Japan 20 years or so ago headed into a serious credit crisis not so dissimilar to the one we have entered recently. They are still in it to this day, in fact last month they reported the worst price deflation statistic on record, so they are still not out of their recession even now, two decades later.
The policies they implemented in order to fight this economic downturn bear a striking resemblance to the ones we are following here in the UK and US (as in "exactly the same"). Somehow, our governments believe that we will enjoy a different outcome than they did. Presumably we are just better than the Japanese, or smarter, or something else equally incorrect along those kind of lines, and this is the reason we will try the same thing and expect different results. The definition of madness is doing the same thing and expecting different results.
The thinking is that we will devalue our currencies and then our exports will become cheaper, so the rest of the world will buy stuff made in our countries rather than us buying everything from them as in the last couple of decades. Japan had a tail wind on this exporting their way out idea, because the rest of the world was still booming on cheap credit. The export your way out solution is a great theory, but I have a massive bone to pick with it when it comes to the UK trying it out. What do we make and export now..?
The US, well OK I can accept they do still manufacture a lot of stuff and people elsewhere might actually want to buy it. Those Maytag giant fridges are pretty neat, Boeing do still make airplanes that people want to fly in, and people sure like a Harley Davidson, to name just a few of the most obvious examples. Yes, I can accept that it might just work out OK for them.
But what about Britain? What do we make? We stopped wearing blue collared shirts and making stuff long ago, now our domestic economy largely consists of selling each other houses and services. For export we mostly rely on our complex financial derivative products, which people don't like to buy any more since they almost pulled the economy of the entire world into a terminal deflationary vortex. Other than that, I'm pretty sure we don't make anything iconic that anyone else wants and can't get elsewhere cheaper. If you can think of some killer product that we export and people queue up to buy because you just can't get it elsewhere, please I would love to hear about it?
So, to summarise that, I do foresee we will see different results in the UK. The results will show even less success. Welcome to 20 years of grinding recession unless the course is changed quickly.
Friday, 29 January 2010
UK bank credit ratings downgraded
Last night Standard & Poors, the credit rating agency ("S&P"), downgraded the ratings on British banks.
To quote them, “we no longer classify the United Kingdom among the most stable and low-risk banking systems globally". Read the article for more details, but if you have been paying any attention then this will be of little surprise to you I think.
Significant as this certainly is, this is in my opinion but a precursor to the main event that almost certainly will come to pass: the downgrading of the rating below AAA on British government debt. That will be when things really start to get interesting. It is impossible for any company domiciled in a given country to have a rating that is higher than that of the nation's government -- so downgrading the UK government, means necessarily all UK businesses will also be downgraded at the same time.
I don't need to tell you I'm sure, that a lower rating means higher borrowing costs. Or possibly no borrowing.
Let's include a snapshot of how much we each have to pay back of Gordon's national debt, for posterity and so we can look back in the future and see how much it changed...
To quote them, “we no longer classify the United Kingdom among the most stable and low-risk banking systems globally". Read the article for more details, but if you have been paying any attention then this will be of little surprise to you I think.
Significant as this certainly is, this is in my opinion but a precursor to the main event that almost certainly will come to pass: the downgrading of the rating below AAA on British government debt. That will be when things really start to get interesting. It is impossible for any company domiciled in a given country to have a rating that is higher than that of the nation's government -- so downgrading the UK government, means necessarily all UK businesses will also be downgraded at the same time.
I don't need to tell you I'm sure, that a lower rating means higher borrowing costs. Or possibly no borrowing.
Let's include a snapshot of how much we each have to pay back of Gordon's national debt, for posterity and so we can look back in the future and see how much it changed...
Thursday, 28 January 2010
Soros: 'bleak outlook for UK'
That George Soros, he's a smarter guy than me. I'd take what he says seriously, even if he wasn't saying what I was already saying.
Every year like 2009? "The Crash Course", distilled
Imagine a year like 2009 happens every year, indefinitely. That is what can be projected from the facts as things stand right now, as will be demonstrated.
Chris Martenson is a guy that I and many, many other people around the world have a lot of time for. He has given up a highly lucrative career and what most people would consider a fantastic lifestyle, to devote his resources entirely to spreading his understanding of the fundamental issues the world must face up to very shortly, before time runs out and choices are no longer available.
His main and most valuable offering to the world to date is a presentation that describes, in detail, the fundamental problems that are on course for disaster, and this is entitled The Crash Course. I highly recommend you make time to invest in reading this in it's entirety sometime, because it is highly enlightening even if it does in total take over 3 hours. (There is a 45 minute abridged version available from that link too, if you baulk at a full 3 hours!) But seriously, it IS worth the trouble and you don't have to do it in a single sitting, in fact I would even recommend you don't try it in a single sitting.
You can get it on DVD if you don't want to read it on-screen; perhaps it is much easier to take in the message when you're seated comfortably with a beer or a nice glass of wine. Some of you will think already that you should stop reading right here because I and he are just a couple more conspiracy theory whack-jobs (perhaps I am already too late, in fact I'm sure in many cases I am... oh well...), but that just proves you are not thinking, unfortunately.
