Friday 31 August 2007

Friday Chat; Is the UK a Democracy?

I see at Iain's much speculation that Broon will go for an October election. This would seem to hamstring the Tories in the middle of a policy review, get the Lib Dims whilst they still have a poor leader, exploit the Broon bounce and allow an election to replace a referendum on Europe.

All in all, it would be a very clever tactic by the Labour party, much as the money to sponsor it would put them in hock to the Unions for ever.

My take though; this is not very democratic or fair is it?

Manchester United don't say we will only play Arsenal on rainy Monday nights when their fans cant' get to Old Trafford, do they?

Having this system mean we are open to abuse by the ruling party, which probably explains why we rarely change government and only do so when things are a disaster. I think Broon knows that soon the economy will be in trouble and the sooner he goes the better he does.

This is not democracy, with the will of the people being paramount. It is the scheming of those in power to keep it, always having the upper hand over the opposition.

I think fixed term limits are seriously needed to rebalance the system. (Along with a federal republic and a fully elected second house, but these are for another day).


Thursday 30 August 2007

BAA; More trouble ahead.

I have mentioned BAA recently, along with British Airways, as companies in difficult straits. The BBC reports today that BAA is now to shed 2000 odd staff.

It is well known in the industry that BAA has much corporate fat to lose. They have a large M&A department for example that won't be needed now they are owned by the Spanish. They also suffer from a highly unionised force which has kept them from reaping the benefits of technology by downsizing the staff.

However, the real cause of the problem is that with the Credit market turmoil they have been unable to re-finance their loans. The Spanish company bought BAA with a huge chunk of debt at high rates, that they would look to re-arrange after the deal completed. Now they can't do that they need to seek other ways to raise money to pay the debt and try and make a profit.

At this rate the management will be praying for a break up of the monopoly of South East UK Airports, as the only way to realise cash from the business in the next few years!

Wednesday 29 August 2007


A very reasonable preoccupation around this and other commentaries is whether the global financial system is robust enough to absorb the forthcoming ‘correction’ without catastrophe. I particularly enjoy Bearwatch (Sackerson) and Angels in Marble (Hatfield Girl) [and a commendation is due for Discursive Monologue too - CU]

The seriousness of the present situation, and the potential for screw-ups by governments and financial authorities, are not in doubt. Ditto the scope for individual financial disasters.

But the overall resilience of the system may be greater than some fear. There is a huge amount of private-sector brainpower able to switch into restructuring mode with lightning rapidity – far quicker than any regulator or finance minister can react – as was demonstrated by the Far East crisis of the late 1990’s, for example. The profit motive has a way of sorting these things out: and the speed of modern communications ensures that price signals are transmitted widely and quickly. Almost any big shift represents an arbitrage opportunity for someone.

The disposition of wealth before and after a big shock is different, for sure. And, as airily as we may dismiss the Asian financial crisis a decade on, it needs to be recalled soberly that some Indonesian tribes reverted to cannibalism, so extreme was the resulting poverty for a while.

We may not need to wait long to find out whether I am right. In the meantime, on a personal level, as Sackerson has recently commented, diversification is the key.

My ventures are not in one bottom trusted,
Nor to one place; nor is my whole estate

Upon the fortune of this present year
(Merchant of Venice)

(Or invest in guns ’n gold, of course, if the Hitch is your preferred sage ...)


Tuesday 28 August 2007

Time to start Saving?

According to Post Office Research out today the UK's savings ratio is only 2.1%.

As we would expect a wide variety of news organisations are covering the story. They are generally making nice headlines like 'Briton's save less today than 150 years ago.'

This one bemoans the choices people make and the BBC story makes it sound like people are being feckless in today's modern world.

Yet there are some very good reasons at the moment for a low savings rate;

1 - With relatively low inflation the banks offer paltry returns on money put away, in fact in a normal bank savings account it is not unusual to find that the return after inflation and tax is a negative. People are not stupid and have not piled into this.
2- With house prices rampant many people today have invested instead in mortgage repayments each month. Anyone who has done this in the past ten years will have seen an approximately 3 fold return on their money.
3- The Nanny state now looks after us more than ever. Need medical assistance? free. Need education for your children? Free. Need housing urgently? Free. In the past we did not have such a wide safety net as we do today. Thus a big incentive to save has disappeared.
4 - Also with a reduction in the number of final salary pension schemes due to Government mismanagement, there is less reward for saving for retirement than there was just a few years ago. So unsurprisingly people are saving less for retirement than they used to, as the returns available have gone down.
5- ISA's are the government's choice for encouraging investment. They heavily plug using them to buy shares and funds; not really a good choice in the last few months with the market down 10% recently. I would be surprised to see many shares ISA's being created today.

So whilst all the Mainstream media make this sound like a tale of woe, it is nothing of the sort. instead people are making the right decisions for the environment we live in. As inflation goes up further and house prices decrease, traditional savings will come back.

Which after all is just what the post Office wants, hence commissioning the research!

Monday 27 August 2007

Poll Results: bank Holiday Depression

My poll of last week was an attempt to find out what was the consensus on the fall out from the Credit crunch that has occurred over the Summer months. I set the poll up with only negative results to see just how pessimistic we could all be. I was not surprised to see that over 50% thought that a serious global recession is likely, with a quarter even voting for a depression.

