When will I get my State Pension?

What with women's State Pension Age rising from 60 to 65 in stages, and proposed further deferments for both sexes, you may be confused about when you're actually going to get your State Pension.

Click here for the calculator from the Pensions Advisory Service and find the answer! They work in conjunction with the DWP so it should be right.

Please note that legislative changes may change the answer so check again when you hear further news on this topic.

I have also placed this link in the right-hand sidebar under "Other helpful sites".

INVESTMENT DISCLOSURE: None. Still in cash, and missing all those day-trading opportunities.DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

US credit wobbles; hold cash not bonds

The fuss about S&P's "AAA with negative outlook" for US credit is remarkable mainly for being so far behind the curve.

The Beijing-based Dagong credit rating company gave America a significantly lower "AA" with negative outlook, back in July 2010 (and the UK was one level worse than that). Remember that China is a business partner and needs a clear view of how commercial operations are proceeding; this is not about Oriental mischief-making.

On the other hand, the talk of US Treasury default is wild, and I quite understand how it makes pensions expert Leo Kolivakis decidedly impatient; after all, that "negative outlook" comment is screwed to the side of a continuing AAA rating. But I do rather doubt that current US bonds will be honored in the sense of preserving and slightly increasing your wealth.

Charles Hugh Smith's thesis, on which I commented a few days ago, is that the American plutocracy will consolidate its gains by forcing a bond strike; personally, I think it's unnecessary to postulate a conspiracy in order to agree with him about the consequences. With interest rates at an historic low in the Anglo-American sphere, there's really only one direction in which they can change. Why would you buy now? And more importantly, why would you hold, when a rate rise could savage the tradable value of your holding?

Those who need to keep exports flowing, such as China, may be prepared to pay the price of maintaining the status quo, making on profits what they're losing on bonds, but as I said in February ("Global Credit Warfare"), the language over there is getting rather anxious and aggressive. Dagong's report bluntly states that America is exporting inflation worldwide.

Having said that, inflation in prices is very uneven and unfair. Proportionally to income, the rising costs of food and energy are hitting the poorest worst: I can cut back on brandy and weekend leisure trips, but how does the underclass cut back on hamburger helper? And with a large wad of ready cash, the better-off are in a position to snap up residential property cheaply, and bargain hard for luxuries such as cars, computers and other shiny gewgaws. I should think this is a great time to go to bankruptcy auctions, especially since the taxman isn't much bothered about setting a reserve. So in many ways, inflation hasn't yet really reached the rich.

But invulnerability is an illusion. When the remains of Mayan civilization were discovered, no wealthy Mayans were found sipping mai tais among the half-finished stone carvings.

We're all in this together, and because it's global now, we're mutually involved in a way that hasn't happened before. As Adam Fergusson relates in his chilling book(recently reissued) "When Money Dies", during the 1923 Weimar hyperinflation and the period leading up to it, German export business did very well, so well that the jealous and punitively-minded French wondered who'd won the war. Speculators also prospered, until the currency was reorganised, at which point they "took off for Paris and went to work on the franc, their departure the first signal that stabilisation was a fact." For a long time, reports Fergusson, visitors to Germany would see apparent national prosperity, simply because the cafes and restaurants were full of the winners; they didn't see the middle class exchanging their pianos for a side of ham.

But now, with an increasingly integrated international economy, it's getting more difficult to evade the problems simply by moving to another country. Tensions are rising, and not just in the Arab street.Western governments are deferring the day of reckoning, consuming their own debt like the serpent Ouroboros but without the element of timelessness. The present state of affairs cannot continue indefinitely, as Karl Denninger has been saying since 2007.

What are the possible outcomes?

Outright default? Don't hold bonds.Bond strike, interest rate rise, savage economic retrenchment? Don't hold bonds.Total collapse of the currency? Don't hold bond. High inflation? Don't hold bonds.

The least nuclear of all the options is the last, so unless we have a collective death wish that seems the most likely. Jesse thinks the dollar won't go to zero, but have a few zeroes knocked off it, like the French franc in 1960 (not that that stopped the decline): "I think the reissue of the dollar with a few zeros gone is inevitable. It is the timing of that event that is problematic. It could be one year, or it could be fifty years. There is a big difference there for your investment strategy." Reminds me of the scene in an old Cheech and Chong movie where they offer a peasant dollars and he spits on the money, saying you haven't got Mexican? Except this time he'll want a chicken or a silver necklace, instead, because inflation now respects no national boundaries.

Whether the debt-accelerated system manages to slam on the brakes without hospitalizing the vehicle's occupants, or hits a tree (everyone got airbags?), or simply grinds to a rutted halt in a cornfield, buying into the bond market now without some ulterior motive looks like wanton self-sacrifice.

Don't take it from me; take it from Bill Gross, who "sees no value in U.S. government bonds at current interest rates" and has dumped them altogether.

Meanwhile, let's start a national debate about social cohesion. That or wait for the jungle to recolonise the abandoned temples.

INVESTMENT DISCLOSURE: None. Still in cash, and missing all those day-trading opportunities.DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

US university invests heavily in gold

The University of Texas has doubled its holdings of gold in 2010, bringing the total to nearly $1 billion, according to Bloomberg.

INVESTMENT DISCLOSURE: None. Still in cash, and missing all those day-trading opportunities.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

Hold cash now, buy bonds when interest rates rise?

On Friday, Charles Hugh Smith posted a theory that I can accept as at least plausible: America's rich will consolidate their long-term gains by engineering a bond crisis - a refusal by the Federal Reserve to keep financing government spending.

This will make interest rates soar (collapsing the tradable values of bonds and, I'd have thought, equities); new bond issues will have to offer much higher income; the rich move in with their huge reserves of cash; then comes the demand for serious economic retrenchment; interest rates fall; because of their locked-in high yields, the capital value of new bonds shoots up; hey presto, another killing for the millionaires.

If that's so, the strategy will be to copy the rich (if you have the resources) - hold cash patiently and pile into the bond market when interest rates peak.

Other implications that occur to me: don't owe any more money than you have to, don't overinvest in residential or commercial property, don't be in a business that depends on people's discretionary spending. Reconsider your balance of shares, bonds and cash. It may even be worth thinking about moving somewhere with historically lower crime rates.