However, this blog post here for you today is to bring a "distilled version" to your attention in the hope that this can spark a breakthrough for you like Neo taking the blue bill in The Matrix. (Although, clearly, I really hope you will do yourself a favour by taking in that full Crash Course sometime soon, if not right now). Chris was invited to give a speech at The Commonwealth Club in San Francisco recently, and he has provided a transcript of that speech, in which he summarises for the audience the essence of his message. At the very least, you should give that speech a read-through, it might just change your life.
Chris Martenson is a guy that I and many, many other people around the world have a lot of time for. He has given up a highly lucrative career and what most people would consider a fantastic lifestyle, to devote his resources entirely to spreading his understanding of the fundamental issues the world must face up to very shortly, before time runs out and choices are no longer available.
His main and most valuable offering to the world to date is a presentation that describes, in detail, the fundamental problems that are on course for disaster, and this is entitled The Crash Course. I highly recommend you make time to invest in reading this in it's entirety sometime, because it is highly enlightening even if it does in total take over 3 hours. (There is a 45 minute abridged version available from that link too, if you baulk at a full 3 hours!) But seriously, it IS worth the trouble and you don't have to do it in a single sitting, in fact I would even recommend you don't try it in a single sitting.
You can get it on DVD if you don't want to read it on-screen; perhaps it is much easier to take in the message when you're seated comfortably with a beer or a nice glass of wine. Some of you will think already that you should stop reading right here because I and he are just a couple more conspiracy theory whack-jobs (perhaps I am already too late, in fact I'm sure in many cases I am... oh well...), but that just proves you are not thinking, unfortunately.
However, this blog post here for you today is to bring a "distilled version" to your attention in the hope that this can spark a breakthrough for you like Neo taking the blue bill in The Matrix. (Although, clearly, I really hope you will do yourself a favour by taking in that full Crash Course sometime soon, if not right now). Chris was invited to give a speech at The Commonwealth Club in San Francisco recently, and he has provided a transcript of that speech, in which he summarises for the audience the essence of his message. At the very least, you should give that speech a read-through, it might just change your life.
Wednesday, 27 January 2010
So much for the minimum wage, working tax credits and all that other bunkum
STILL the poor get poorer. After 40 years, studies comparing then with now find that the gap between the rich and the poor has only gotten wider. Are you surprised?
Labour (substitute Democrats if you're a US citizen) would have you believe that they are looking out for the little guy (that's YOU that is). They're punishing the rich for, well just for being rich, which is of course a carnal sin in and of itself. Oh yes, almost forgot the other bit, they're punishing the rich in order to rob them and give it to YOU, the poor. The poor who have a vote. Boy, they're better than Robin Hood eh? That sure deserves my unquestioning vote to keep them in power. Naht.
The truth of the matter is Labour (Democrats) are the complete opposite. They will placate you with headline nonsense like minimum wages, subsidised home insulation schemes, working tax credits to help poor working families, subsidies for childcare for working families, never ending dole money for the truly work-shy among us, and all kinds of other social welfare mechanisms coming out the wazzoo.
But the effects of all of these things put together is still never enough to compensate for their wild monetary inflation -- which is an unavoidable prerequisite for their schemes, because they don't actually have any money to pay for any of it. The working man doesn't benefit from this monetary inflation, he only experiences the downside of it -- ever-rising prices of the things he needs to buy, prices that rise faster than the tax breaks and subsidies that he "enjoys" (a mathematical necessity). This is the same social welfare scheme that Mugabe instituted in Zimbabwe, only he got a bit ahead of himself and the citizens cottoned on to what was happening and the inflation really did get out of hand. That is the only difference at this point between there and us now though, most people don't have any idea of what is happening.
No, the only people who benefit from monetary inflation are the people who get first dibs on the new money. And they my friends, are without exception "the rich". They get the money while it is still worth the same as all the other money already in circulation, before people realise there is more money and the prices of stuff goes up commensurately. They can buy stuff at yesterday's low price and they can sell it to the poor at tomorrow's higher price. Better still, these people can borrow the money for free ahead of it's creation, so they can buy today's stuff at yesterday's prices, with tomorrow's money and pay it back with next week's even cheaper money. In fact, it gets better still -- next week they borrow even cheaper still money to repay the loan, to be repaid a month later ("rolling over their debt"). This money a month (or more) later will be even cheaper still to pay off, the longer they can put off paying back this nominal amount of money, the cheaper it is for them in real terms. The reality is they will put off repaying the money almost indefinitely, by continually rolling the debt over. Is this a great scheme, or what? This is how Britain financed the expansion of it's empire back in the day, until the printing press was taken away after we were bankrupted by war. The same is in process of happening to the US now after they have similarly bankrupted themselves but they have done it with wars on terror in distant lands, and by massively over doing the debt leverage as people took too much advantage of the inflationary scheme described above once they understood it. If I was allowed to get my hands on this free money too, you can bet that I would do the same and I know you would too since you're a real smart guy. But we're not invited to take part I'm afraid. Sorry. We'll have to pay the much larger retail suckers rate to borrow any money. Bummer.