Overall nice thoughts for what is a public holiday here in the UK (and a rare sunny day to boot!)

I voted for a recession only in the US, which is I think what will happen for now, with a slowdown in Europe, but not a recession (well not in the UK at any rate, maybe Italy and the Southern European economies are more at risk).

Will the credit crunch spark a Worldwide Recession?

Only in the US
2 (16%)
Only in the West
2 (16%)
5 (41%)
Depression is more like it.....
3 (25%)

Sunday 26 August 2007

Sunday Business Round Up - End of the Silly Season

With the August Bank Holiday weekend here, it is traditionally the last week of holidays and many people will be back at work next week, albeit for only 4 days.

Usually in the Summer months things are very quiet in the business world and firms focus on issues such as budgeting and planning for the year rather than sales pushes or merger and acquisition activity.

However, that has certainly not been the case this year, with remarkable volatility in the Stock markets and the Sovereign funds looking at buying many top companies, even as Private Equity struggles.

The business media have been kept busy and must now look forward to the next two months, when the business pages will likely be of growing political importance too as we wait to see what happens in the aftermath of the credit crunch:

Credit crunch worse - ...for commercial property than even residential in the UK market.

Norwich to sell-up - as above, the first large move in the commercial property market.

Northern Rock - Worst hit UK bank? Maybe time to review any relationships with them if things get ugly.

Will the Federal Reserve response work?
- A nicely written article here in the Guardian.

Hedge funds not looking so clever
- But will a bad summer make for a bad year?

LSE to get stake taken by Sovereign fund
- As blogged before, mote of this to come.

Irwin Stelzer on Sovereign funds - I rarely ever agree with this guy, but still makes some interesting points on Sovereign funds.

DoT plays tough with Virgin Trains
- never mind the passengers and tax payers, eh boys?

BA Legal trouble - Class action suits set to cost it more.

Lead paint - still more recalls expected in Toyworld.

Friday 24 August 2007

Friday news; Alistair Darling speaks late news today the Chancellor of the Exchequer has commented on the current state of the markets and the UK's economic prospects;

"Despite the moves in the financial markets of late the Country's economy continues to grow at 3%. I have some good news and bad news about the record investment the government is planning in school and hospitals. The good news is, we have enough money to pay for this building program. The bad news is, it's still out there in your pockets."

dum dum ching!

Thursday 23 August 2007

Back to the 70's; The revival of the Unions?

In the decade of my birth, we had a torrid economic time. The UK and the West in general were suffering from a huge increase in oil prices, inflation was strong and hard to keep under control. With a slow down in the markets it led to stagflation too - high interest rates, high unemployment, high inflation and low growth.

Today we are starting to see many of the same things impinging on the economy. The last and most crucial aspect of the 70's though was the impact in the UK of the Unions. They held the government to ransom and destroyed much of our manufacturing industry (despite the socialist re-write of history that would have you believe the opposite).

Fast forward to 2007 and the unions remain under control; but with Gordon Brown in hock to them to pay for any upcoming election, they are slowly rebuilding. Today in London a two 3 day strikes have been announced for a couple of weeks time.

What is the strike for?...concern over possible job losses due to Metronet going bust which was thanks to Red Ken's and Brown's machinations)

A real danger of Labour in power for the rest of the decade is the increase in power of the extremely left-wing Unions in the country. I am all in favour of Unions overall, a fine way to balance worker right's against owners, but the likes of radical Bob Crow know nothing about economics or business and are in it for the power game alone. This serves the interests of no one.

Wednesday 22 August 2007

PPS . . .

I seriously thought I’d flogged the philosophical horse thing to death, and you probably did too, but Ohhhhh No. Oh dear me, no.

Today’s Grauniad carries Tim Dowling’s spoof ‘permablog’, and what’s his theme? Yes, it’s all based around this course in philosophy of floral design” and a course in equine leisure management” . . .

And a hat-tip, do you suppose ? Just a little one ? Dream on, Drew

Ah well, at least you read it here first


Time to leave after all?

I posted a poll a whole ago about whether it was time to leave the UK. The vast majority of you voted yes. Today I see that your thoughts are heavily backed by the latest ONS population figures.

385,000 people left for the long term in 2006. That is 0.7% of the population in a single year. In addition to this, 549,000 people migrated to the UK, or 1% of the 60.6 million population.

So if you look at the net change, 900,000 people were involved in major population movement, or 1.5%.

My hypothesis is that many of those leaving are white, retired or near retirement. Most of those arriving are from Africa or Eastern Europe.

The speed of this change is backed up by my experiences of living and working in London, where it is sometimes rare to meet a white native in a whole day. This brings up so many issues about cultural change and potential capital flight; yet I see no political commentary on it because it is 'red' issue. The left think migration is good becuase it means a net gain of poorer people in need of a nanny state, the right are scared to mention it in case they get accused of racism.

What do you all think? Am I getting my knickers in a twist over nothing?

Tuesday 21 August 2007

Will taxes ever be cut in the UK?

