The fact that migrants from developing countries are often happy to work in scandalous conditions in no way makes those conditions acceptable. It means there is work to be done in educating migrant workers on what to expect in the workplace, as well as in schooling them in effective union organisation so as to take a bigger share of the pie from multi-millionaire employers like Jamie Oliver.

Monday, 2 September 2013

The special relationship

It is perfectly obvious now after the weekend that there will NOT be another debate or vote in Parliament concerning Syria. However, what is more concerning is the view that both sides of the Atlantic have of each other!

We in Great Britain seem to think that all bets are off and the Americans hate us. The reality it seems could not be further from the truth. Rather than the old fashioned “poodle” idea most Americans consider our relationship to be peer-to-peer, where it is natural to consider each sides argument. So the Americans  neither lead nor follow us rather they view our opinions and decisions and then consider their own.

Perhaps we should do the same…