What about "inflation-protected" investments, such as NS&I Index-Linked Savings Certificates (due to become available again soon)? Smith observes: "Holders of TIPS [Treasury Inflation-Protected Securities, in the USA] will do OK, unless the government fraudulently sets the rate of inflation well below reality. Hmm, isn't that exactly what's it's already doing?" But presumably there's a limit to how much the government can misrepresent inflation; and besides, Smith's thesis is that we are headed for deflation because inflation robs the rich.

He could be wrong; but if he's right, the word passed down the ranks of cash holders is "Stand fast!"

INVESTMENT DISCLOSURE: None. Still in cash, and missing all those day-trading opportunities.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

Exhausted by outrage

Read this article in Rolling Stone (hat-tip to Robert Wenzel), about how the Federal Reserve gave money to America's foreign competitors, billionaires in tax havens and even the business-inexperienced wives of Wall Street dealers.

Then if you can stand it, read Matt Taibbi's article about how nobody important on Wall Street is going to get prosecuted for the misdeeds that blew up the Global Financial Crisis.

This can't be happening.

April News

1. National Savings & Investments has not yet reintroduced Index-Linked Savings Certificates, but watch out for their return as reportedly they have a target (limit) of £2 billion in new issues. I think they will go very fast, bearing in mind continuing concerns about inflation. You can register with NS&I here to receive email updates and be among the first to get in.

2. As we are in a new tax year, you have a fresh ISA allowance. The overall limit per person is £10,680 of which up to £5,340 can be in a cash ISA; any excess must go into a stocks and shares ISA, which can be with the same or a different provider.

3. Investing for children: as you will know, the Child Trust Fund was launched in 2005 and vouchers backdated to include children born after 1 September 2002 - and now the scheme has been shelved. However, plans that have started can continue and contributions can still be made. This autumn (1st November) we expect the introduction of an alternative for under-18s, the Junior ISA. According to the Daily Mail, the allowance will be £3,000 per child and unlike adults ISAs it will be possible to switch from cash to stocks and shares and back again. It's also worth noting that this allowance also applies to children born before 1 September 2002 (who were not eligible for the Child Trust Fund). Please also see this article by Gaynor Pengelly on other options for children's investments.

4. For various reasons, my personal attitude to risk re stocks and shares is still cautious, except possibly for commodities - but even in that sector there are issues of big-boy speculation and market manipulation. If you invest now, I'd suggest you be prepared to take a long-term view. Do please contact me if you'd like a personal discussion of your own portfolio and future plans.

5. Contracting out of SERPS/S2P: from 2012, it will no longer be possible to contract-out through a personal pension, stakeholder or money purchase pension scheme. This is because the Government plans to introduce a more generous flat-rate State Pension for all, from 2015 or 2016. I warmly welcome this, because up to now we've had a terribly complicated scheme of giving with one hand and taking away with the other - Pension Credit, Pension Savings Credit etc. The bizarre result was something like an effective 40% tax rate if you had a small State pension and had a little extra income from savings - Higher Rate Tax for poor people! Here's an intriguing angle: We've yet to get full details, but a possible effect of this change of policy could be that if you are currently contracted-out (or have previously done so) and are due to reach State Pension Age after the new scheme starts, you may get the full new State Pension PLUS extra income from the contracted-out pension, whereas someone who had stayed in SERPS/S2P throughout would get nothing more. Maybe the Government will do something about it (surely their civil servants will have spotted it) - but let's keep our fingers crossed and hope they'll think it's too complicated to adjust now.

INVESTMENT DISCLOSURE: None. Still in cash, and missing all those day-trading opportunities. DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

Alternative Vote and the Apathy Party

If AV is a controversial step, what about tackling non-participation? The last four UK General Elections have also been the lowest in terms of turnout since World War II, according to this site:

Statistically, there appears to be only a slight negative correlation between the size of turnout and the size of the winner's majority, as witness the 2010 results:

... but the British system is full of idiosyncrasies. A constituency in the Western Isles, or Northern Ireland, or one of the industrial blightlands, is not going to have the same characteristics as one in Hampshire, Slough or Greater London. And apathy can be confused with despair: in a rock-solid safe seat, those who would vote against the incumbent if they had a chance of unseating him/her, may simply not bother to vote at all.

Why not insist that everone must vote - perhaps adding the option "none of the above" to the ballot form?

Australia has a system of compulsory and enforced participation in General Elections, and so does Singapore; among European countries where it is compulsory but not strictly enforced, are Belgium and (for Senate elections) France.

South America (which I think will have a very interesting and possibly bright history over the next century) has many countries where voters must take part. Using the information here, I give below a map of them:

Let's start with AV, and if that doesn't winkle the people out of their sofas, let's go where so many other countries have led the way. Who knows, we may one day have a democracy.

Voting reform: AV = First Past The Post

The above video is no longer available on Youtube but can be watched on the BBC's website here:

http://www.bbc.co.uk/news/av/uk-politics-13048603/referendum-campaign-broadcast-by-the-no-campaign-broadcast-on-11-april-2011
_____________________________________________

This evening I saw the political broadcast for the "No" vote and I think I've rarely seen anything so untrue and misleading.

First we got candidate Alan B'Stard promising everything to get in, then forming a coalition and welching on all the manifesto promises. Ans: No, that is what we got under the present system.

Then we saw a horse race where the third placed was declared the winner. Ans: No, under AV the victor IS ALWAYS the first one past the post, the "winning post" being 50% of all ballots cast, if necessary by taking into account second and third (etc.) preferences.

As opposed to the present system, where the last Labour government got a clear majority of 66 seats on the basis of a minority of the votes. In the 2005 General Election, out of 650 MPs, only 220 won 50% or more of the votes cast in their own constituency (see "Election results for Using and Applying statistics" here.) In over 66% of Parliamentary constituencies, all the horses failed to finish!

Working the figures the same way for the 2010 General Election, only 217 out of 650 MPs jockeyed their way past the post. That's almost exactly the same situation as in 2005; we have a coalition government only because of disillusioned and mistrustful voters switching between parties - using the current voting system.