It's very simple, but you are now one of the 1 in 100,000 people that understands it. Congratulations! (If you didn't understand it, go back and re-read the previous paragraph more slowly until you can follow it, because it is now a fundamental life-skill since 1971.)
Why isn't everyone taught this in schools? It's very simple I think, a 5 year old could understand it when it is explained to them, right? The truth is that back in the day when only "the rich" went to school, because only they could afford it, they DID teach it. Go to the right schools today (ie: "if you are rich, or at least have enough monthly income to make you believe you are rich") and you will probably be taught it still. But go to a state school and you sure won't be. Funny that, isn't it?
If you and I weren't paying a shitload of taxes to send everyone else's kids to our local state schools, we would be able to afford to send our kids to a private school, where they might actually learn something important and some of them might grow up and make a difference in this world. Instead we will have mediocre kids taught to the lowest common denominator to have basic literacy (ie: to become a useful employee for someone) and an unquestioning nature, accepting as true all facts as presented. Since we are prevented from being able to scrape together the wherewithall to enter the realm of the rich, because more than half our money is taken from us in one tax or another and if we are lucky enough to be able to save something at the end of the month then that money will be depreciated when they print more and more and more every day, just like that good old boy Karl Marx instructed, we have to instead put in yet more hard graft, personally augmenting the state school education of our kids with the real-life skills that will make a big difference in their outlook on life. The most significant part of this extra-curricular education we will have to provide our kids, is to unlearn the unquestioning, sheep-like nature that is being drummed into them at the school, and to encourage them to naturally want to question and properly understand things for themselves. Baaaaaaaa.
Labour (substitute Democrats if you're a US citizen) would have you believe that they are looking out for the little guy (that's YOU that is). They're punishing the rich for, well just for being rich, which is of course a carnal sin in and of itself. Oh yes, almost forgot the other bit, they're punishing the rich in order to rob them and give it to YOU, the poor. The poor who have a vote. Boy, they're better than Robin Hood eh? That sure deserves my unquestioning vote to keep them in power. Naht.
The truth of the matter is Labour (Democrats) are the complete opposite. They will placate you with headline nonsense like minimum wages, subsidised home insulation schemes, working tax credits to help poor working families, subsidies for childcare for working families, never ending dole money for the truly work-shy among us, and all kinds of other social welfare mechanisms coming out the wazzoo.
But the effects of all of these things put together is still never enough to compensate for their wild monetary inflation -- which is an unavoidable prerequisite for their schemes, because they don't actually have any money to pay for any of it. The working man doesn't benefit from this monetary inflation, he only experiences the downside of it -- ever-rising prices of the things he needs to buy, prices that rise faster than the tax breaks and subsidies that he "enjoys" (a mathematical necessity). This is the same social welfare scheme that Mugabe instituted in Zimbabwe, only he got a bit ahead of himself and the citizens cottoned on to what was happening and the inflation really did get out of hand. That is the only difference at this point between there and us now though, most people don't have any idea of what is happening.
No, the only people who benefit from monetary inflation are the people who get first dibs on the new money. And they my friends, are without exception "the rich". They get the money while it is still worth the same as all the other money already in circulation, before people realise there is more money and the prices of stuff goes up commensurately. They can buy stuff at yesterday's low price and they can sell it to the poor at tomorrow's higher price. Better still, these people can borrow the money for free ahead of it's creation, so they can buy today's stuff at yesterday's prices, with tomorrow's money and pay it back with next week's even cheaper money. In fact, it gets better still -- next week they borrow even cheaper still money to repay the loan, to be repaid a month later ("rolling over their debt"). This money a month (or more) later will be even cheaper still to pay off, the longer they can put off paying back this nominal amount of money, the cheaper it is for them in real terms. The reality is they will put off repaying the money almost indefinitely, by continually rolling the debt over. Is this a great scheme, or what? This is how Britain financed the expansion of it's empire back in the day, until the printing press was taken away after we were bankrupted by war. The same is in process of happening to the US now after they have similarly bankrupted themselves but they have done it with wars on terror in distant lands, and by massively over doing the debt leverage as people took too much advantage of the inflationary scheme described above once they understood it. If I was allowed to get my hands on this free money too, you can bet that I would do the same and I know you would too since you're a real smart guy. But we're not invited to take part I'm afraid. Sorry. We'll have to pay the much larger retail suckers rate to borrow any money. Bummer.
It's very simple, but you are now one of the 1 in 100,000 people that understands it. Congratulations! (If you didn't understand it, go back and re-read the previous paragraph more slowly until you can follow it, because it is now a fundamental life-skill since 1971.)
