Tuesday, 22 September 2009

Can the world change?

The latest pre-G20 report has same merit in that it at least speaks the truth. the stimulus being applied to a sickly world must continue for a short while yet and then a concrete plan must be made to phase it out.

Then and more importantly, deficit countries like the UK and US must rein in their spending and save more; whilst purely export driven companies like China and Germany will be pushed to develop their own internal consumption to a higher level.

The difficulty is to see how this will be enforced. The Germans love their beggar-thy-neighbour policy which has helped to crush Italy and Spain as economic powers. China will find it hard to increase demand in such an impoverished society; meanwhile the UK and US have addicted consumer societies that will also find it hard to accept was is in effect a lower standard of living today for the benefit of developing longer term prosperity.

Also I do not see how the actions of the Climate Change are bound into this. The vast reductions in CO2 emmissions being put forward will require slower economic growth all over the world in order to allow the technologies time to be developed and deployed.

The world faces some challenges which are structural in nature; we don't have a very good history of dealing with these without major wars, perhaps though the resolution of the cold war gives us hope.

17 comments:

roym said...

i have some german friends via work and their attitude to debt is really something else. it'll be a generation or more before they're maxxing out the 3rd credit card on a second 50 inch plasma, etc.
In our own case, i've always thought the politicos quite like the idea of the massed tied to the debt yoke.

hatfield girl said...

I have some Italian friends and their attitude to debt is really something else too.....(see roym above for the rest).

Can Brown think seriously that Italians are going to fund English chav economic culture?

I would add, it is notoriously difficult to measure the Italian economy - not least because individuals, firms, families think their economic behaviour is nobody's business but their own.

Demetrius said...

Too many jugglers with too many items to juggle. And most of them are blindfold. And most of the rest can't juggle.

CityUnslicker said...

ROYM - Ah well, all they need is a good socialist government to spend the money for them. I can even recommend them some first class ministers in this respect. Perhaps we could have some of their Bundesbank officials in return?

hatfield - I always read Italy is a basket case. I always go there, see Italians and their way of life and possesions; which is fantastic. Something clearly gets lost along the way.

Demertrius - recognising the problem, adn agreement by all that this is the problem, is the first step.

Blue Eyes said...

Why on Earth would the Germans throw away their advantages just because we don't have them?

ivan said...

Maybe the UK should take on the French banking rules. Don't go overdrawn - you loose your account and are banned from holding one again for 5 years - makes you think twice about what you do.

Blue Eyes said...

We should certainly be thinking about policies which actively encourage consumer saving rather than borrowing. How about abolishing income tax on savings paid for by a big rise in VAT?

CityUnslicker said...

@BE - i don't agree that the Germans are entirely correct. They rely on others being like us, if we are not then they suffer far more. German GDp has fallen much further than the Uk and they have higher strcutural unemployment. Their economy needs rebanacing too - just that their start point is better than ours. germany policy is beggar thy neighbour corporatism.

As for VAT - I hate VAT it is a very regressive tax which hits the poor the hardest. funnily enough, I prefer the ISA scheme of tax shelters. Also you may not know that compulsory pension saving is being introduced in 2012 and this will have a huge impact on our savings rate!

Budgie said...

The reason we do not save in the UK is partly because our useless politicians cannot keep the value of the pound steady and partly the hedonistic 'have it now' culture.

Why save when you can have it now and the welfare state will look after you when your money is gone? Why save when you know our dear leaders will reduce the value of your money or filch more of it in taxes in the future?

Finger wagging is futile - people have their heads screwed on right - when it is sensible to save, people will save.

Anonymous said...

The G20 meeting, or at least the part for public consumption, is hogwash.

Once QE is started, stopping is damn near impossible without a significant devaluation.

UK debt will approach 14/15% of GDP in the medium future, and that depends on interest rates not going above C. 5/6%.

No economy has escaped devaluation, slow and controlled, or sudden, once 9% is breached.

UK gross liabilities will approach 400% of GDP in a few years. Thank you Broon.

The same, roughly comparable situation exists in the US, except that the $ still carries a premium created by its position as the global currency of choice.

That choice is about to be diluted, significantly. The $ index has fallen from a peak last winter of just under 90, to just above 76 today. The index is a battle-ground, currently, as the US fights to maintain the 76 level, perhaps for the duration of the G20, as they fought to hold the 78 level a few weeks ago, coincident with the visit of swathes of Chinese economists.