In 2005, Labour got 35.7% (the largest proportion) of the total national vote; in 2010, the Conservatives got 36.5% (the largest proportion) of the total national vote. The mess we have is, I repeat, under the current voting system and is a result of political breakdown, not (directly) owing to a glitch in the psephological mechanism.

Some might say, why change the system, then?

I'd answer, the breakdown of the relationship between the representatives and the people is (to a significant degree) attributable to an unrepresentative system of voting, one which encourages a party political divide because MPs in "safe" seats needn't bother listening. For 20 years I had no member of any of the major political parties even ask for my vote, because however I voted, I was going to get the Labour stooge. When the constituency boundaries were altered for 2010, suddenly I had both Labour and LibDem candidates on my doorstep.

Needn't bother listening? Needn't bother working, either, in many cases: how is it possible for "hard-working" MPs to write novels, handle handfuls of directorships etc, if not for the cosy calculus of "pairing" and the lazy delegation of most of the constituency work to constituency workers? I am reminded of the eighteenth century Caribbean plantation owners who lived in London and left all the responsibility to their estate managers and overseers.

Oh, and all that guff we're hearing about how very complex AV is? Bollards. Fifty years ago, housewives were completing similar questionnaires in newspaper ads, to win washing machines - "Put these advantages in order of personal preference: price, speed, capacity..."

No-one can foresee exactly how voting will change when all votes count, or at least half of them, anyway. The LibDems needn't assume that it will benefit them most, for if it does, the other parties will adopt a raft of me-too policies. No bad thing, perhaps, to make politicians work for a consensus.

And maybe, just maybe, we'd start to examine the candidates more carefully, rather than simply glance at their rosettes. No wonder there's such resistance to change from the spoiled heirs of the present arrangement. Just who IS funding the "No" propaganda?

Ah, but without (so-called) first-past-the-post we wouldn't have had Thatcher, say the Conservatives. Well, I think a general retrospective reassessment of her achievements is in order, seeing as how we've nearly killed our industrial base and allowed the financial sector to come out in a massive, choking algal bloom. But while we're reviewing her with the crystal hindsight of history, we can look again at the miserable record of the Socialist governments, too. The vaunted advantage of a government enabled to take bold action on the back of a Parliamentary majority founded on a minority of votes, is not such a strong argument, in my view. *

And why should all be decided on red and green benches in the best clubs in London, anyway? We're long past the time when it took days to ride a horse to the capital and every provincial church told its own time; modern communications call into question the antiquated system of remote, unresponsive, not infrequently rather arrogant and sometimes downright corrupt representation.

When it really matters, the people can and will declare a clear opinion, even against the advice and guidance of their leaders, as witness Iceland's referendum on the bailout of the banks. More referendums, say I - provided the arguments to inform them aren't as lying and twisted as what I saw tonight.
________________________

*Update (November 28, 2017): Only twice since 1918 has any party garnered more than 50% of votes cast nationally in General Elections - the Conservatives both times, in 1931 and 1935 - see page 12 of "UK Election Statistics: 1918 - 2017" (pdf) on the House of Commons website here:

http://researchbriefings.parliament.uk/ResearchBriefing/Summary/CBP-7529#fullreport

In the paper shop

The newsagent was reaching under the shelves with a litter picker, searching for plastic ties and brown paper from the morning's news bundles.

In came the old man who has spent £30,000 on National Lottery tickets since it started.

"You'd better not bend like that in front of me, or you'll get the Golden Rivet. Are you looking for your wallet?"

"A penny."

"A friend of mine once bent down for a penny, and broke his neck. Never bend down for anything less than fifty pee."

Bill Whittle vs Michael Moore

You don't have to be a right-wing commentator like Bill Whittle to think Michael Moore is a crowd-manipulating phony. But I think Mr Whittle may have proved more - and less - than he intended.

It's clear from what he tells us that seizing the entire income and assets of "the rich" would cover the USA's expenses for only a year. Of itself, this does not exonerate those who benefitted hugely from skewing the economy. What he has shown is that the damage done to Humpty Dumpty is greater than all the king's horses and all the king's men can easily undo.

Eating the rich is revolutionary talk à la française and like Robespierre, Michael Moore might find he'd started a revolution that ate its own children. Reasserting the rule of law is another matter, and it would be part of the corrective process of justice to fine, jail or defenestrate from public office those who had the mens rea in this morass of criminal incompetence and wickedness. This is something for which Karl Denninger himself has often called. Right does not belong to the right, any more than to the left.

What a shame that Mr Whittle has forbidden all responses to his video. I suppose he would consider what I say to be merely part of his "predicted sewer backwash on the intertubes".

Behind the truth: Pastor Terry Jones and the Koran-burning

It could all be a terrible mistake. Pastor Jones may have thought he was burning his financial records:

"At first, Terry and Sylvia Jones split time between the Cologne and Gainesville churches. Then in 2008 they cut ties with the Cologne church after members accused the couple of financial improprieties connected with their side business, TS and Company, which is owned by Terry and Sylvia Jones. TS and Company sells vintage furniture on eBay and was supposed to help support the churches."

The secret target of tax / NI merger: the self-employed

The recently-announced plan to combine or harmonise levels of income tax and National Insurance Contributions could see the self-employed hit hard.

The government is moving the State pension system away from the layer cake of basic pension plus additional variable toppings of Graduated Pension, SERPS and S2P and towards a single income benefit for all set at a level that lifts pensioners out of the complicated and negatively-reinforcing savings trap.

But if all get the same benefit, it could be argued, all should pay the same, or at least the same rates. I think we may end with the self-employed paying the same proportion of their income in tax and NIC as employees - possibly also including what is currently the employer's contribution. This might vitally boost the government's flagging finances.

I commented on the stealth tax of NIC back in 2007, and showed how for an employee on basic rate tax the total government swipe was equivalent to a marginal rate of 40%. There is (or was, until the introduction of the 50% tax band) really not much difference between basic and higher rate tax-paying employees.

But there is a distinct advantage for certain categories of fairly highly-paid professionals to be self-employed or work as partners rather than directors. This could change - and what a juicy target those (e.g.) barristers might present!

Potentially, there's a plus for us ordinaries: if this tax-cum-NIC were all income tax, then it would be far more attractive for average earners to make personal pension contributions. Skandia thinks we could see the end of Higher Rate Tax relief on pensions; but I think it possible we could see, in effect, HRT relief for all. That would be radical, and ultimately beneficial. And it would reward the prudent ant above the live-for-today grasshopper.