Why isn't everyone taught this in schools? It's very simple I think, a 5 year old could understand it when it is explained to them, right? The truth is that back in the day when only "the rich" went to school, because only they could afford it, they DID teach it. Go to the right schools today (ie: "if you are rich, or at least have enough monthly income to make you believe you are rich") and you will probably be taught it still. But go to a state school and you sure won't be. Funny that, isn't it?
If you and I weren't paying a shitload of taxes to send everyone else's kids to our local state schools, we would be able to afford to send our kids to a private school, where they might actually learn something important and some of them might grow up and make a difference in this world. Instead we will have mediocre kids taught to the lowest common denominator to have basic literacy (ie: to become a useful employee for someone) and an unquestioning nature, accepting as true all facts as presented. Since we are prevented from being able to scrape together the wherewithall to enter the realm of the rich, because more than half our money is taken from us in one tax or another and if we are lucky enough to be able to save something at the end of the month then that money will be depreciated when they print more and more and more every day, just like that good old boy Karl Marx instructed, we have to instead put in yet more hard graft, personally augmenting the state school education of our kids with the real-life skills that will make a big difference in their outlook on life. The most significant part of this extra-curricular education we will have to provide our kids, is to unlearn the unquestioning, sheep-like nature that is being drummed into them at the school, and to encourage them to naturally want to question and properly understand things for themselves. Baaaaaaaa.
Tuesday, 26 January 2010
Freedom - have we all forgotten what it is?
Lew Rockwell has the transcript of a recently-given and interesting speech here that I just came across and thought I would share with you.
Friday, 22 January 2010
A Totalitarian outcome?
America's Impending Master Class Dictatorship. Not as far-fetched as you might think, if you ask me.
I distinctly recall having said to at least one of you that I know are Facebook fans of this blog, quite some time ago now, that I would not be surprised to down the line see a Police State in the UK. God I hope it can still be avoided. :-{
I distinctly recall having said to at least one of you that I know are Facebook fans of this blog, quite some time ago now, that I would not be surprised to down the line see a Police State in the UK. God I hope it can still be avoided. :-{
Thursday, 21 January 2010
"The rest of the world will follow"
In previous posts, I stated that the world should reinstate a version of the Glass-Steagall act, which was a legal statute placing a firewall between retail banking and investment banking operations. It was instated as a result of the last time these same circumstances came about, the 1930's Great Depression, and was repealed in 1999 -- yes, that's right, just before we had the Dot Com speculative bonanza and blow-up, and then the mortgage-finance speculative bonanza and blow-up.
This, in my opinion, is something that simply must be done, if the political elites of this world truly wish to stand any hope of avoiding a repeat of the recent financial and economic crisis.
In a more recent post I went so far as to suggest the USA must take the lead on this initiative, and then everyone else would fall into line quickly behind them.
Well, I am not at all disappointed to see this very day that our own George Osborne has come out shooting from the hip on the very same day that Barak Obama floated the idea in a press release, saying that if (when, please god) the Conservatives are elected, they will do exactly that -- follow the lead of the USA on this issue.
Boy, I hope they just act on this and do it soon-as. Even if the banks do all hate it and stop funding election campaigns so generously... Boo-friggin-hoo!
This, in my opinion, is something that simply must be done, if the political elites of this world truly wish to stand any hope of avoiding a repeat of the recent financial and economic crisis.
In a more recent post I went so far as to suggest the USA must take the lead on this initiative, and then everyone else would fall into line quickly behind them.
Well, I am not at all disappointed to see this very day that our own George Osborne has come out shooting from the hip on the very same day that Barak Obama floated the idea in a press release, saying that if (when, please god) the Conservatives are elected, they will do exactly that -- follow the lead of the USA on this issue.
Boy, I hope they just act on this and do it soon-as. Even if the banks do all hate it and stop funding election campaigns so generously... Boo-friggin-hoo!
"A new Glass-Steagall" really gaining traction now
Boy, now I really am in good company, thinking that Glass-Steagall should be reinstated! In fact, my company could not get much better than the president of the United States of America! :-D
President Barak Obama today put out a press release beating the drum for what is effectively a reinstatement of the Glass-Steagall act.
Maybe it really will happen, who knows...
President Barak Obama today put out a press release beating the drum for what is effectively a reinstatement of the Glass-Steagall act.
Maybe it really will happen, who knows...
Tesco tell us all to BOGOFL
(Buy One Get One Free Later)
This is a neat variant of BOGOF, but in this case you only have to take the one that you really want, and next week you can get another one for free by redeeming a voucher you are given this week.
Personally, I like this better than BOGOF. I hope they apply it to lots of staple items.
http://news.bbc.co.uk/1/hi/business/8473122.stm
Poorly paid public sector workers?
People in the public sector are generally presumed to be paid less than comparably employed private sector workers, thereby excusing the enormous security benefits of "a job for life" (by the way, good luck with this presumed benefit guys...), a gold-plated pension plan, and if truth be plainly stated the decent-if-not-exceptional across-the-board negotiated annual salary increases (that result in strikes if they don't materialise, or are just deemed insufficient bribes to keep the votes coming).