As we edge close to the next recession (or Depression, depending on how much the financiers screw everything up), alarm bells are ringing in my head about the future that taxpayers face.

Public debt is at an admitted 36.4% of Government spending (let's not include all the PFI and State pensions we have not paid for, as Gordon wants us too).

The Public sector employs 5.8 million people, a near record, only beaten at the height of the last recession in 1992.

Our Chancellor thinks that money not in the government's hand is an utter waste.

Our Shadow Chancellor, George Osborne, thinks along these lines "
I want to simplify taxation and move towards a lower, flatter tax system. In a mature economy like the UK, moving directly to a "pure" flat tax would not in practice be viable. That said, many of the features of flatter taxes, such as simplicity and stability, can and should be actively pursued." Not exactly shouting from the roof tops is it?

In a recession, a government following Broon and Badgerss beloved Keynesian economics, needs to spend its way out of trouble. Unfortunately, we don't have much wiggle room on the borrowing side, maybe 5% or 6%. That is only about £25-30 billion. Given government waste on expenditure too, that effect of that money will be considerably reduced.

So instead, tax rises might have to be considered to keep the Northern & Scottish Statist economies going. Yet we already employ 5.8 million public sector workers, all with fantastic pension (liabilities). So can we really increase this number and remain economically productive? It would seem unlikely. How many more Head's of Adult Services do we really need?

As for the Chancellor, not paying tax must be theft according to his new paradigmatic viewpoint. He won't stand in the way of his masters' redistributive wishes (i.e. from producers of cash to consumers of cash).

Finally, the Conservatives as quoted above, whilst making some noises about reform, really are not interested at all. They are far more concerned about getting the votes of public sector workers and the 7.95 million non-working people. This is politically a prudent strategy, as without the 14.85 million state and non-working people potentially voting for them they have very little chance of being elected.

For a taxpayer though it makes grim reading. I can't see any way in which taxes will come down in any meaningful way, despite their huge increases over the last few years.

Ouch, that hurts.

Monday 20 August 2007

Horses for (Philosophy) Courses - a postscript

So shaken was I on Friday upon encountering Philosophy and Equine Studies (Northampton University), I failed in my duty to come up with the appropriate course-notes.

Fortunately, Mrs D has helped rectify this omission, observing that at least this strange degree puts Descartes before the horse . . .

Happily, too, it lends itself to the detailed study of Thomas Equinas.

However, it takes the great 18th century German thinkers at a Kanter.

Fetch some Straw,son

I shall have to get off this Hobbe-horse . . .


Sunday 19 August 2007

Sunday Business Round Up - 19 August

Well Business was always going to get back to the news eventually after a few years of solid growth and good news; now come the harder times where we pay for the largess.

Given that no one has a clue what will happen over the next 6 weeks or so, the papers are sticking more to analysis and some doomy predictions to help the headline writers.

Big Chill Ahead - is the Telegraph take on the matter, fearing the losses in the City will affect the wider economy.

Nothing to fear -Also the Telegraph leads with comment saying that nothing is fundamentally wrong and all will be fine. Please note my post of yesterday below!

US rate cut likely - Says the Guardian. However I feel this would be a huge mistake you don't cope with a crisis caused by cheap lending by making lending even cheaper.

Even the UK can expect a rate cut
- The normally Bullish times goes into a writing meltdown predicting all sorts of strange events. Worth a read because it reads like a conspiracy theory!

But sub-prime crisis is already here - A much better piece from the Times showing why the crisis in mortgages is here to stay.

BA to move on Open Skies
- The airline, of terribly battered brand of late, is to try and use its muscle in Europe to spur growth it cannot get in the UK.

CBI disagree with Tory plans - The most sensible thing said by the Tories, to pull out of crazy EU regulations on working practices, is criticised by the CBI; what a strange place the country has become in the last decade.

Miner digs up huge Emerald - 10,000 carat, that is big!

Brits shop USA - but make the most of it as the £ won't stay at $2 for long!

EMAP still trying to break-itself up - The misfiring media group may yet save its reputation by a valuable break-up .

Saturday 18 August 2007

Don't listen to the cleverclogs; stay out of the markets!

Many thanks to ND for is excellent posts this last week with me being otherwise occupied. May they long continue. Although I have been rather busy, I did notice the rather large problems occurring in the stock markets of the world this week.

The most obvious points to remember are that many people in the markets are on holiday, so much of what is going on does not reflect true market sentiment., We have to wait for September to understand what is actually going to happen in the rest of the year. Secondly, until it is worked out who actually holds all this bad debt that has been issued on the back of dodgy US home loans, there will be rumour and change for some time to come.

So in short, the markets remain very volatile and prone to sharp falls on rumour alone.

This has not stopped those who should know better from encouraging people to get into the market; a little bit like recommending favourite cliffs to Lemmings.

Friday 17 August 2007

Couldn't Make It Up (part 94)

Well, as the financial markets melt down it’s A-level time again and a young person’s fancy is directed toward ‘Uni’ as I suppose we must learn to call it. The government wants 50% of da yoof to gravitate in that direction.

