*** FUTURE POSTS WILL ALSO APPEAR AT 'NOW AND NEXT' : https://rolfnorfolk.substack.com
Friday, February 15, 2008
UK public debt twice as bad as America's
"Wat Tyler" of the redoubtable blog Burning Our Money reckons UK debts and unfunded liabilities to be some £9 trillion, which assuming GDP of $2.472 trillion (c. £1.26 trillion today) means a debt-to-GDP ratio of 7.16. Sir John Bourn (74) is the UK's equivalent of David Walker, and recently left office after a tenure of 20 years. A Google news search using the terms "Sir John Bourn", "debt" and "warning" yielded nothing today.
We worry about mortgages, but according to this site:
"Recent figures from the Council of Mortgage Lenders (CML) showed average first-time buyers borrowed 3.24 times their income - the highest level ever recorded...Many lenders will calculate a debt income ratio, which as a rule of thumb should not exceed 40%. " (i.e. 0.4; my highlights)
Monday, January 14, 2008
USA / UK Sovereign Wealth Funds?
Foreign governments with trade surpluses (based on artificially low currency exchange rates and stupid overspending by the West) are building up trillions in reserves and eyeing our companies and real estate. If our own leaders aren't willing to rebalance the world economy, the least they can do is get a piece of the action.
Why not?
Sunday, January 06, 2008
Gold and liberty
I watched a programme last night about how we very nearly had the Third World War in 1983. This was a time when Russia was especially paranoid about the West's military intentions - spies were even ordered to report how many lights were on in late evening at the Ministry of Defence in London, apparently not knowing that the offices were lit so the cleaners could do their work.
Then in September, a Soviet spy satellite, fooled by sunlight reflecting off high-level cloud, reported not one, but five missile launches from America. The Russian monitor on duty ignored the klaxon and flashing screen, backed his judgment and told his superiors it was a false alarm, for which he was ultimately discharged from the Army. Wikipedia says his name is Stanislav Petrov. He's certainly worth more than the $1,000 the Association of World Citizens could afford to award him. We may owe him our lives.
Looking for updates on the gold dinar, I came across this blog by a Pakistani, in which he looks to the Islamic dinar as a way of breaking the enslavement of the world by a fiat-currency banking cartel. Irrespective of whether he's justified in his analysis of the situation, or reasonable in his hopes for such a currency, we should note the victim-perception. I seem to recall a maxim (from Sun Tzu?) that you should fear a weak enemy.
Which brings us back to the economic vulnerability of the UK and USA. Weakness can invite aggression, but also makes the weak fear an attack even when it isn't coming. Worryingly for a potential aggressor, weakness may be feigned:
22. If your opponent is of choleric temper, seek to irritate him. Pretend to be weak, that he may grow arrogant. ("Laying Plans")
I don't think you can truly be free until you are strong and independent. We need to get our houses in order, so we can deal with others from a secure base - which is safer for all involved.
Sunday, December 23, 2007
Visions of 2008
USA
a marked deflation in property prices
a reduced demand for luxury goods and services
reduced imports of the above
consequent recession abroad
further interest rate cuts
higher unemployment
higher taxes
higher State and Federal budget deficits
a sell-off in equities
increased demand for bonds
a weakening currency
higher prices for food, fuel and clothing
increase in the price of good-quality agricultural land
consumer price inflation indices will not be able to continue to mask the real increases in costs of living, and this will have further consequences for public finances
public enquiries, leading eventually to a thorough reform of the financial system
UK
much the same as above, except I don't think our house prices will fall so far - the US subprime mess will hit investments, but we will drop our interest rates to devalue the pound to maintain stability against the dollar
Gold
will continue to fluctuate interestingly, but although some smart money is after it, there will be less spare money around generally, and other commodities will offer interesting opportunities for inflation-beaters. It's already above its inflation-adjusted long-term trend, and lenders will make sure that the real value of their loans is not destroyed by hyperinflation
... in short, slumpflation.
UPDATE
*and, by way of comparison, here is Karl Denninger's outlook in his Dec 24 post.
... plus a more sanguine assessment by Nadeem Walayat.
A Merry Christmas to all, and thanks for your visits and comments.
Tuesday, December 18, 2007
What goes around, comes around
Interestingly for me, he relates this action in part to the UK's having taken on so much of US Treasury debt, a matter on which I commented repeatedly some time ago.
Tuesday, December 11, 2007
The Fed may trigger off a run on Treasury bonds, says Wallenwein
Wallenwein suspects that the Fed has been buying longer-term US Treasury bonds to sustain demand and so keep interest rates low, but he thinks that once others scent the Fed's fear, there will be a massive dump that will throw more on the market than the Fed can mop up. This, he thinks, will send longer-term interest rates soaring.
His conclusion is that gold will perform its usual function of a safe haven in times of uncertainty.