My experience is that in reality, most if not all of those public sector workers are actually paid pretty well relative to comparable private sector workers. And they also have those other less tangible assumed benefits listed above into the bargain too.
Now if you factor that approximately half the working population works in the public sector currently, even on official statistics, and therefore logically must be paid from the taxes extracted from the other half of the population who work in the private sector, you have to come to the mathematical conclusion that this has moved beyond the point of sustainability at this point. The public sector half of a population cannot continue to enjoy the same level of income as the other half in the private sector, when "only" half the income of the private sector is being taken from them in various taxes. Already you can see that this just has to blow up at some point - that's just basic mathematics.
Now if you further factor in that a sizeable chunk of the "private sector" workers actually work for businesses providing services in support of the public sector, you push the true level of "public employment" way over 50% of the working population. This clearly makes the economics of paying all these people even more unsustainable than it already appeared at first blush.
Now, further still, consider also the unemployed on benefits. Apparently 1 in 5 of the adult population in the UK is unemployed just now. Where does the money come from to pay these people their benefits? Certainly it doesn't originate from any public sector workers, because their income originates from the taxes taken from the private sector as already discussed above.
Even further now, what about all those other "benefits" like child tax credit, free childcare funding, etc -- none of which are limited to private sector workers of course. Again, this can only ultimately originate from one source -- the private sector.
To put it much more bluntly, the public sector and the welfare state are merely parasites surviving on the enforced extraction of resources from the private sector. I think there are few people who would be able to hold an objective argument with this position.
It's a damned good job that all those unemployed people and workers in the public sector (largely unionised I might note here) have an equal vote with the workers in the private sector eh? Since they outnumber the private sector workers, Labour can continue to milk them for reliable votes paid for with other people's money, to stay in power. At least until such time as even a significant number among the recipients of the bribes can see that something smells fishy and perhaps Labour are going to bankrupt us all (again) with this "redistribution of wealth".
How long can a Ponzi scheme like this possibly continue? So far it has taken a number of decades for the steadily increasing number of parasites gorging off the dwindling carcass of a private sector to have now arrived at this point where something akin to 70% of the population exist at the expense of the remaining 30%.
Our nation is reaching the point of no return in our efforts to print up extra funny paper money to keep the game going. Every pound that is created, reduces the value of every pre-existing one, and over the last year we have printed up an unprecedented number of new pounds and used them to buy our own public sector debt (just like Mugabe and Gono did in Zimbabwe recently -- that turned out well for them didn't it?) so that the public sector workers and the unemployed could continue to receive their bribes. Are we going to be able to keep stumbling along now until we get to the almost-mythical ratio in this world of 80-20? What will life be like if we do? It's bad enough out here in the real world already...
Stop the ride, I've had enough and I wanna get off.
My experience is that in reality, most if not all of those public sector workers are actually paid pretty well relative to comparable private sector workers. And they also have those other less tangible assumed benefits listed above into the bargain too.
Now if you factor that approximately half the working population works in the public sector currently, even on official statistics, and therefore logically must be paid from the taxes extracted from the other half of the population who work in the private sector, you have to come to the mathematical conclusion that this has moved beyond the point of sustainability at this point. The public sector half of a population cannot continue to enjoy the same level of income as the other half in the private sector, when "only" half the income of the private sector is being taken from them in various taxes. Already you can see that this just has to blow up at some point - that's just basic mathematics.
Now if you further factor in that a sizeable chunk of the "private sector" workers actually work for businesses providing services in support of the public sector, you push the true level of "public employment" way over 50% of the working population. This clearly makes the economics of paying all these people even more unsustainable than it already appeared at first blush.
Now, further still, consider also the unemployed on benefits. Apparently 1 in 5 of the adult population in the UK is unemployed just now. Where does the money come from to pay these people their benefits? Certainly it doesn't originate from any public sector workers, because their income originates from the taxes taken from the private sector as already discussed above.
Even further now, what about all those other "benefits" like child tax credit, free childcare funding, etc -- none of which are limited to private sector workers of course. Again, this can only ultimately originate from one source -- the private sector.
To put it much more bluntly, the public sector and the welfare state are merely parasites surviving on the enforced extraction of resources from the private sector. I think there are few people who would be able to hold an objective argument with this position.
It's a damned good job that all those unemployed people and workers in the public sector (largely unionised I might note here) have an equal vote with the workers in the private sector eh? Since they outnumber the private sector workers, Labour can continue to milk them for reliable votes paid for with other people's money, to stay in power. At least until such time as even a significant number among the recipients of the bribes can see that something smells fishy and perhaps Labour are going to bankrupt us all (again) with this "redistribution of wealth".
How long can a Ponzi scheme like this possibly continue? So far it has taken a number of decades for the steadily increasing number of parasites gorging off the dwindling carcass of a private sector to have now arrived at this point where something akin to 70% of the population exist at the expense of the remaining 30%.