There is no support below 76, until 72 is reached, I speculate, before the New Year, or maybe the Chinese New Year. The $ is rapidly replacing the Yen as the currency of choice for carry-trade purposes. Borrowers of $ will thus heavily short the $ to protect their borrowings, while investing, at least, in higher paying other currencies, - perhaps the Aussie dollar, (as they are progressively linking their economy to China, and S E A) although Aus. is a small market.

There is evidence that foreign purchasers of agency debt are trading them for T-bills of short duration, (agency debt thus falling to the Fed) and purchases of new T-Bills are heavily skewed towards shorter duration. Failure to roll these in the near future could be cataclysmic for the $, as there is further evidence that the Fed is buying, via the back of the woodshed, sometimes in the West Indies maybe, over 50% of T-Bill issuance.

The £ will track downwards with the $, not exactly, but near enough for discussion purposes, as investors exit these toxic currencies, and as the basket measuring them begins to include maybe Chinese, Indian, Brazil, and Russian currencies. All that is on offer to these BRICs at the moment is "talking rights" at the IMF. They are conscious that the US currently owns the IMF, - - they are determined that that will not last!

Cont'd

Anonymous said...

Cont'd

The EU will co-operate with this as the last thing they want, should the $ presence shrink, is to be a major global reserve currency, thus becoming the prime target of mercantilism from S E A.

Interestingly, Dominic Strauss-Kahn was a member of the Union of Communist Students in his younger years, and the rabid New World Order supporter, Kissinger, gave Obama his first job after graduation.

You think this lot is not orchestrated?

I digress.

Be aware however, that Bernanke can crash the equity markets globally, at any point, via open market operations, should the political view decide that the defence of the $ becomes more important. This however, would be inconsistent with the overall objective of currency debasement in order to make debt repayment more manageable. The Chinese have warned many times on this, even voicing opposition to his re-appointment.

Every day I watch the increasing correlation on charts, between the dollar index and gold (inverse now), and other commodities, and the leverage of those statistics on the share prices of the miners and producers, of major commodities. (also inverse with the $ index).

Also heavily directly correlated is the incidence of QE internationally, and the share prices of said companies.

Clearly, the product of QE is finding its way into share prices. This may be directly, or merely indirectly via an increasing worry of upcoming inflation, (despite large productivity gaps,) caused by currency debasement.

Marc Faber is currently saying buy miners and precious metals, as the $ will be worthless, although that was to a US audience. The same would hold for the UK economy.

If CU would care to comment on the Share prices of goldminers in the event of a stock market adjustment, I would appreciate his comments.

So far, Obama has proven himself to be nothing more than a windbag, and an economically illiterate, (or maybe Wall Street controlled) windbag, at that. His time is almost exhausted, as is the patience of the US electorate. Broon should be in a worse position in the UK. That he isn't is perhaps a reflection of the recumbent, lazy, downright stupidity of an increasingly brain washed, UK public. Has entire government is a complete travesty of anything remotely rational. They deserve the gallows.

Here is a link to a very respected source that explains things. Here

Anonymous said...

M Mobius

electro-kevin said...

The reason we have debt in Britain is to defer the day that we reduce our standard of living.

Most people I know aren't splashing it about. They're just trying to keep what they have.

Anonymous said...

Whooaa!

As at this time, Dollar index is 75.911.

If that holds, things get interesting.

Gold now at $1017; - may make a run to 1030, - - if $ index holds down.

Interesting times.

Probably index goes above 76 when London opens.

Anonymous said...

Index up, gold down.

Oh well.

Philipa said...

Oh come on, we'll be absorbed into the EU and become a larger version of the Isle of Wight; mainly a tourist spot.

I agree with roym:"i've always thought the politicos quite like the idea of the massed tied to the debt yoke."

The state rules, ok!

CityUnslicker said...

Anon,

thanks for those insightful posts. Agree re the effects of QE which is why my measely (albeit 300% less measely than last year)funds are mainly in oil stocks like tullow and heritage and also in mining and property companies.

Having said that I have a small short on gold which i opened at 1000. Just watch the manipulation once gold is past its annual high point of September.