As I pointed out this summer, the UK has (fairly recently) become the third-largest holder of US Treasury bonds.
Thursday, November 15, 2007
"It's good news week"
For while Japan and China are selling down their holding of US securities, the UK is gobbling up even more, according to Matt's graphs at Discursive Monologue. Maybe we want to be second in Uncle Sam's hierarchy of foreign creditors, instead of third.
And US employment is holding up, according to the official October figures - but not if you use a different measure, says Chris Puplava.
Friday, November 09, 2007
Tough, but believable
He thinks it's not too late for the US to recover its economic base. I hope the same for my country.
Thursday, November 08, 2007
The inflation race
But why doesn't the pound buy even more dollars? After all, look how gold has soared against the buck. The answer is that most currencies are competing in a devaluation race, as Chris Puplava shows here. The UK is ramping up its money supply at a similar rate to the USA's, but we don't hear so much about it on this side of the water - I think middle-income Americans are generally more clued-up on finance and... is it fair to suggest that they're more patriotic?
For a long time, we've been buying from poor people around the world. They've been storing up the money - you do, when you know how hard you've worked for it and don't want your children to go back to the fields - and now they're not quite so poor. Unemployment is on the rise here, but our trading partners aren't going to pay the Social Security bill for us.
So it's more taxes, or printing more money. The difference between taxation and inflation is the difference between robbery and theft. Theft is less confrontational.
Ron Paul was talking about digital gold currencies five years ago - now watch for the progress of the gold dinar.
Wednesday, October 31, 2007
Uncle Sam and John Bull
Saturday, October 27, 2007
"Dow 9,000", UK loans to US, poll, doom
Hogarth on corrupt electioneering practices
I also suspect that a major theme this century will be the contest between Marxism and Islam. I hope for a bloodless final end to the former, which has caused such suffering to so many millions in the last century; and the ascendancy of the civilised, cultured, intellectual and tolerant traditions within the latter.
Thursday, September 13, 2007
Clausewitz reversed
But such is the complexity of modern industrial society, and the horrific potential of modern military technology, that we may invert the relationship: economic ownership and infrastructure may be the new weapons with which to wage war.
It is not hard to see the power potential in China's increasing stake in the US economy - not only US government bonds, but increasingly, other assets such as equities. Already, the bond market feels the jerk of the chain, and within the last couple of years Britain has stepped in to provide some much-needed slack to America. But the growth of "sovereign wealth funds" could see future governments using their investments to interfere in the equity markets, too. What price free trade then?
And there are other gaps in the armour. For example, America's recent allegations against China of cyber-warfare have highlighted our daily dependence on electronic technology.
Two Chinese colonels, Qiao Liang and Wang Xiangsui, have produced a book examining such possibilities: "Unrestricted Warfare" (1999). Some translated extracts are available here, and the Wikipedia article is here.
This is not to say that China is actually hostile; only that, like the rest of us, she has her own agenda, and her own contingency plans. Much of warfare is not outright battle, but the use of threats and potential threats to gain strategic advantage. Pushing your opponent into desperation can backfire disastrously. As Sun Tzu said, "To a surrounded enemy, you must leave a way of escape."
But we must recover our economic balance, or risk having the imbalance used against us.
Thursday, August 23, 2007
Invisible earnings may disappear
Wednesday, August 22, 2007
UK debts mounting
UK consumer debt now weighs in at £1,345bn - a sum that exceeds our entire output of goods and services, according to accountants Grant Thornton in a note this morning.
Official receivers and trustees in bankruptcy generally seem to do rather well out of this kind of mess - perhaps rather too well.
I had some clients who wound up their firm but pulled out all the stops to collect all debts and pay creditors as much as possible themselves; both clients and creditors benefited far, far more than if they had yielded to the usual arrangements - which I saw in other cases. Ordinary people are shaved going into debt and skinned coming out.
Thursday, August 16, 2007
Weakness of UK M3 relative to gold
World Gold Council June 2007 figures say the UK has 310.3 tonnes of official gold, and Mike Hewitt's table shows UK M3 at $3,532.1 billion. Using the same gold value per kilo as with the other two countries, if the UK's M3 were entirely gold-related, this would imply a price of about $35,4046 per ounce.
From this perspective, although Britain's economy is much smaller than America's, its currency weakness is much closer to America's than to Germany's.
Thursday, August 09, 2007
Globalisation - a race we can't win
In the sheet below, I compare six countries in terms of nominal per capita GDP (in US dollars equivalent). These have to be reinterpreted in terms of purchasing power parity, i.e. if local prices are lower, you can enjoy the same things for less money. (Nominal and PPP terms are taken from slightly different IMF surveys, but you get the idea.)
The last couple of columns answer the question, "How much income would each national need, to match America's standard of living?"