Our nation is reaching the point of no return in our efforts to print up extra funny paper money to keep the game going. Every pound that is created, reduces the value of every pre-existing one, and over the last year we have printed up an unprecedented number of new pounds and used them to buy our own public sector debt (just like Mugabe and Gono did in Zimbabwe recently -- that turned out well for them didn't it?) so that the public sector workers and the unemployed could continue to receive their bribes. Are we going to be able to keep stumbling along now until we get to the almost-mythical ratio in this world of 80-20? What will life be like if we do? It's bad enough out here in the real world already...
Stop the ride, I've had enough and I wanna get off.
Friday, 15 January 2010
What is "inflation"?
People generally misunderstand what "inflation" is, or how their experience of "inflation" comes about. The summary is "it's not what you have been taught to think it is, that is price inflation, which is a result of monetary inflation".
However, Peru Saxena has a nice "Inflation 101" article for you, which lays it out much more clearly than the above and without getting into too much detail or going far off-topic. You can read it here, and I recommend you do because understanding this concept of inflation is fundamental to your future financial wellbeing.
However, Peru Saxena has a nice "Inflation 101" article for you, which lays it out much more clearly than the above and without getting into too much detail or going far off-topic. You can read it here, and I recommend you do because understanding this concept of inflation is fundamental to your future financial wellbeing.
Wednesday, 13 January 2010
Mortgage interest rates?
I am personally very interested to have my best guess at where UK interest rates are heading in the intermediate term. This is because I am about to come off a fixed rate mortgage deal in the next few months, so clearly I want to choose between just automatically rolling onto the Abbey's Standard Variable Rate (SVR) for a while, locking into another fixed rate deal, or getting tooled up with a Tracker.
First up, my gut feeling is Tracker rates can't possibly go much lower, no matter how lucky I might feel. The lender's margin on Trackers is fixed for the duration, so you know that your rate deviation will always exactly track the changes at the BoE. The BoE base rate is 0.5% -- how much lower can they drop that, and how likely is it they would do so? Answers I give myself here are: nothing significant (something less than 0.5%), and extremely unlikely unless they really do want to set a fire under the Pound and finally kill it once and for all. So, a Tracker seems to be out of the question at this juncture. The only way is up, and your exposure is unlimited.
Next up we have living with the SVR. This is a dangerous beast in my opinion, because not only can the BoE base rate that it is ultimately based on go up, but the margin spread that each lender applies to the base rate can and does vary too. My feeling is that not only is it unlikely that the BoE base rate goes down from here to my benefit, but it's unlikely the Abbey are going to cut the margin they make for lending money any time soon and in fact there is a very good chance in my mind that they will ask for a larger margin for the risk involved. So to put it bluntly, this seems to me to be an even worse option than a Tracker -- at least with a Tracker any rises will likely be modest, but on an SVR they will be amplified to some degree by the lender's margin. So, staying on the SVR for any length of time seems to be out of the question unless the costs of entering some other deal are prohibitive.
By a process of ellimination, this leaves only the option to fix, assuming a decent rate is available and for a duration that is attractive, and for a reasonable booking fee. There are currently pretty decent rates on 2 year fixes, nearly as good on 3 year, but 4 and 5 year fixes are starting to get pricey. If you fix too long, it will cost a fortune to get out of the deal (I fixed for 5 years last time, and have regretted that since year 3 as it turned out!), but if you fix too short you may have the shock of coming out into harsh conditions. A tough decision always.
To help with the view on most likely future rate direction, I borrow the BoE's own crystal ball, from their latest inflation report available at http://www.bankofengland.co.uk/publications/inflationreport/infrep.htm. I include Chart 1, their fan chart of expectations, from that report here. You can see from this chart that the BoE expect the economy to expand over the next year or so, and it appears they are anticipating contraction to recommence as we head into 2011 but a much lesser one than in 2008. This suggests to me that we can look forward to interest rates rising this year, and then perhaps being stable to down in 2011 (on current forecast data). This is of course with the caveat that the BoE aren't always correct, as witnessed by their reports from say 2005 or 2006. Who can know with any certainty what will happen in the years ahead?
So that means on current information the safest bet appears to be a 2 year fixed rate. Now, iff only the booking fee is reasonable...
First up, my gut feeling is Tracker rates can't possibly go much lower, no matter how lucky I might feel. The lender's margin on Trackers is fixed for the duration, so you know that your rate deviation will always exactly track the changes at the BoE. The BoE base rate is 0.5% -- how much lower can they drop that, and how likely is it they would do so? Answers I give myself here are: nothing significant (something less than 0.5%), and extremely unlikely unless they really do want to set a fire under the Pound and finally kill it once and for all. So, a Tracker seems to be out of the question at this juncture. The only way is up, and your exposure is unlimited.
Next up we have living with the SVR. This is a dangerous beast in my opinion, because not only can the BoE base rate that it is ultimately based on go up, but the margin spread that each lender applies to the base rate can and does vary too. My feeling is that not only is it unlikely that the BoE base rate goes down from here to my benefit, but it's unlikely the Abbey are going to cut the margin they make for lending money any time soon and in fact there is a very good chance in my mind that they will ask for a larger margin for the risk involved. So to put it bluntly, this seems to me to be an even worse option than a Tracker -- at least with a Tracker any rises will likely be modest, but on an SVR they will be amplified to some degree by the lender's margin. So, staying on the SVR for any length of time seems to be out of the question unless the costs of entering some other deal are prohibitive.