Now the Drew read Philosophy and so automatically turns to the Phil section in the Grauniad’s long list of courses the ‘new universities’ can’t fill. And by Heaven there are some amazing courses on offer.

For the avoidance of doubt, not a single one of what follows was invented by my Guinness-fuelled imagination.

Phil with Digital Publishing (Hertfordshire) - this is perhaps what I’m doing at this very moment, I think I am in line for an honorary doctorate

Phil and Sport (Manchester Met) or, if a bit of ballast is required, Phil & Ethics & Sport (Liverpool Hope): or Phil & Sports Dev (St Mark & St John) – the connection is probably drugs …

Phil with Equine Studies (Northampton) – there is a joke just itching to be written here but I’m too numb to come up with it just now

Phil with Dance (Northampton again) - & perhaps dancing horses …?

Phil with Gender Studies (Hull) – guest lecturer J.Prescott ? Actually, this would be an absolute cracker: for starters – why hasn’t there been a single women philosopher in the whole history of the universe ? ooops, there goes the honorary doctorate

Phil & Media & Commercial Studies (Wolverhampton) – well I suppose the academically renowned Wolverhampton school of philosophers do need to promote themselves a bit more professionally

Phil & Popular History (Staffordshire) – thinking about it, there is definitely a gap for a ‘1066 And All That’ type of philosophy text, I might write it meself

Phil & Social Justice (Manchester Met) – the blood runs cold: please stick to the Sport, guys

Phil & HR Management (Northampton) – not content with dancing horses … I think we’ve all met HR types who’ve been on this course

And finally, before my sides split, Phil with …

with … with … Outdoor Adventure Studies ! (St Mark & St John again) . . . what is going on here ?

Altogether now

Im…..manuel Kant was a real pissant
Who was very rarely stable.

Heidegger, Heidegger was a boozy beggar
Who could think you under the table . . .


Wednesday 15 August 2007

Tuesday 14 August 2007

Here's what he thinks of us

"I think the important message to be sent is we have done everything in our power to maintain the stability of the British economy."

McBroon on the financial meltdown (exclusive to all newspapers).

Discuss, (or should that be disgust ?) with particular reference to sales of gold and purchase of US Treasuries.

I’m sure you have lots to write. Try not to splutter over the exam paper.


Monday 13 August 2007

Smoke and mirrors and CO2

OK, so while we're all waiting for CU's big news: today the Grauniad publishes a leaked DTI memo making it clear that there’s not a hope in global-warming hell that the UK will meet Blair’s much-vaunted target for renewable energy. Yep, we’re going to miss it by a mile.

What’s more, Blair knew this all along – but you guessed that anyway. (Presumably this leak has been cleared with McBroon, who definitely wasn’t even in the UK over the last 10 years, as we know, let alone Chancellor of the Exchequer with dominion over domestic policy.)

As it happens, the target for “renewables” – diseased carcasses and all – was a fatuous, if expensive, gesture all along. What’s fun, though, is to see the civil servants suggesting all manner of wheezes and cover-ups that ministers can use to wriggle off their self-inflicted hook. The Grauniad covers several juicy aspects – the “statistical interpretations of the target that would make it easier to achieve”, the plans to lobby Eurocrats for “flexibility-based options” (don’t you love civil service euphemisms).

But it’s worth reading the whole sordid 16 pages because there are other nuggets to be prospected:

● a wonderful piece of sophistry: if we were to meet our renewables target, we would trash the price of carbon emissions permits – so let’s not meet the target (I am not making this up)

● if we are to get even within sniffing distance of half of the renewables target it will only be by burning frankly infeasible amounts of biofuels, with a whole range of detrimental consequences (even George Monbiot agrees on this point)

the DTI (as was) doesn’t reckon any Carbon Capture & Storage schemes (CCS) will be developed by 2020 (see earlier stories on this blog, where we reported Minister Malcolm Wicks assuring us they were profitable)

● neither is the government at all sure nucs will be economic ‘in the next decade or so’ - again, despite protestations to the contrary, including from McBroon himself

And so it goes on. The gap between rhetoric and actuality has rarely been bigger.


Sunday 12 August 2007

Sunday Business Round Up - The heat is on

In more ways than one, as Mrs Slicker is currently in early Labour. I have tried to convince her of a sane alternative; but we shall be on our way to hospital at some point today more than likely.

As for the Sunday Papers; the business sections are easily the most interesting this week.

(image hat-tip

Hedge funds to blame - says the Telegraph.

...and don't go back into the market yet - Although the end tone of this article is almost comical in its faith that all will be fine.

The governments will print more money to help sooth the crisis - but will this fuel inflation?

The people who will suffer from the credit crunch - The Guardian notes the central banks have not helped the plight of the actual sub-prime mortgage holders.

ICI still for sale - Even as some leveraged deals like Sainsbury's fall apart. it looks like this one will go (it better, I took a punt on this last week as the share price collapsed).

Gold not to be a safe haven this time? - one for Sackerson to ponder here.

Dubai to but Nordic stock exchange - Following our theme on Sovereign funds, here comes Dubai to wreck a NASDAQ bid.

