Friday, 25 September 2020

Country Finances

How does a country borrow money?

Yesterday [Thursday 24-Sep-2020] the chancellor unveiled a raft of new measures the Government hopes will protect jobs as the UK continues its "fragile" economic recovery. The furlough scheme has cost almost £40bn since its launch in March. However, the cost was higher because it paid 80% of wages up to £2,500, while up to 8.9 million people were furloughed at its peak in May.

For every hour not worked, the employer and the government will each pay one third of the employee’s usual pay. The government’s contribution will be capped at £697.92 a month, much lower than the cap on the original furlough scheme of £2,500.

Because of the requirement to work at least a third of usual hours, the scheme will cover the wages for a maximum of 66.6% of hours not worked. This means that the government contribution is worth 22% of full pay. As a result taking together pay for full hours worked, and state and company subsidised wages for down time, employees using the scheme will receive at least 77% of their usual pay [unless it is cut down by the government cap of £697.92].

First, we need to understand what is the national debt.

There are three sources of income, Taxes & fees, Borrowing and 'creation of money'. Rather than borrowing from banks, the government typically borrows from the ‘market’ primarily pension funds and insurance companies. These companies lend money to the government by buying the bonds that the government issues for this purpose. Many companies favour investing money in government bonds due to the lack of risk involved.

The debt is currently higher [in nominal terms] than it’s ever been before. While the government talks about reducing the deficit, the reality is that the total national debt will keep growing. Even if it stops the debt growing, taxpayers will continue paying around £120 million a day in interest on the national debt.

The next question is, how long before the creation of money is the only option left?

Saturday, 19 September 2020

Rigged Meter Rates

For the last twelve months I have been living in a house with prepaid meters for gas & electricity, and as I have to keep an eye on them so that they do not run out, I have been checking their figures.

At first it was weekly, but a couple of times it got to close so I started checking daily, then I found something odd. The figures had a pattern. Over the period of a week, there were only three values available, 82p, £1.01 & £1.20. It took me a while to see the pattern and after thinking about it, I realised that it was unlikly that I would use the same electricity exactly over a 24 hour period.

I started making sure that I checked the meters at the same time every day. Then I started varying the usage as much as possible, for instance one day I left all the lights on for a 24 hour period, another day I switched everything off after emptying the fridge and all clocks. Nothing made a difference. Each day one of the three known figures would appear.

It is perfectly obvious that these meters are rigged and are not a true reflection of energy used. I spoke to the energy company but they were not interested. I spoke to Ofgem and got a similar response.

Many people are struggling with rip-off bills. Many people are getting ill because of cold homes and thousands every year are dying. Yet the energy companies continue to rake in huge profits.

Saturday, 12 September 2020

Trade Talks

The week started off with a leader from the Financial Times that said "UK plan to undermine withdrawal treaty puts Brexit talks at risk". This report in the Financial Times said that ministers were plotting to in effect rewrite parts of the hard-won protocol provoked a quick and pretty outraged response from many quarters.

The talks this week have been between Lord Frost for the UK and Mr Barnier for the EU.

The trade talks have been rumbling on, not that successfully and a few hundred pages signed and sealed last year. If the EU is going to do a decent trade deal with the UK, they want to know their companies would not have a hard time competing with British businesses who were being propped up with huge chunks of public cash. So there are still tensions over the future trade deal which will in theory replace the UK's membership of the single market and the customs union, which have continued in practice during the 11-month transition period which runs out at the end of this year.

Then we had an explosive statement from Brandon Lewis that "Government legislation on customs rules for Northern Ireland do break international law in a very specific and limited way"! Immediately following this statement, the permanent secretary to the Government Legal Department, Sir Jonathan Jones, has announced he is resigning from government in light of the bill, making him the sixth senior civil servant to leave Whitehall this year [2020].

Labour leader Sir Keir Starmer condemned the bill and accused No 10 of "reopening old arguments that had been settled", saying the "focus should be on getting a [trade] deal done" with the EU.

Then later on in the week, the EU threatned legal action.

The EU gave Boris Johnson a 20-day deadline to ditch plans to tear up elements of the Brexit withdrawal agreement or face the collapse of trade talks and possible legal action. The European Commission said Brussels will “not be shy” in bringing court proceedings against the UK if the PM presses ahead with proposals which it believes violate the Brexit withdrawal deal and endanger the Good Friday peace agreement in Northern Ireland, and it warned that persisting with the measures would put at risk a UK/EU free trade agreement, just as discussions reach a crunch point with negotiators David Frost and Michel Barnier meeting in London.