Or maybe we'll just see an extension of the heavy tax burden to not only barristers, but jobbing plumbers, plasterers and the like, accompanied by more horrid, bullying tax investigations.

Trickle-up Economics

One standard conservative argument is that the wealthy are rich because they invest their money. The poor are that way because they spend their money.

The answer is thus to decrease taxes on the rich to stimulate the economy and increase employment.

Thirty years of trying have shown this not to work.

The problem is that the conclusion does not follow from the premise.

If we take the logical approach to this, we should increase taxes on the wealthy, and make sure that the lower-income folks get it. They will spend it, possibly in stupid ways, and thus stimulate local economies. Thus, more people get jobs, the government gets more tax revenue, and the corporations make even more money.

Too good not to pass on

http://abstrusegoose.com/339

Humility

Source: SMBC

The Most Evil Bank Scheme Ever

Conventional economics, so I understand, ignores the problem of debt and monetary inflation, because it's assumed that the money spreads quickly and evenly throughout the system. Wages up, prices up, nobody's hurt, right?

Wrong. Just like the Oklahoma Land Rush of 1893, who gets there first wins all. This is why those in the FIRE economy have taken over.

But you know, they are small thinkers, all of them, even the billionaires. What they've done so far is like building a faulty nuclear reactor; what they could do is like dropping the H-bomb.

Here's the scenario:

1. Two new banks are created - let's call them Orcbank and Trollbank. No branches - don't need them if you don't deal direct with the public. The problem with the housing bubble is the people. They have to be missold mortgages and then have to keep up the ridiculous payments while their equity tanks. Far too messy.

2. The Federal Government borrows a scad of money from the Federal Reserve - it doesn't matter how much, because the FR makes it up out of nothing anyway (watch Glenn Beck's recent crisp summation of the Fed's history).

3. This money is divided into two equal parts and deposited interest-free in Orcbank and Trollbank.

4. Orcbank lends whatever is the legal (who makes the laws?) maximum multiple of its deposit, to Trollbank; Trollbank does the same for Orcbank.

5. Then the banks go shopping. They go to all other banks, plus Fannie Mae and Freddie Mac, buying up any residential property that is now worth less than its mortgage. Not at phony book value valuations: the real, disaster-filled forced-sale valuations. Many billions, maybe trillions of dollars'-worth. And Orcbank and Trollbank buy the lot, for the full value of the debt, cash on the nail.

6. You now have two monster insolvent banks. Oh, dear.

7. No, you don't. You merge Trollbank with Orcbank, forming the new First Bank of Mordor. And poof! the debt disappears, every last cent of it. All the assets (mortgages) and liabilities (money loaned out) on one are exactly the same as, and counterbalanced by, the other. Matter meets antimatter; mutual annihilation of all assets and liabilities.

8. What's left? The deposits, which are returned to the Federal Reserve via the Government. The interest? We'll come to that shortly.

9. Oh, and there's the not-so-little matter of free-and-clear ownership of gigantic quantities of residential real estate. First Bank of Mordor, wishing to have nothing to do with such a tedious and messy business as moneylending, deregisters as a bank and becomes the Sauron Real Estate Trust. Sauron can rent out property at whatever rates it likes, whatever the market will bear - having no debts, everything after maintenance and repairs is profit.

10. Sorry, that should read "everything after maintenance, repairs and management costs" is profit. In fact, you don't want to make a profit: you just want to pay everyone who's in on the scam. No pesky shareholders, please, so no dividends. If the Fed can be a private company and own America's government, Sauron can be a private company and own America's real estate.

All it needs is the OK, and there's a small enough number of people to see right about their doubtless and naturally very large and absolutely confidential though never defined ongoing expenses, if they're willing to take the money. And the Fed will need some interest for the money it loaned for that short period of time; plus I guess a few billion in administrative fees. Who cares? It's only money.

Upside? Some very happy people in blue suits who just relocated to the Caribbean or that island Scaramanga fitted out so luxuriously. Insolvent banks bailed out - and you can always rinse 'n' repeat if you didn't do enough the first time round (by the way, there's always the commercial real estate bubble to rescue, too).

Downside? Joe Average pays rent forever. But there's not that many properties he can buy instead of renting. In fact, you may just have turned a bubble into an incredible shortage and so up go valuations again. After all, they're not making any more land. Who knows, when the price is right Sauron may start selling tranches of real estate, just to ease the market.

And if Joe Average doesn't like it? What do you think you've got police, Army and the National Guard for?

No, surely they wouldn't do it. Surely you'd never get this past enough legislators and regulators to make it stick. But I'm telling you this idea publicly, just in case it's already been germinating in someone else's twisted little head. That's what you pay quants, lawyers and accountants for - crooked schemes to steal from the people.

This is the potential of fractional reserve banking, governments that lend free money, crony capitalism and the secret magic of the Federal Reserve. They'd have to dress it up as rescuing the system and the people; you know, being responsible managers of the economy.

All they have to do is dare. And look what they dare to do already.

New Smart Bomb

Traders were shown a radical new-generation weapon at a major arms fair today. Fitted with a sensor that monitors its target in-flight, the Moral Bomb only unleashes volcanic hell on a bad person; otherwise it dissolves harmlessly into a cloud of doves and rose petals, the banshee wail of its tailfin converting into a whistled version of "You Lift Me Up".

Many bulk orders were found on the partly-completed forms found among the wreckage of the spectator stand. Claiming "it finally puts the 'eth' in 'lethal'", a spokesman for the manufacturer said that subsequent tests would be carried out in strikes on Libyan armoured columns.

Breaking News

As all visual media are now reporting, some people have been breaking shop windows in London today. And that is the end of the Breaking News.

Elsewhere in the capital, over 200,000 people have been marching in protest against something, but nobody has noticed.

Index-linked savings to return!

Great news: National Savings & Investments are reintroducing Index-Linked Savings Certificates, according to this article in the Guardian newspaper.

But there is a sales target (£2 billion) and then quite possibly NS&I will shut up shop again, as they did last year. So it's likely that these will fly out very fast and you should be on the lookout for the launch - click here to get email updates from NS&I.