Spanish fight back on Heathrow - BAA make some outlandish demands to counter all the negative PR this week. Ouch for them buying BAA with so much debt. yea for them that the Government will no doubt recommend break up and make their assets worth a fortune!

Superstores damage small businesses - So the Pope is Catholic after all. What this article lacks is balance. How good a quality is your local store; better than an M&S food?

BBC iplayer - How market distortion does not help.

Saturday 11 August 2007

Easier Than Lenin Thought

Here’s another in our regular series for Ellee and all who have half an ear for the sound of tanks coming up the road. Don’t enjoy the thought of Sovereign Funds buying up the world? How about an even more clever strategy – Sovereign Resources being used simply to ask for it to be handed over.

Talk this week has been of Gazprom ‘eyeing UK power stations’. Current German owner E.on (Powergen to us), keen to curry favour in Moscow, had offered up some Hungarian assets. Not good enough for our hegemonic Russian friends, who have declared for some choice items from E.on’s UK portfolio.

Needless to say, there will be no cash on the table: that’s not the Russian way. No, E.on will be invited to see great value in a ‘stake’ in some remote gas field, (the gas from which they will be required to buy anyway), and accept this in return.

What’s more, they will be told to get their skates on, because Gazprom’s latest best friend, don’t you know, is Total of France, who also this week have been honoured to be allowed to sink a fortune in another old friend - Russian pet project, Shtokman. How much joy Total will derive from this remains to be seen (have a word with BP and Shell, guys) – they may not even be allowed to ‘book the reserves’ which means a lot to oilmen.

Lenin used to say that capitalists will sell you the rope with which to hang them. Turns out, it’s even better – they’ll give it to you.


Friday 10 August 2007

Open Thread; The End of everything?

So the markets have begun the credit crunch correction; Governments are bailing out the Hedge funds with Billions of Dollars, Shares have taken a battering and the bottom fell out of stock today.

Is there more to follow? Will interest rates still have to rise? Did you suffer today?

Personally I was hedged, with shares and gold so should be ok. (not that my tiny investments are anything to get me excited)

Council Tax Republicanism

nearly home time on a Friday....

Council tax re-evaluers want to charge people more if they live in a nice area: that ought to mean discounts for those who live in rough areas.

We have a huge council house in our street, for instance. The extended family is run by a grumpy old woman with a pack of fierce dogs. Her car isn't taxed or insured and doesn't even have a number plate, but the police still do nothing. Her bad tempered old man is famous for upsetting foreigners with racist comments. A shopkeeper blames him for ordering the murder of his son's' girlfriend, but nothing has been proved yet.

All their kids have broken marriages except the youngest, who everyone thought was gay.
Two grandsons are meant to be in the Army but are always seen out in nightclubs. The family's odd antics are always in the papers.

They are out of control…..

Honestly - who'd live near Windsor Castle ?

Thursday 9 August 2007

US business blogging.

Understanding the US economy is very important right now, as it will determine when our recession will come and how deep it will get.

Currently my two fave US blogs are Discursive Monologue and The Mess that Greenspan made. The Big Picture is the most well known, but not as accessible.

Wednesday 8 August 2007

Fisking Crushed By Ingsoc

I have very much enjoyed CBI's blogging of late because he is good at starting a debate and holds differing views to many bloggers (including myself). He is a great addition to Blogpower.
This article below though really got to me and so deserves a good fisk.

"Ed has challenged me to explain what he calls my dislike of Capitalism.
So I shall.
Actually it's not a dislike at all, it serves me well. I live in a rich country. I live very comfortably.
I make hay while the sun shines."

Well a nice start, although this piece, suggesting that capitalism needs perpetual war and that Hitler was encouraged for this purpose is a little suggestive of a deeper view.

But I look ahead in alarm.
As does anyone in a position of power who is staring with alarm at the inevitable.
Trust me, this is what the Bilderburg Group REALLY discuss.
They discuss what to do, when they just can't control the demon anymore.
And they arm themselves against the riots. That's why they want a Police State now.

The Bilderberger group, again. Any rational argument that starts by saying there is a global conspiracy out to get us all loses much credibility immediately. It is all very well to say that world leaders discuss powerful things and would like to think they are in control of all events; quite another to prove any of it true. Show me the evidence that Bilderberger actually DOES anything. As for a Police State; where all over the world? A single world totalitarian government?

Have you seen the world lately, it is not as if the people in it get on enough to actually put up with this. Many people in Europe can't even stand the EU, a Pygmy by comparison with this idea of a world government.

It's us they fear.

All the Rich people I know fear very little. They can afford to flee to Monaco or St Kitts if the going gets tough. How many rich people are left in Zimbabwe?

If the debt was all called in, the world would be in the red.
That day is doomsday.
Because then, the whole global economy sits on a house of cards.
But that day must come.

Really? let use a basic example. In the UK people have mortgages, normally these are at 80% or less of the value of the property. plus people have credit card debt too, but this is typically under £10,000. Much less than the average 20% buffer in the mortgage. So how much do people generally really have..not a lot; however, it IS greater than zero.