By a process of ellimination, this leaves only the option to fix, assuming a decent rate is available and for a duration that is attractive, and for a reasonable booking fee. There are currently pretty decent rates on 2 year fixes, nearly as good on 3 year, but 4 and 5 year fixes are starting to get pricey. If you fix too long, it will cost a fortune to get out of the deal (I fixed for 5 years last time, and have regretted that since year 3 as it turned out!), but if you fix too short you may have the shock of coming out into harsh conditions. A tough decision always.
To help with the view on most likely future rate direction, I borrow the BoE's own crystal ball, from their latest inflation report available at http://www.bankofengland.co.uk/publications/inflationreport/infrep.htm. I include Chart 1, their fan chart of expectations, from that report here. You can see from this chart that the BoE expect the economy to expand over the next year or so, and it appears they are anticipating contraction to recommence as we head into 2011 but a much lesser one than in 2008. This suggests to me that we can look forward to interest rates rising this year, and then perhaps being stable to down in 2011 (on current forecast data). This is of course with the caveat that the BoE aren't always correct, as witnessed by their reports from say 2005 or 2006. Who can know with any certainty what will happen in the years ahead?
So that means on current information the safest bet appears to be a 2 year fixed rate. Now, iff only the booking fee is reasonable...
Iceland, Ireland and now Greece all over the news. But what about the UK?
In 2008 Iceland was in big big trouble, financially. They're still in trouble today, and it'll be some time before life gets "back to normal" (a "new normal").
Next it was Ireland in 2009, having to face stark economic realities. They took the challenge seriously and started to face up to it. It's by no means over, but at least they are dealing with the issue and they will recover fairly quickly if they continue as they are lately -- cutting public services budgets meaningfully, and public sector workers accepting meaningful pay cuts and some job losses.
At the end of 2009, Greece was highlighted next as having serious problems with public debt levels, and the scale of their public sector budget deficits. Their credit ratings have been recently reduced, with further rating downgrades coming down the pike (resulting in higher borrowing interest rates for their government, thereby further exacerbating their budget deficit and their future public debt level). They are publicly speaking of dealing with these problems and reducing their deficits and debt over the coming months and years, but frankly nobody believes a word they say. A knock on the door of the IMF, and an enforced period of austerity and relative penury, seems to me to be a matter of months away for the Greeks now.
However, take a look at the chart below, from Moody's Investor Services (one of the three main international credit rating agencies). This shows their "misery index", composed of each country's budget deficit level and their (official) unemployment rate. As you can see, on a combined score we are actually in a slightly more miserable position than Iceland! As an interesting observation while we are discussing this, check out the top line entry, for Spain -- which few people are talking about. There is a heads-up for you, if the Spaniards were not already on your radar for the future news pages...
Anyway, back to the UK again. Check out the budget deficit component of our line on the graph. Now compare that with the same section for all of the listed countries. Notice anything?
If you are one of the many, many people who blindly believe "it can't happen here", and you believe that life will indefinitely continue exactly as it has been during the recent past: you ain't seen nothin' yet, please prepare yourself for a harsh lesson in reality sometime. Special emphasis on the word "prepare". Don't forget the Icelanders, Irish and Greeks all thought it couldn't happen there either.
Next it was Ireland in 2009, having to face stark economic realities. They took the challenge seriously and started to face up to it. It's by no means over, but at least they are dealing with the issue and they will recover fairly quickly if they continue as they are lately -- cutting public services budgets meaningfully, and public sector workers accepting meaningful pay cuts and some job losses.
At the end of 2009, Greece was highlighted next as having serious problems with public debt levels, and the scale of their public sector budget deficits. Their credit ratings have been recently reduced, with further rating downgrades coming down the pike (resulting in higher borrowing interest rates for their government, thereby further exacerbating their budget deficit and their future public debt level). They are publicly speaking of dealing with these problems and reducing their deficits and debt over the coming months and years, but frankly nobody believes a word they say. A knock on the door of the IMF, and an enforced period of austerity and relative penury, seems to me to be a matter of months away for the Greeks now.
However, take a look at the chart below, from Moody's Investor Services (one of the three main international credit rating agencies). This shows their "misery index", composed of each country's budget deficit level and their (official) unemployment rate. As you can see, on a combined score we are actually in a slightly more miserable position than Iceland! As an interesting observation while we are discussing this, check out the top line entry, for Spain -- which few people are talking about. There is a heads-up for you, if the Spaniards were not already on your radar for the future news pages...
Anyway, back to the UK again. Check out the budget deficit component of our line on the graph. Now compare that with the same section for all of the listed countries. Notice anything?