INVESTMENT DISCLOSURE: None. Still in cash, and missing all those day-trading opportunities.DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

Galgenhumor

The kindest people have the cruellest humour, it's kind of a ying-yang thing. Seen in an advice centre for carers today:

"I wish my lawn was EMO so it would cut itself."

"The EU has no power over Parliament" - British MP

"The EU has no power over parliament. In fact the Lisbon Treaty included a change for a provision to leave the EU. Parliament can simply refuse to incorporate EU law and in my view should be a bit more critical.

People also get confused between the EU and the Council of Europe."

Rt Hon John Hemming MP to Mr Rolf Norfolk, emailed 22 March 2011

In view of this, be prepared to challenge any Minister who claims that something is so and cannot be changed, because of European legislation. The struggle is between the people and their supposed representatives in Parliament.

More drivel, and getting more dangerous

Max "spank Prince Andrew" Hastings reaches out to the dar al-salaam in his latest Daily Mail piece:

"It remains puzzling why David Cameron, with so much unresolved in meeting the huge challenge of remaking Britain, has chosen to take the risk of leading the way into Libya.

"His boldness in an honourable and moral cause is indisputable. Now that British forces are engaged, we can only pray for their success, and hope that the crusade to remove a wicked despot from power ends as happily as do the best fairy stories."

Elsewhere in the (recent) news: "Why we should do nothing about Colonel Gaddafi", by Max Hastings.

It begins

Is a radical a broken Conservative, one who believes in the principles of his country and whose conditioned inhibitions have snapped after too long contemplating the suborning of the Constitution?

How interesting that businessman-turned-professional-investor Karl Denninger should host a YouTube video by a subversive group that intends to mount cyberattacks on "The Machine"; a video that concludes with the soundtrack of Mario Savio's 1964 sit-down protest "put your bodies upon the gears" speech at the University of Berkeley, California.

And now that speech no longer sounds like merely the effusion of youthful testosterone, the power-ambition of spoiled adolescence; it begins to sounds reasonable, even to an older, cynical man like me, who never bought into revolution even as a student. It begins to sound like the only, desperate chance.

In that beginning are the seeds of a bigger beginning.

New Con-LibDem pact?

Why is the present Conservative government so keen on forging an alliance with the Libyan democrats?

Linguistic survival

In Hereford today, I told the tea shop owner it was the best cup of tea I'd had from a cafe in years. Delighted, he burst out, "Goo' boy!"

A seed crystal of suspicion

Yes, an SAS team was captured by Libyan farmhands how interesting. I've met one or two SAS headbangers; "They've lost the plot," was the opinion of a regular Army captain I met in the nineties.

But I'm more interested in the presence of a British spy on a remote farm in the desert 30 miles south of Benghazi, ready-placed to rendezvous with them six months before they arrived - and three months before even the unrest in Tunisia had begun.

Wisconsin News

For those of you following the union-busting moves in Ohio and Wisconsin:

Breaking news: Wisconsin has immediate openings for 250,000 serfs. Must provide own smock.

Extrapolation

Going to pick up the paper yesterday, I found a penny on the pavement and put it it our collecting-box at home. Today, 10p (two five-pence pieces). So tomorrow I expect to find a pound, and Thursday a £10 note.

After that, it'll have to be cheques.

I think I have discovered in Nature an economic model for our times.

Overentitled scribbler juggles smoking petard

Headline of an article by Max Hastings in today's Daily Mail: "How very different it might have been had someone spanked [Prince] Andrew's bottom when he was young."

Just wait until the age of the death of deference turns its attention to you, you po-faced toerag.

I have also submitted this as a comment to Mr Hastings' article; I am not hopeful that it will be allowed through by the flappers.

Bartender update

Until further notice, Harvey Wallbangers will be made with vodka and orange juice only.

'Global Credit Warfare': China Preparing for a Treasury Bond Sell-Off?

See my "Seeking Alpha" exclusive here.

INVESTMENT DISCLOSURE: None. Still in cash, and missing all those day-trading opportunities.DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

People are a problem

The traditional European education systems are brutally exclusive. Students (except children of the rich) are not allowed to progress unless they can perform at the necessary level.

This puts pressure on students.

The US education system (and the English one for the past 30 years) is inclusive. Very little expense or effort is spared to have every student reach their 'full potential'.

This puts pressure on the teachers and the rest of the system.

The US and English systems should be producing a better 'yield' of the STEM (Science, technology, engineering and mathematics) people that we need, yet they are not.

A possible reason is above.

Could the Dow hit 4,500?

Read my exclusive on Seeking Alpha. Some of the reactions are bordering on the hysterical. How quickly we forget recent events.

INVESTMENT DISCLOSURE: None. Still in cash, and missing all those day-trading opportunities.DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

Mathematics Education

The end of a very frustrating day in academia. It's mostly off-topic (not dealing directly with the storm to come), but shines some light on why it is coming at all.

Below is an edited version of an email which I sent to a colleague in our college of education.

I am also rather distressed by your comment:

"A PhD is a terminal degree which means we are capable of self-teaching material we are unfamiliar with".

I know a great deal of mathematics, computer science, statistics, engineering and physics. I would still have much trouble teaching something like Abstract Algebra, and I have had several courses in the subject. It's not all 'just math'.

The problem, which is very close to that of our meeting today, is that mathematics is one of the most tiered subjects there is. As one of my administrative superiors told me, many subjects have an 'Intro' course, after which one can take any number of courses. This just isn't true for our discipline, until about the senior level. That is why we take the issue of prerequisites and previous material so seriously.

It is also upsetting to experts in other fields (especially education) that success at one level of mathematics is no guarantee that one will ever succeed at higher levels. A previous administrative superior couldn't understand it at all, which is one of the reasons why he publically stated that learning algebra was unnecessary 'for anyone'.

In (not so) short, this is why I take the problem of training future mathematics and science teachers so seriously. With all too many school administrators having the idea (as another administrative superior told me) that 'anyone can teach math', no wonder that we have the problems that we do.

I have been party to many discussions on mathematics education on usenet and elsewhere. Every single time, my honorable opponent criticizes how the subject is taught. They then either offer no ideas at all, or ones which have already been shown to fail elsewhere.