Of course with companies and leveraged finance things can get a little stretched if you borrow too much, as the current credit crunch demonstrates. But will everyone go under? No. For example look at HSBC, terribly exposed to the Sub-Prime market in the US. Made a huge provision recently for all the bad debt.....but guess what. It's other businesses still posted a profit.

Bumpy times ahead for sure, but the world is not the house of cards built on nothing at all.

Lets just explain for a second, how the economy works.
In a pre-monetary culture, the value of everything is relative.

When cows are plenty, you get less turnips for a cow than when cows are scarce.

Silver being easier to carry around then cows, working out the value of everything relative to little lumps of silver is a good idea for people who seek to take the exchange of goods thing to a new level.

By watching when things are scarce or plenty and taking advantage of those cycles, they end up with more possessions.

So silver coinage becomes a facet of organised cultures. far so good on economic theory

In such culture, usury can be useful to an individual, but overall it is a social nuisance, unless kept to absolute necessity.
If I borrow ten silver coins and promise to repay you eleven, it stands to reason, I am looking to find some way of making twelve.
Whatever way I choose, means someone else being down two silver coins.

Um no, the supply of silver is increasing all the time, new coins are minted. The supply is not finite and never has been. The money is also traded for new production. The ten coins might produce 10 new fields to pasture and therefore generate future revenues far greater than 11. Non one has lost out.

In a finite community, this sort of thing can spiral out of hand, because there really are only a finite amount of silver coins. In those days, money didn't just grow on trees. It's value was fixed.

How did they get these coins? They were either minted or traded for...the supply has never been finite and inflation has been present since the dawn of using a currency as a means of exchange. Even in Ancient Bablyon 5000 years ago.

So in this sort of culture usury aids those with lots of silver coins to profit from someone's misery, even if it isn't the borrower, but someone further down the line.

No it does not, see above. Cultures without currencies are inferior as there is not relative means of exchange and therefore most people live off the land. Cultures that developed a currency became far richer and stronger. Not good for everyone as they still had slaves, but relatively a greater proportion of people became richer over time.

Monarchs and Rulers could benefit from it, and thus it survived.

Yup, more soldiers, more conquest.

But the advent of world trade changed that. Now usury had a purpose.

'World trade' began over 300o years ago. Spices from East Asia reached Western Europe long before the Roman's had even settled on the 7 hills.

Usury was reinvented as a positive. Now it could provide funds for speculative ventures which would of their very nature, bring dividends. It was used to create the money tree which financed the plantations, the tea schooners and the slave ships.

Investment is not usury. Leveraging your resources to develop new ways of creating value is not usury. Paying Brunel to invent railways, propellers for ships and iron bridges is not usury. The lenders made profit, Brunel made profit, people could travel across the world more quickly and so profited. Where is the usury?

And then people saw what the money tree could do.
And it did some pretty amazing things.
It powered the industrial revolution, it taught the common people to read and write, it built railways, steamships and telegraph lines.

No it did not. The Romans had money and manpower, they never reached industrialisation. The Chinese had money and technical know-how nearly a thousand years before western Europe. The age of reason with scientific experiment, the creation of nation states and the protestant reformation are far more important than the presence of money alone.

Because there were always new markets. You borrowed ten thousand, promised to repay eleven thousand, and made twenty thousand through trade.

This was the miracle of free trade.

Brilliant is it not, trade with each other and both grow richer, no matter how different rich or poor either side is; the ricardian principle.

There is of course a problem.
Silver is finite. There is a limit to what is in the world. The world is finite.

This is technically true, but one should remember Malthus here. Productivity increases is exponential, not linear. More can be made from less as time goes on. At some point no doubt with a vast human population there will come a finite point; but we are a long way away.

Everyone can't borrow AND repay for ever. What are they going to repay with?

The excess profit they produced from their initial investment.

Now in a silver currency, you can have deflation as well as inflation. If someone finds a silver mine, the value of silver drops. Inflation.

If a fleet of Spanish ships sinks, deflation, The silver is worth more, there's less of it.

Exactly, it has a major problem....I wonder what the solution is?

But a system used to perpetual growth gains a new dynamic. A continuous pressure on prices. The only brake on this is the fact that the coinage really is finite. There is only a finite amount of silver. In fact, by this time, most countries had adopted the gold standard, linking coinage to value in gold ingots.

The pressure is simple. With so many people in debt, if there is a hiccup and trade goes bad, they owe money they can't repay. Not only that, with goods being scarce, traders are tempted to put their prices up.
Both these problems mean that those not in debt want wage rises, just to put things back on a level.
These times were hard times, but eventually trade would pick up again.

Indeed, the up's and down's of life; made worse in a smaller economy and less of a problem as the global economy is larger and can withstand the shocks.

Inflation on a modern scale was only seen in countries with 'fiat' money. This is money which is worth what people say it is. It isn't tied to anything. You CAN make as much as you like. So it keeps inflating.

Another good idea; let the government decide what money is worth rather than the owners of silver mines. Much more in the peoples' interest don't you think?

But when the growth really did slow down for good, when it really did stop, there was a problem.

There was, I guess you are referring here to the world of 1900-1935. there was also an event called WW1. This did have a massive effect on all the industrialised countries at the same time (except Japan, which unsurprisingly did just fine in this period, too well for its own good eventually).