The Internal Market Bill, which will be formally debated in the House of Commons for the first time next Monday [14-September-2020], addresses the Northern Ireland Protocol, the part of the Brexit withdrawal agreement designed to prevent a hard border returning to the island of Ireland.

We end the week with the Prime Minister Boris Johnson accusing the EU of threatening to blockade Northern Island from food deliveries. It would appear that we need more than trade talks to settle this issue.

Wednesday, 9 September 2020

Zero Interest Rates

Firstly, what is a zero rate?

Zero Rates, Forward Rates, and Zero-Coupon Yield Curves. The n-year zero-coupon interest rate is the rate of interest earned on an investment that starts today and lasts for 'n' years. All the interest and principal is realized at the end of 'n' years.

Despite low returns, near-zero interest rates lower the cost of borrowing, which can help spur spending on business capital, investments and household expenditures. Businesses' increased capital spending can then create jobs and consumption opportunities. However, the markets are having a really tough time with this state and it should not contiue.

If the main players [Bank of England, Federal Reserve, World Bank] nudge rates to zero, they have few options left. The goal of below-zero rates would be to spur other banks to lend more, jolting a sluggish economy, and encourage consumers and businesses to spend rather than save their money. Interest rates are established by central banks and flow down to commercial banks and other financial institutions. With negative interest rates, account holders get charged a nominal rate instead, so they lose money by keeping it in the bank.

There is the possibility that free banking will end for the consumer and we will see a return to current accounts that have fees or charges attached to them.

Prime money-market funds, a long-time favorite for anyone seeking a cash-like investment with a little extra yield, are facing an existential challenge, just four years after a regulatory overhaul to restore confidence in the wake of the global financial crisis. Assets in these vehicles dropped 20% in just six weeks earlier this year, spurring talk of new reforms. But some of the industry’s leaders are opting for another solution: Shutting them down.

As the pandemic crushed economic activity and wracked global markets in March, prime fund investors moved money as fast as they could into government money-market funds, considered the safest of havens because they are limited to short-term government securities and related secured lending markets. Prime funds lost more than $150 billion of assets to withdrawals between late February and early April; as a cash-like product with credit exposure, these funds are uniquely vulnerable to runs in a crisis.

Zero rates should not be a goal and interest rates should start to rise again before an even bigger problem is caused.

Saturday, 5 September 2020

Virus Intelligence

Can a virus have intelligence?

The new Coronavirus is a respiratory virus which spreads primarily through droplets generated when an infected person coughs or sneezes, or through droplets of saliva or discharge from the nose. Coronavirus can cause more severe symptoms in people with weakened immune systems, older people, and those with long term conditions like diabetes, cancer and chronic lung disease.

Viruses have ways to enter the human body [through the nasal passages, mouth, skin or via injection]. Many have evolved defenses to help them evade the immune system. Viruses that cause infection in humans hold a 'key' that allows them to unlock normal molecules [called viral receptors] on a human cell surface and slip inside. Once in, viruses commandeer the cell’s nucleic acid and protein-making machinery, so that more copies of the virus can be made.

For about 100 years, the scientific community has repeatedly changed its collective mind over what viruses are. First seen as poisons, then as life-forms, then biological chemicals, viruses today are thought of as being in a gray area between living and nonliving: they cannot replicate on their own but can do so in truly living cells and can also affect the behavior of their hosts profoundly. The categorization of viruses as nonliving during much of the modern era of biological science has had an unintended consequence. it has led most researchers to ignore viruses in the study of evolution. However, scientists are beginning to appreciate viruses as fundamental players in the history of life.

But viruses directly exchange genetic information with living organisms, that is, within the web of life itself. A possible surprise to most physicians, and perhaps to most evolutionary biologists as well, is that most known viruses are persistent and innocuous, not pathogenic. They take up residence in cells, where they may remain dormant for long periods or take advantage of the cells’ replication apparatus to reproduce at a slow and steady rate. These viruses have developed many clever ways to avoid detection by the host immune system, essentially every step in the immune process can be altered or controlled by various genes found in one virus or another.

Part of this comes from the ability of viruses to shuffle genes with as much deft as some genetic engineers. Viruses can pick up pieces of cellular genes or incorporate their genes into the cell’s genome. That means that evolution occurs all the time in viruses. It is a very dynamic process.

Are viruses alive? This is actually a really hard question to answer. Viruses are much simpler than other organisms that we definitely consider alive. Viruses must also use a host cell [and all its complex machinery] in order to replicate. This means that a virus cannot replicate without a host. Viruses are the ultimate freeloaders, they sneak into our cells, eat our food and rely on our homeostasis [their favourite temperature just happens to be body temperature!]