Ponder this: Mathematics has been taught as a discipline in its own right for about 2,500 years. The subject itself lends itself to brutal editing and revision, so that only the most robust facts and proofs survive. Given those millions of man-years of developing and teaching the subject, isn't it reasonable to suppose that we are doing some of it correctly, or at least we might know better than outsiders?

USA housing fraud summarised

Hat-tip: Karl Denninger

INVESTMENT DISCLOSURE: None. Still in cash, and missing all those day-trading opportunities.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

News items for UK investors

Catch up pension contributions from previous years!

From the new tax year starting 6 April 2011, you should be able to catch-up on unused pension contribution allowances from the previous 3 years, according to this business briefing - so long as you have a pension plan already in force that could have taken those contributions.

Inflation-linked savings

Birmingham Midshires are offering a 5-year fixed-term savings product that will grow by the rate of inflation (plus a bit). Please see here for details. Unfortunately it's not an ISA, so taxpayers will have to pay tax on the growth according to their tax rate and allowances - but it's an interesting proposition for non-taxpayers who just want to preserve the value of their savings. Closing date for the first issue of this plan is 10 March.

Have you given up smoking for at least a year so far?

If you have, then are you still paying your life assurance premiums as though you're a smoker? Rewriting your cover, or simply informing your insurance company (with evidence as appropriate), could save you money - see this article for details.

State Pension mix-up - check you're still on target!

There's been another computerised mess, this time with National Insurance Contributions, stretching back years, as this article explains. HMRC may not necessarily inform you if you're affected. I'd suggest you ask for an updated State Pension Forecast to be sure that you're not heading for a shortfall - click on this link to get one!

INVESTMENT DISCLOSURE: None. Still in cash, and missing all those day-trading opportunities.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

Folding a T-shirt in two moves

Saw this at a conference yesterday, I don't think I'll be able to resist trying it:

New "Seeking Alpha" article on liquidity and market breakdown

"Seeking Alpha" has just published my latest post on QE, debt and the economy, which I can't reproduce here for commercial contractual reasons - but please click on the link below to read it there:

http://seekingalpha.com/article/251137-this-liquidity-will-soak-us-all

INVESTMENT DISCLOSURE: None. Still in cash, and missing all those day-trading opportunities.DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

Blair: a sign of repentance

Mr Blair was also forced to admit his public statements about the legality of the war contradicted those of the then Attorney General Lord Goldsmith.

He said he was making a ‘political point’ not a legal argument ‘but I accept entirely that there was an inconsistency between what he was saying and what I was saying’. - Daily Mail

The Spectator says the Tories are in thrall to Blair - ‘There are two things I’ll always try and clear my diary for,’ one minister told me, ‘watching Brian Lara bat and Tony Blair talk.’

It seems to me that the present administration's admiration is coldly, immorally professional - and deeply mistaken. For the last few years under Blair, as my wife will witness, I simply switched the sound off when he was given airtime on TV news - I couldn't bear to hear the brazen lying.

This is the man for whom current PM David Cameron got his then Opposition party to give a standing ovation in Parliament - a break with that House's tradition. Honourable exception: "Mike Penning, who had been a Tory communications chief before the 2005 election, remained defiantly seated with crossed arms." Perhaps there were others who stayed in their seats that day, and if so I'd like to know who.

But there is some evidence that Blair may not be quite as sold on himself as the rampaging Tory toffs. Although he will defend his wicket stoutly against those, quite possibly no better than he, who are trying to stump him, I begin to suspect that there is still an atom of shame and decency in him, as the end of the following extract shows:

At the end of his testimony, Mr Blair was approached by Reg Keys, whose son, Lance Corporal Tom Keys, 20, was killed by a mob in southern Iraq in June 2003. Mr Keys said: ‘I just wanted to say that you are a disgrace to your office.’

Mr Keys told the Mail: ‘He wouldn’t look me in the eye.’

He may yet, and probably as he sincerely wishes, be saved.

A stark warning from Harry Schultz

Legendary investment consultant and trader Harry Schultz has been publishing his financial newsletter since 1965. He has just retired with a sombre finale that is rapidly circulating on the Internet. Peter Brimelow at Market Watch gives us some extracts from that last letter, e.g.:

"Roughly speaking, the mess we are in is the worst since 17th century financial collapse. Comparisons with the 1930’s are ludicrous. We’ve gone far beyond that. And, alas, the courage & political will to recognize the mess & act wisely to reverse gears, is absent in U.S. leadership, where the problems were hatched & where the rot is by far the deepest.”

I think we are now clearly beyond the time when bearish commentators can be dismissed as melodramatic alarmists. Harry Schultz is no Chicken Little blogger but has appeared in the Guinness Book of Records as the world's highest-paid investment consultant. Maybe that makes him a Chicken Big.

The 400-year timescale in the extract above chimes with the ideas of D H Fischer's "The Great Wave" and other theorists who see very long term cycles in economics. But they are largely cycles of human social behaviour, so can we still break out? Santayana warned, "Those who cannot remember the past are condemned to repeat it", so maybe knowing how it's played out before will help.

Schultz is not alone. He himself quotes a former financial officer of Ronald Reagan as saying recently: "We’re entering a global monetary conflagration. If a sell-off of U.S. bonds starts, it will be an Armageddon." In that context, Schultz does not see gold as being in bubble territory yet.

For Schultz's shorter-horizon defensive investment advice, see below as quoted by Brimelow; longer-term, we may have to seriously consider what to do in the event of a major disruption to normal living.

Here's what Schultz says for the boys still absorbedly playing the high-stakes card game in the first-class saloon of the Titanic (or the Laconia, or the Lusitania - whichever one gives you the bittersweet spine-tingle):

• 5-10% Stocks (nongolds).

• 15-20% Commodities: via futures, commodity stocks &/or physical assets.

• 50% gold stocks & bullion: 15% blue chips, 5% junior, 5% bullion via futures, 25-35% in physical bullion.

• 0% currencies (“Close out ALL fiduciary time/call deposits, money market funds & municipal bonds, pension funds…”)

• 1-5% Cash in hand. (“Stored privately.”)