Doubtless there's problems with the methodology - PPP may well change as each country's nominal GDP increases. And it seems clear that the whole world can't live exactly like Americans do today. (It's also interesting to note that pricey, high-tax countries like the UK and Japan can't catch up with the USA without exceeding the latter's per capita GDP.)
But on these figures, China could match American living standards, on a quarter the income. So the low-pay trading advantage it enjoys is huge now, and is likely to remain so.
And look at India and Vietnam - they'd only need about one-fifth American per capita income to have the same in PPP terms. In fact, they could out-compete China in labour costs, which is one reason for China to move away from labour-intensive work like trainer-stitching, and towards heavy industry.
So Vietnam undercuts China undercuts America...
And given India's enormous population, its higher proportion of cultivatable land (compared with China), its well-established political and legal institutions, and its many millions of English-language speakers, it may be that India is the economy to watch this century.
IMF per capita GDP figures quoted from Wikipedia here (nominal) and here (PPP).
Thursday, August 02, 2007
Could the Dow AND gold BOTH go up?
A weaker dollar makes imports more expensive - both finished goods and raw materials - but is a stimulus to some exports. Maybe, if it didn't all happen too suddenly and scare everyone off the market, the Dow would rise.
It would also mean paying back foreigners with cheaper money, a trick played on the world by Britain's Harold Wilson in the devaluation of 19 November 1967, when the pound's foreign exchange value was cut abruptly by 14%.
The US Treasury's figures for May 2007 show there's a total of $2.18 trillion in foreign-held securities. A Brit-style 14% devaluation would lose Uncle Sam's partners about $305 billion. John Bull's share of that loss would be some $23 billion, or around £11.5 billion.
Maybe that would finally get the British news media to notice the recent huge UK support for US government debt. I can hardly wait. Be still, my beating wallet.
There's a political price to pay, but US Presidents can't serve more than two terms anyway, not since they changed the Constitution to stop another Roosevelt reign.
Harold Wilson resigned in 1974, citing ill health, but I did once hear a rumour that the IMF, which bailed us out in 1975, had made Wilson's resignation a precondition of the loan. In these document-shredding and email-deleting times, a paranoid would say you know it's the truth when it's officially denied.
Meanwhile, please place your bets in the two polls opposite!
Saturday, July 28, 2007
Peter Schiff: US Treasury less creditworthy
A much larger disaster looms for holders of U.S. dollar denominated assets in general. It will not be long before our foreign creditors realize that Uncle Sam is the biggest subprime borrower of them all and will similarly mark down the value of its debts as well.
Once again, why has Britain recently become the third-largest holder of American debt? Our exposure is now 3 times higher than about a year ago.
Friday, July 27, 2007
Should US Treasury bonds be downgraded?
He also links to Paul Farrell's article in Marketwatch (Monday), which questions America's creditworthiness as a result of having to finance the war in Iraq. Maybe we're going around the same track as with Vietnam, which burned up money (I remember a contemporary American cartoon of a steam engine with dollars being shovelled into the firebox).
Has the UK tied one of its little boats to the anchor chain of the Titanic? I calculate its loan to Uncle Sam's Treasury to be worth $2,757.65 per capita (British heads), or £1,345.99.
My wife and I could have a nice little holiday on that, which would be more fun, or a day at the races, which might get us a better return.
Wednesday, July 25, 2007
More on US Treasury bonds
Make no mistake, we are in uncharted water; it is unprecedented that the claims represented by the fiat currency of one government - that of the U.S. - have been accumulated in such massive quantities for the reserves of other governments. And we're not just talking China but virtually the world. And the world is getting nervous.
To quote Thai Finance Minister Chalongphob Sussangkarn in his recent address to the annual meeting of the Asian Development Bank in Kyoto:
"Should the financial markets lose confidence in the U.S. dollar, huge capital outflows from the U.S. could lead to a rapid depreciation of the U.S. dollar, and thus dramatic appreciation of other currencies."
This is why I am theorising that the UK's massively increased support for US Treasuries may be an emergency measure by the British Government. Though it has been pointed out to me that this money may have also come from hedge funds and conventional funds - the Treasury stats don't say that the purchases are official.
Another country that has significantly increased its US bond holdings is Brazil (145% up, from $33.3 bn to $81.6 bn). Maybe that's to do with its increasing oil exports. According to the US government's Energy Information Administration, Brazilian production is projected to rise long-term.
Coming back to the Treasury bond stats: of those who previously held at least 1% of total foreign-held US Treasury debt, the top five reductions are:
Caribbean Banking Centres
Mexico
Korea
France
Switzerland
The top three in this list account for almost $50 bn of the total $72 bn that foreigners withdrew. I thought the conspiracy theorists believed Caribbean Banking Centres were part of the US government's secret plan for supporting the dollar? Perhaps somebody would kindly pay for me to go on a "fact-finding mission" to the Caribbean. Please.