The banks were the mainstay of the world. They lived on interest. The world was driven by the motor of profit.
But it was a demon that needed feeding, and there was no more for it to eat.
Infinity is an imaginary number.

The gold standard of the time kept everyone poor when huge investment was needed after the war. All the gold had gone the the USA which had no real need of it, hence an asset bubble in the US and depression in Europe.

And since the war, it has continued.
Eating money that isn't there.
The imaginary debt figures rise, but who would repay it, if it was called in?

After the war there was the Bretton Woods agreement, effectively a less strenuous Gold Standard which fell to bits in 1971 due to Vietnam and an Oil Shock.

The UK for example in this post-war period, despite hardship, continued to repay its debt and rebuild its economy.

The Credit side goes down, the Debt side goes up.

And no one knows how to stop it.
In a sense it doesn't really mean too much. The world won't end when the crash comes, but the economy as we know it will.

Why will it end? Did the world end in 1929? How long did the recession last...decades, centuries..or 5 years?

Not to belittle the suffering, but the world did not collapse and the places that did were the rich parts of the world anyway.

Ed, I don't hate it, I can just see that it's an illusion, a growth spurt phase in the history of humanity.
And the last few decades the growth has been an illusion- fuelled mainly by the illusion that people were 'buying' their own homes, rather than taking out loans for life.
The Economy doesn't really grow any more, it's just the Interest is still fed.

An illusion? All the developments of drugs, technology, cars, planes, phones, computers, the Internet, billions of tons more of food grown both in acreage and intensification of land use? Billions of new people and yet % wise fewer living in poverty? Diseases eradicated, global communications developed, the solar system explored.

All an illusion, where is the growth in that? Where is the sustainability of development.

When it can't eat any more, the system is f**ked.

We can all eat more than ever before, despite terrible floods in our country we barely even notice and the shops are full of food. This is no illusion, this is amazing progress.

I don't disagree that if you print money excessively you will damage the economy and there is a strong chance of this happening, but the world is not about to end. not only that but the world really is the world now. India, China, East Asia, South America; not all these places are infected by the Anglo-Saxon credit model, these markets won't die. Companies too have made great strides forward with ideas such as just in time delivery which will massively aid the smoothing out of the bumpy ride.

If you are looking for real long-term problems then resources, population and climate change are far more scary than money; but there is time to fight these. The world does not end tomorrow. (Asteroid strikes apart).

Tuesday 7 August 2007

New Conservative 'tax' policy

Well this is a small one, but at least something to take a look at in a post. The good news is that the party sees the benefit of tax cuts; the down side is not for the taxpayers but lenders (i.e. banks) for the 'Social Sector.' The announcements were made by Greg Clark, pictured left.

Still there is a lot of merit in the longer report that has been produced. Not only that but it is quite well presented and argued. The tone is not overly combative against the Government, although critical in parts.

The nub of the issue is that the Conservatives are suggesting that the way to help re-build community (yes the C word, one for Croydonian's banning list) cohesion, is through encouraging 'businesses' that invest in the community through projects. It argues that the current government has failed to do this by imposing too much red tape and stifling innovation.

To this point, so far so good. The more challenging part is the solution. A community trust bank to oversee the approvals of applications and loans too the various Local Authorities. This appears though to add more red tape. I could not see where they proposed reducing the current plethora of Government initiatives. Thatcher's enterprise zones were about true private sector investment; real jobs, real businesses. The Social sector, although clearly with many benefits, is more of a support service for deprived areas rather than true regeneration. It strikes me as disease management rather than cure, but I am no expert

So will it work, I am not sure about the conclusion to the report. The report identifies the need to help broken communities and the failure of the Government's many well intentioned policies to make much difference; but there is no wonder solution and no radical ideas like really renewing the Thatcher Enterprise zones that were successful.

Monday 6 August 2007

Poll Results - Go short on stocks and shares

This weeks poll was on where all my canny readers (that's you, if you voted) thought the FTSE 100 would be by September 1st. The results are as follows:

Over 6500
4 (21%)
6000 ish
9 (47%)
less than 6000
4 (21%)
Less than 5500
2 (10%)

So overall it seems as if people are a little cautious about prospects for the market at the moment, with the majority going for a slight fall to around 6000. This closely mirrors the fall in the actual market this week.

So if you are going to invest, it would seem that you might save your shirt by going short on shares rather than just buying in.

However, I was in the 21% who voted for under 6000. if things carry on this month with continuing low volumes and falls in the Dow Jones and NYSE on fears of the US mortgage market failure, then the 'floor' of 6000 is in danger. We have already seen a 400 point drop in the last month.

Add to this that September is historically a terrible month for investors (see 1929 and 1987), because a lot of long-term investments have to be renewed then by the Institution's like pension funds. If these risk averse institutions see weakness in the stock markets then they switch their investments into Government treasuries and bonds; by taking money out of the main market the share prices can suffer huge corrections and a bear market sets in.

Anyone out there still a bull or are we all bears now?

Sunday 5 August 2007

Business Round Up 5 Aug - It's getting hot in here

30 Degrees outside and still I am blogging, quite sad really; despite the heat in the weather though the markets are in an even odder place for this time of year. Most of the City is on holiday and a full-blown crisis is brewing.

