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?

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.

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.

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...

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.

Unemployment

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...

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...