Why don't the Tories now declare themselves on Europe, etc?

Supposedly the Conservatives are as far ahead as they've ever been since Mori started doing polls. Meanwhile, the economy is set for a hard, hard landing and Labour have been in power for far too long to be able to blame anyone else.

This is a golden opportunity. The Tories should make clear their policies, including all the contentious and painful ones. In or out of Europe? In or out of our various war zones? Higher taxes or cut spending? What to do about the NHS, education and welfare? About our corrupt and overpaid financial community? About importing low-paid people; trapping our underclass in unemployment and benefit dependency, and rotting their health and sanity; and exporting people that it cost us a fortune to support, educate and medicate? And what about the dreadful farce of the voting system itself?

Because one of two things will happen:

1. The Tories will win, have a mandate to sort things out, and have plenty of time between now and 2010 to make the people understand who made all these adjustments necessary. Once in power, they can keep repeating these messages so we will remember who's responsible for making us drink the nasty medicine. Fair blame to be apportioned to those Conservatives who failed us in the past, too - in reality, it's hard to find anyone among the British public so ignorant and cretinous as to think that either party can present a perfect record. Whom do the spinmeisters think they are kidding?
2. Or they will lose, and Labour can try to clean up after itself, fail disastrously, and shuffle into the shadows of history.

Or of course, the Tories can continue to do what they are now doing, and let us draw our conclusions. Then both major parties can fragment and, with any luck, die.

So, three choices: win straight, lose straight, or be unmasked. Because I'm darned if I'll vote for a Buggins'-turn pack of careerists, merely for the sake of a change from the conspiratorial, traitorous dictators we've got now.

"... return OF capital, not ON capital"

I noted yesterday that foreigners were rushing to stuff cash into the US Treasury pillow. Brad Setser chimes in, explaining that although there's no yield (see his graph below), at least the capital is safe. We hope.

Banks: justice will not be done

Financial website ThisIsMoney speculates that the FTSE could drop another 20%. I couldn't resist commenting there:

20% down would be about right. The banks have blown up a balloon for the past 5 years and then popped it - it's what they do. They cannot be punished severely enough, nor can the regulators who shrank reserve requirements. If the FTSE hits 4,000 I will finally be able to invest again.

This temple-cleaning call is also pretty much the view of Karl Denninger, but he's doing more emphatic bold, capitals and underlining - unconsciously betraying that he knows, deep down, that "it ain't gonna happen, Cap'n."

Gold pogoes up

Oh, look (14:49), gold's sprung upwards (see sidebar widget) - nudging $800.

UPDATE: ... or rather, $838 (17:50).

An 11% gain since I flagged it up 6 days ago. But when should the short-term speculator sell? $850?

And in the comments to the same piece I said I was wondering what was holding stocks up. Now I know - nothing much. But there'll be a bear market rally shortly, doubtless.

Is the "cash" in your pension fund safe?

There's been much talk of keeping the balance in your bank account/s below the insured limit - but if you are cautious and want to preserve the value of what's in your pension pot, how can you do it?

"Mish" reports a massive write-off by a money market fund manager, following losses with Lehman.

UPDATE:

If you have funds in a money market and it is not backed by only Treasury debt, you need to consider moving that money right here, right now. - Karl Denninger

Financial stocks at risk

Denninger explains why rescuing banks and insurers mean the shareholder should exit now. Perhaps this explains the ruckus with HBOS?

UPDATE: looks as though Lloyds is angling to buy HBOS!

More money piles into US Treasuries

Published today: US Treasury information shows that in July, another $10 billion poured into their securities from the UK's direction. I had no idea that (a) we were so keen and (b) could afford it.

The same or more each was committed by Japan, China and the Caribbean. All hands to the pumps?

What will happen to interest rates?

Jim in San Marcos envisages eventual interest rate rises worldwide, to 10-15%. Commenting on the preceding post, Nikolay disagrees and James asks the question. I'm trying to understand the situation, like everyone else, so I'll have a go at thinking aloud:

Nikolay makes the point that people are becoming more concerned about the return OF their money, than the interest ON their money. So money-holders will limit demand for their cash by being picky about who they'll lend it to; control by quality screening, not by price.

Also, if people who habitually live on credit become frightened - and I think they are - then they will start trying to live within their means.

And discretionary expenditure could be reduced and/or redirected, not necessarily towards the cheapest end. I was listening to someone in the UK fashion industry on R4 yesterday, and they said far from everyone turning to Primark, the trend was to buy better quality, less of it, and make it last longer. Note that it's budget airlines like XL (competing on price) that are in danger of going down - they don't have much "fat to survive the winter".

From another angle, as the supply of cash and credit is dwindling, so are prices of houses and many other big-ticket items - look at the deals on cars and computers.

So it's possible to imagine that the contraction in credit may be approximately matched by a contraction in demand for credit, at least for a time. Bankruptcies and house repossessions will burn off a lot of debt, so we'll see a lot of ordinary people cleaned out and possibly more bank failures, especially as (in response to reduced expenditure) unemployment grows.

Thus we could see a recession in which the government tries to stimulate consumer demand by cutting interest rates - and this may not work, because many won't want (or be able to afford) to take on debt at any price; and those who do have cash and are watching prices fall, will hang off, waiting for further falls - as happened in Japan.

But Jim himself has acknowledged that rates may be cut in the short term. What about the longer term?

More unemployment, lower profits etc will shrink the tax base and increase the benefit burden. The budget won't balance without cuts in the public pay sector (= even less tax, even more benefits) or more government borrowing - I don't see how we in the UK could be taxed much more. So there's a danger that while consumer debt leads the way into recession, increased government demand for debt (and increased concern about government creditworthiness) may then lead the way to higher interest rates on State bonds.

When the State has more dependents, it will also find that not everything is going down in price. Food and fuel are must-haves, so benefits will have to be increased to cover the cost of such items. There will be more poor, and they will each need more. And the government will have to borrow more.

Or start devaluing the currency. Then all bets are off.

So here's a scenario: interest rates kept low, or cut; then government borrowing rises, while the economy burrows into a slump; then the real "credit crunch": the moment when the government, like an ad-man under pressure, needs a feelgood episode and, despite having sworn off it for life, reaches for the booze or the white powder, in this case inflation.

More and more, Michael Panzer's dire financial drama seems plausible.

Bonds to crash?

The Fed may lower its funds rate in the short term, but Jim in San Marcos is predicting steep rises in worldwide interest rates and (therefore) a sell0ff in suddenly-very-uncompetitive bonds.

Finance in Wonderland

We're in a surreal phase. As Denninger points out, there is no legal authority for the Federal Reserve to accept stocks and shares as collateral, which it is now doing ("was that a wooden horse that came in through the gates?"). There is an air of unreality - huge firms suddenly going down, one by one, while we're trying to make ourselves believe that it's all still normal, somehow.

And now that Lehman has bitten the dust, we shall see whether London Banker was right - whether Lehman was calling in foreign investments in order to give US domestic creditors an unfair share in the asset recovery scramble.