If you are one of the many, many people who blindly believe "it can't happen here", and you believe that life will indefinitely continue exactly as it has been during the recent past: you ain't seen nothin' yet, please prepare yourself for a harsh lesson in reality sometime. Special emphasis on the word "prepare". Don't forget the Icelanders, Irish and Greeks all thought it couldn't happen there either.
Monday, 11 January 2010
Can you handle the truth?
Today we have a forecast of the most likely medium term future for the UK, which I happen to agree with, mapped out for you by Jim Jubak, an accomplished financial writer for MSN Money.
If you are not by now fairly conversant with approximately what is going to be in this article (in which case, I encourage you even more to go ahead and read it because it IS going to affect you whether you like it or not) then you might like to prepare yourself a stiff drink to go along with it...
When you're ready, click here for Jim Jubak's article on MSN Money 'Anarchy in the UK and US too'.
If you are not by now fairly conversant with approximately what is going to be in this article (in which case, I encourage you even more to go ahead and read it because it IS going to affect you whether you like it or not) then you might like to prepare yourself a stiff drink to go along with it...
When you're ready, click here for Jim Jubak's article on MSN Money 'Anarchy in the UK and US too'.
Oh man. :-(
This is pretty bad right here. We're expected to believe that the economy is on the turn and things are going to be just fine, and yet thousands of households are using creditcards to pay their mortage or rent, and this while interest rates are at historic low levels.
What are these people going to do if (when) rates go up?
Still, if Gordon and Alastair can by example run a whole federation of countries on this same basis, I guess people can be forgiven for thinking they can run their house that way. They're going to learn an awfully hard lesson, but I suppose people just have to learn their hard lessons when it comes to money (by "people" there, I do of course mean households taking on more debt in order to stay in their homes a little longer, plus Gordon and Alastair and their legion of misguided Keynesian economists, plus any remaining fool Labour voters that still cannot see the light that 2+2 can't keep on being 5 no matter how much you would like it to be so.
What are these people going to do if (when) rates go up?
Still, if Gordon and Alastair can by example run a whole federation of countries on this same basis, I guess people can be forgiven for thinking they can run their house that way. They're going to learn an awfully hard lesson, but I suppose people just have to learn their hard lessons when it comes to money (by "people" there, I do of course mean households taking on more debt in order to stay in their homes a little longer, plus Gordon and Alastair and their legion of misguided Keynesian economists, plus any remaining fool Labour voters that still cannot see the light that 2+2 can't keep on being 5 no matter how much you would like it to be so.
Tuesday, 5 January 2010
The Quiet Coup
If you don't trust my opinion, how about this guy then? Simon Johnson, a professor at MIT’s Sloan School of Management, was the chief economist at the International Monetary Fund during 2007 and 2008.
In this article he describes what the IMF sees over and over from countries in dire straights who show up at their door looking for assistance to get out from under their problems. Then he compares what he sees in the USA with those experiences, and sees no difference. My take is that if he started talking about the UK as well, he would see the same things again of course -- but that we don't have the US privilege of printing our own currency to pay off our creditors, so you can easily argue we are in a worse position and fading confidence is all that keeps our economic wheels on the bus currently.
This is a fairly long article, but I believe any inquiring minds among you will find it interesting reading nonetheless.
The Quiet Coup - The Atlantic (May 2009)
Monday, 4 January 2010
Happy New Year
Back in the day, Argentina had it all. It was a major global economic power and its people generally lived the high life, enjoying all the cultural and personal delights they could possibly imagine. Just a few short decades later, what a catastrophic error it proved to be to have let the politicians of the day go ahead with their plans to make life even better for everyone! Life was so good that Argentina's politicians, like so many before them throughout history, just couldn't resist meddling to make life better still for everyone.
Please do yourself a favour this New Year, by actually reading the concise page at that link in the paragraph above -- even if it is to be the one, single article that you actually do go and read this year via this blog! Read it and think about what you have experienced in your own country over the years, and currently. Doesn't it all sound very familiar?? If you're reading this in the UK, well I can tell you already that YES, it certainly WILL be extremely familiar to you!
Like Peron, Gordon Brown will be cold and dead (well.... at least out of current office anyway!) before he has to actually deal with the debts he is acrueing. But my kids will be around for sure (touch wood!), and most likely so will yours. Hell, maybe even I will be, who knows how long this is going to take to blow up? (My take is not long at all, for what it's worth. Perhaps two years? Could be less, could be more -- who knows? Nobody! Could be tomorrow!)
This is what this blog is all about, in case you haven't already worked that out from past episodes of this show. Raising awareness about the inevitable outcome whilst we continue to follow the current all-too-familiar path that has been followed by so many ill-fated nations throughout history. It takes time for sure, and it has certainly taken a loooooong time already, but there are no permanent exceptions to the rules of life.
If you think anything "can't happen here", you are just not thinking I'm afraid. People thought that in Argentina, Germany, Zimbabwe, yadda yadda yadda on and on...
Happy New Year. I do sincerely hope 2010 will be good to you, one and all.
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