• 0-5% bear stock market protection via ETFs like ProShares UltraShort Dow30

• 15-20% Government notes/bills/bonds (“In 3-6 month T-Bills/bonds only — buy these only in Swiss Francs, Australian dollars, Canadian dollars, Brazilian reals, Singapore dollars, Chinese Yuan only).”

INVESTMENT DISCLOSURE: None. Still in cash, and missing all those day-trading opportunities.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

Jefferson, debt and democracy

"Economy and liberty, or profusion and servitude"...

Now that we are once again in "times that try men's souls" (as Tom Paine put it) many are harking back to the wisdom of Thomas Jefferson and longing for a return to the principles of the United States Constitution. This makes it all the more important to establish exactly what Jefferson said.

Let's take a frequently-quoted passage: “To preserve our independence, we must not let our rulers load us with perpetual debt. We must take our choice between economy and liberty, or profusion and servitude. If we run into such debts, we must be taxed in our meat and drink, in our necessities and in our comforts, in our labors and in our amusements. If we can prevent the government from wasting the labor of the people under the pretense of caring for them, they will be happy.”

This is a hashed-up version of the longer and more elegant original; and even takes liberties with the language (for example, it wasn't "take our choice" but "make our election"). As so often with Jefferson quotations, there is no indication of when he said it, and to whom; and when there is, it may be wrong - this alternative mash-up says it's from "A Summary View Of The Rights Of British America" - it's not (see the 1774 text of the latter here, or here).

No: it wasn't written before the Revolution, but 40 years afterwards, with the weight of experience added to his undimmed passion for liberty, and as a result it's far more interesting.

Writing from retirement in his Monticello home, the 73-year-old is responding to historian and fellow-Virginian Samuel Kercheval, who has written a pamphlet calling for a convention to reform that State's Constitution and is seeking the support of the former 1770s representative to the Continental Congress , who in addition to later serving as President and Vice-President of the Republic has also been Governor of Virginia.

Kercheval strikes gold for posterity, if not for his immediate cause. Jefferson takes the opportunity to get down to first principles, including the "mother principle" of republicanism, which is that "governments are republican only in proportion as they embody the will of their people, and execute it." More than even before the Revolution, he is convinced of the need for "equal representation" in the Senate and House of Representatives, and observes that the machinery of democracy fails these yardsticks in both bodies. He also worries about the near-immunity of the Governor and the supreme justices, and the poor quality of juries chosen not by the people but by legal functionaries. He concludes the first part of his letter by saying that the system has worked well so far not because of the Constitution, but in spite of it, thanks to the fact that "our functionaries" have been "generally honest men"; and then proposes ways to subdivide powers and responsibilities so as to maximise the involvement of "every man who fights or pays."

Setting aside our modern views on slavery, suffrage for women and property qualifications for voting, it's an interesting precondition that the republican should be ready to pay his full share of the price of decisions which he has (or should have) an equal part in making. The people in whom he reposes his ultimate trust, are those who put their property and lives at stake for their liberty. Perhaps Jefferson sees us more clearly through his green spectacles than we see him.

But there is no equality between debtor and creditor, and Jefferson keenly perceives that the money system has the power to destroy freedom. We shall go from debt, to taxation, to oppression. After the bully-boy performance of Treasury Secretary Mr Henry Paulson in October 2008, expressing his "disappointment" with Congress' decision to reflect the will of the people and refuse assistance for several distressed banks, one of which had recently had him as its CEO, do we catch a flash from those Monticello lenses?

Now, at last, to the passage (paragraphing and emphases mine) in which the old revolutionary warns how the Republic can be lost:

"I am not among those who fear the people. They, and not the rich, are our dependence for continued freedom.

"And to preserve their independence, we must not let our rulers load us with perpetual debt. We must make our election between economy and liberty, or profusion and servitude.

"If we run into such debts, as that we must be taxed in our meat and in our drink, in our necessaries and our comforts, in our labors and our amusements, for our callings and our creeds, as the people of England are, our people, like them, must come to labor sixteen hours in the twenty-four, give the earnings of fifteen of these to the government for their debts and daily expenses; and the sixteenth being insufficient to afford us bread, we must live, as they now do, on oatmeal and potatoes; have no time to think, no means of calling the mismanagers to account; but be glad to obtain subsistence by hiring ourselves to rivet their chains on the necks of our fellow-sufferers. Our landholders, too, like theirs, retaining indeed the title and stewardship of estates called theirs, but held really in trust for the treasury, must wander, like theirs, in foreign countries, and be contented with penury, obscurity, exile, and the glory of the nation.

"This example reads to us the salutary lesson, that private fortunes are destroyed by public as well as by private extravagance. And this is the tendency of all human governments. A departure from principle in one instance becomes a precedent for a second; that second for a third; and so on, till the bulk of the society is reduced to be mere automatons of misery, and to have no sensibilities left but for sinning and suffering. Then begins, indeed, the bellum omnium in omnia, which some philosophers observing to be so general in this world, have mistaken it for the natural, instead of the abusive state of man. And the fore horse of this frightful team is public debt. Taxation follows that, and in its train wretchedness and oppression."

Now some will draw the conclusion that we have been brought to this pass, or close to it, by a system of public benefits; but it's more than that. Powerful private interests have weighed down the people individually with the burden of "private extravagance" and then offloaded their own heavy share of the costs of mismanagement onto the people collectively, while retaining for themselves personally the enormous fortunes they made open-eyed in their corrupt and destructive scheme.

This, over the same 30-odd years that saw the hollowing-out of the nation's economy by exposing it through international trade to competition for which the country was not adequately prepared, any more than the fish of the Atlantic were ready for the incursion of Pacific species to which the opening of the Panama Canal exposed them.

Had the people been informed by a knowledgeable and responsible news media; had they understood and been helped to accept the adjustments that would be demanded of them; had they been represented by delegates who knew their duty to their constituents; had their diplomatic and trade representatives managed the pace and scale of the economic transition; then they could have achieved economy and preserved their liberty, while allowing the less fortunate of the world to rise from unjust poverty. Instead, the aftermath of a profusion which continues to enrich a financial, politically-protected elite has, we must fear, condemned the people to servitude, or at least such inevitable obligations as will shackle their descendants for a generation or more, the attempt to escape which must involve tension and possibly worse between the nations.

