Too depressing to write about the Budget really

 One of the worst budgets in living memory for me, worse than some of the humdingers during 2008/9.

A Tory Chancellor raising taxes painfully in the face of fast growing inflation, splurging money on the NHS and everything else that the left loves. No attempts at any market reforms to try and make the spending more effective. Just full on into the law of diminishing returns. 

Cutting funding for Defence, even as China threatens Taiwan and the world with hypersonic missiles and the French look to start a new 'scallop' war.

Net Zero and green taxes unquestioned and going up. Not long now until only the rich can fly, airlines will clock on soon to doing away with economy class altogether. 

The press reaction is even worse, pravda-levels of happy compliance because money is being created to be spent on 'good stuff.'

Nothing conservative in it at all. A horrid throwback to Brownian labour budgets. 

And they say they want this guy as Prime Minister?!

Well, the welcome it has now will not last out the spring, with inflation rising and incomes falling the Tories will end up well behind in the polls and deservedly so. If we are to have Labour budgets, may as well have a Labour government whilst the Tories can go back to school to remember what they are supposed to stand for. 

Blue Sunday

End of Q1 2010 and thus far both my teams have blown up. Leeds losing all form (hat tip to The Telegraph for the pic) on the Football apitch and the Conservatives equally letting slip a massive lead.

Both now have a run in of the smae length and are in the same position - no more defeats or mistakes else it is curtains...but also depserately out of form and needing to find some.

A troubling and annoying parallel for me!

Will China, Germany and Japan cause the Depression of 2009?

"Mercantilism, which reached its height in the Europe of the seventeenth and eighteenth centuries, was a system of statism which employed economic fallacy to build up a structure of imperial state power, as well as special subsidy and monopolistic privilege to individuals or groups favored by the state. Thus, mercantilism held exports should be encouraged by the government and imports discouraged."


The current trend in the soundbite political discussion of the current economic crisis is that it is all the USA's fault and to a lesser extent the UK's fault. We have had too much easy money and built up too much debt, created asset bubbles and ruined our own economic prosperity.
What is often overlooked is that it takes two to tango. Much of the money has been lent to the US/UK by those who seek to export their goods whilst seeking a high current account themselves. The three biggest culprits for this are China, Japan and Germany. All have employed policies which seek to boost export demand whilst not worrying about their own internal demand. This has created a lopsided world economy. Similar in a way to the 1930's - but then it was America who was the large exporter to the world and Germany was the main debtor country; oh, the irony!
China in particular has huge export subsidies to its industries, a controlled exchange rate to the Dollar financed by buying US government debt and a myriad of other taxes and charges which have aimed to build up its own industry. This 'competition' has destroyed the manufacturing base of the UK and US. Germany and Japan are also guilty of this, but using high-technology instead of low.
However, China and the other states now also face a terrible dilemma. Manufacturing is collapsing as fast as banking across the world as demand dries up. To stimulate demand in the deficit countries the Mercantilists' need to provide funds to their export markets; only now there is a big risk the money sent will not return home with the same value that it used to have.
In many ways, the Mercantilist countries have more to lose if international trade collapses.
Apologies for the long post, but the above needs considering carefully. Other countries are complicit in our mess, despite their high-handed speeches now.
In the 1930's the US decided to go the route of protectionism to try and maintain its industries. This had the opposite effect to that which was intended and the US suffered the worst meltdown of all the advanced countries. Deficit UK came off the gold standard and muddled through with much less damage.
If China continues to peg the Yuan to the Dollar (which hammers the biggest consumer of all too, the euroland countries), refuses to do more to stimulate demand and continues with export subsidies then the world WILL face a new Depression.

I have hope that the next G20 meeting will come to a new world trade agreement, that alone would ensure that we do not return to the 1930's.

Potential Radical Solutions; Suggestion 1

Yesterday we disclosed how the BOE has lost control of monetary policy. They only have the interest rate to control and this is meaningless in the face of LIBOR and CDS and the Bond market.

On Monday, whatever Darling and the media report, the Government will outline the loss of control of fiscal policy. perhaps with debt ballooning to 50% above target for the year.

As a result of the above the pound has sunk, now trading at £1.48 to the US Dollar and £1.20 to the Euro; Osborne's little saga apart there has been little public reaction to this.

When we then consider the issues facing us; deflation of asset values in all classes, capital inadequate banks, low savings, consumer over-indebtedness - we are in quite a pickle. it is very Japan circa 1990-91. They had a 10 year recession and their stock market is now 85% below its peak (=FTSE100 at 800, rather than 4000 as today).

But perhaps the BOE do have an answer. Print money now, deflation is setting in for the moment as global deleverage occurs - so the inflationary effect will actually be countered in the short-term. Plus inflation would then allow the BOE to raise interest rates back to levels which may enourage saving. Asset prices would be reduced in real terms and there would be more money to spend to stimulate the real economy. Also with no need to issue gilts, the government will not need to get into such financial hole as is currently planned.

In the US, The Fed Chairman Ben Bernanke has hinted at the US going down this road to avoid depression. The time to do it is now, in the deflationary window. If we wait until the deflationary period is over we could set-off hyper-inflation.

Thus there is a strong argument for printed monetary stimulus today. Comments?

AIG in Conservatorship

Phew, this is the news alright. AIG is not a US Government backed vehicle, it is a large private company, also it is owned in many US states. The US Federal Government has little legal precedent for suggesting it nationalise the group in return for $100 billion.

On the other hand, they would not do such a thing if they did not think such a thing was utterly needed. Clearly the health of the global financial system is at risk. The fight is now against a Depression, not a recession, led potentially by a real meltdown in financial services worldwide.

Gulp.

This is serious now, the Fed is acting like it did in 1930 and 1931 - let's hope it all works out better this time.

No point owning shares in risky/any US financial stocks now though, with shareholders likely to be wiped out....