Markets in crisis - This is the Guardian's view and here is the Independent view.

City going strong - despite the wobble the Guardian has a nice puff piece here for the city.

Chinese poison our children - with dodgy toys, who would have guessed low prices meant low safety?

Health clubs not so healthy
- Over-competition in the market and a tightening of consumer spending will be make Esporta the first of many to have problems.

BA execs still in the line of fire
- Perhaps the witch hunt will start now. America as ever gets very protectionist when the companies involved are not American.

Hegde fund power
- Old news, but a worthy reminded of who holds the power in the new world financial order.

Royal Mail fiasco - A good piece on the crazy goings on at the Royal Mail. Have you even noticed the recent strikes?

Inflation, UK interest rates to rise - No great surprise here, floods and oil price will push inflation up and interest rates will have to go to 6%, at least.

Sugar out - Reaction to the news of Amstrad being bought by Sky.

Sainsbury's sell-out - The store look sot get more money from the Qatari's.

Saturday 4 August 2007

Government According to Salvador Dali

Government spokespersons rush to assure us that the new wave of foot-n-mouth slaughter will not result in carcasses being heaped into pyres in open fields - they will be "incinerated", we are told.

The hell they will - they will be sold as 'tallow' for burning in specially-converted power plants! What's more, this counts as ‘renewable energy’ under government rules. Just to complete the surreal story, these plant conversion jobs have attracted lottery grants!

You couldn’t make this stuff up, and indeed I am not making it up, as you can read for yourself.

Oh, and have a nice Sunday lunch, won’t you …


Friday 3 August 2007

Friday Post; Dale's Top 20 & Awards

As per Iain Dale's request, here is my list of the top 20 UK political bloggers, I have not decide the order yet:

Bel is Thinking
Ed Clarke
Islington Newmania
Ministry of Truth
Mr Eugenides
Guido Fawkes
Benedict White
Burning Our Money
Devils Kitchen
Ellee Seymour
Reactionary Snob
Tony Sharp
Tom Paine
Westminster Wisdom
Thoughts from the borders
Theo Spark

...did I miss anyone by accident or make the wrong choices?

Also a belated thank you to all my readers who voted in the Winatagemot Blogger awards. The Cityunslicker was voted 2nd best business blog, behind the exceptional Tim Worstall and ahead of Burning Our Money. Seeing as reading BOM more or less inspired me to start blogging last year I am very pleased, if a little embarrassed.

Thursday 2 August 2007

Here We Go Again: The One-Way Bet

So a number of financial institutions that ought to have known better – nay, did know better – wagered the farm on sub-prime debt or derivatives thereof. As the skies darken with chickens coming home to roost, the usual cry goes up, “a Banking Crisis !”, and out come the financial mountain-rescue teams across the banking centres of the world.

So what happened to the Investment Services Directive, Capital Adequacy, Basels I and II ? Why do we give these greedy buggers their one-way betting slips ?

Let’s be clear: banks know what they are doing. Whenever there are serious penalties on offer for ignoring risk – e.g. when preparing a prospectus for a flotation – they all know how to fill out the ‘Risks’ section, in elaborate and blood-chilling detail. Curiously enough, though, when it’s day-to-day business, largely conducted out of sight, suddenly their risk management expertise goes out the window: it’s all too complicated and … well, if we lose enough, they’ll bale us out.

Why do we indulge them ?


Wednesday 1 August 2007

British Airways and Heathrow related fiasco's

BA's fines of up to £350 million today are truly staggering. That Virgin get off without a fine is lucky for them, or else they might be bankrupt. I was amazed to see the OFT following the US lead and imposing a fine, as I wrongly thought this was a US case that only they would follow.

My take on this is to actually feel quite badly for the BA CEO, Willie Walsh. This happened so early on his watch that I don't think much blame can be laid at his door. The now ex-commercial director Martin George (who fancied himself enough to go for CEO of the Football Association) is to blame, along with lower management at Virgin. Sir Richard would not have condoned this either in my opinion as it would hurt the brand too much, which is always his primary consideration. Both companies have been brought low by relatively junior staff. As for the cargo cartel, it seems that their is more of a case for BA to answer.

As well as this news today, there is Ken Livingstone, Willie Walsh and many others joining in the condemnation of Heathrow. Ken is in full marxist fantasy mode when he thinks that state ownership would be better for BAA. BAA has invested fortunes since it was privatised and all the money it makes from retail has saved taxpayer money.

With terminal 5 due online in a few months, things will improve at Heathrow in the short term. A lessening of Government security restrictions would also help the passenger experience.

On the other hand, Ferrovial (the Spanish owner) is in a deep hole. They borrowed a fortune, taking advantage of Spanish tax breaks for large foreign take-overs, to buy BAA. Now they have it they are struggling with the level of capital investment needed and the need to pay down the debt. Their latest idea of selling the retail unit, World Duty Free is just pure madness as it is a cash cow and shows how deeply they have misunderstood the business model. UK Private Equity houses will have BAA in their sights by next year is my bet.