Did Jefferson see this 195 years ago? It could have been yesterday.

INVESTMENT DISCLOSURE: None. Still in cash, and missing all those day-trading opportunities.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

Electronic paper has a bright future

The Chinese are set to overtake both the Kindle and Nook (and Sony's Reader) with a new reflected-light colour e-book reader, according to this article last month.

The screen changes more slowly than radiant light screens, and has a more limited range of colours, but I've been looking for something like this for quite a while. I can see three distinct advantages of the new development:

1. It isn't radiant light. I read a lot on my laptop, and come away feeling my eyes are bruised. So much nicer to browse my Kindle with a cup of tea (Luckwar, since you don't ask).

2. If it works like monochrome e-paper, it uses much less power when offline, only enough to change the screen when you want it to. This should mean much longer use time on battery.

3. It's readable in bright sunlight.

4. See (1) again. There must be tens of millions of keen readers like me and we're in danger of macular degeneration thanks to modern but not cutting-edge technology. What with the hearing impairment suffered by the younger generation on their maxed-out audio systems, soon the deaf will be leading the blind.

What this will do for the fortunes of E Ink and LG Display (both have recovered well from October 2009 lows), and what it's now doing for China's Hanwang/Hanvon companies, I don't know; but I can't wait for an e-ink colour reader to reach Britain's shores.

I must be very nice to my wife next year, and invest in a nice, stretchy stocking for the mantelpiece.

INVESTMENT DISCLOSURE: None. Still in cash, and missing all those day-trading opportunities.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

Income inequality in China and USA, and the international battle for resources

The Gini Coefficient measures personal income inequality (the nearer to 1.0, the nearer to maximum inequality).

This January 2010 study by the Brooks World Poverty Institute (PDF) says that the coefficient in China (PRC) rose from 0.3029 in 1978 (when the post-Mao economic reforms began) to 0.4448 in 2006 (table 2, p.20). By comparison, according to Wikipedia, the UN's Gini calculation gives the USA a coefficient of (est.) 0.408 in 2007 (though the CIA reckons it to be 0.45). There are some 63 dollar billionaires in mainland China as of 2007. Perhaps this explains the > $81 million paid for an antique Chinese porcelain vase last month in a British auctioneer's salesroom.

So the Chinese are really silk-hatted entrepreneurs like us, right?

I think not.

The thing to remember is that capitalist methods are being used by the Chinese to further Communist (and nationalist, I would suggest) objectives. The upper and middle classes, both growing, are being used as well-remunerated donkeys to pull a cart filled with a billion of their fellows out of the abject poverty in which they languished at the beginning of the last century. Attempts by the successful to pull off tax avoidance stunts like the Double Irish and Dutch Sandwich (see Google's wheeze here) would, I suspect, end with bullets in heads. That cart has to keep rolling, at all costs.

We can get a hint of the longer-term strategy from the machinations in the market for rare earths. Smart traders are trying to second-guess what China will do with its near-monopoly; it looks as though she can't resist the power this gives her to jerk the chain, as witness yesterday's announcement of tighter export quotas. Following September's allegedly punitive suspension of shipments to Japan, the latter has no intention of being held hostage in future and is busy stockpiling reserves.

Other Western countries would be well-advised to turn their attention a little from efficiency and budget balancing to survivability. Just-in-time logistics may become just-too-late. Clausewitz's famous dictum "War is the continuation of economy by other means" must needs be turned on its head in an era when war between major nations is simply too perilous: it is the field of the economy where great States will battle in future.

Disclosure: None

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

Public pensions conundrum

Mike Shedlock comments on Illinois' budget problems and the new Governor's notion of borrowing billions more to keep the ship afloat.

Unfunded pension liabilities are a major part of the problem for this and most other States. The total deficit for such schemes nationally was $3.04 trillion in mid-2008, according to this February 2010 study by Andrew Biggs of the American Enterprise Institute. Illinois has the fifth-worst (40%) underfunding in proportion to State GDP (fig. 6, page 48).

Of more concern to a long-term bear like me is where those funds, inadequate as they may be, are invested. Here's Figure 1 of that study:

If' like me, you fear that both stocks and bonds will be hit badly when the credit crunch finally matures into a lender's strike, then a radical revision of pension entitlements is on the cards.

Disclosure: None

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

Doubts growing over UK economy

CMA Datavision reports concerns by the market in credit default swaps about the UK's ability to service its debts, as the following shows:

Britain's largest bookmaker Ladbrokes now rates 2011 as the second most likely year for a General Election:

The Odd Couple coalition of the Liberal Democrats (thought by many to be to the left of the British Labour Party until the latter reconnects with its old-style socialist roots) with a superficially touchy-feely new Conservative Party, may not be able to handle the strain of living together.

Already we have seen riots (to some extent sympathetically covered by the news media) about the raising of tuition fees for students, and the Coalition has been embarrassed by the publication of critical private remarks by Liberal MPs about their Conservative colleagues.

The present British Government is the first non-wartime coalition since 1922. If it cannot hold its crew together in these choppy seas, it will not be able to steer through the economic storm to come - and then our troubles will begin in earnest.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

How America can climb out of the hole: the first step is seeing the light

Bruce Bartlett in the Fiscal Times (htp: Michael Panzner) submits a first-class, balanced essay on how the mess can be straightened out.

The key first step, he says, is to introduce honest financial reporting on the basis that corporations have to use, i.e. accrual accounting, for this will reveal the future economic effects of policy decisions made today. Doing so will help policymakers to make sensible adjustments and the public to accept them.

And it's not all bad news: for example, the Patient Protection and Affordable Care Act, signed by President Obama into law on 23 March 2010, is projected to save $15 trillion over the next 75 years. Raising the State Retirement Age and modifying other social benefits could bring the budget back into balance, long-term.

It won't be painless. If America starts to retrench now, the estimated cost is 2.4% of GDP. But delay merely magnifies the problem - a decade of further obfuscation and inaction raises the bar to 3.7% of GDP.

It is most fortunate that the US Government is required by law to produce a financial report of the kind that makes Mr Bartlett's comments possible. This law was signed by President Lyndon Johnson in 1966, one thing at least for which future generations must thank him.

Over the last few years, I have found it far easier to get useful information about the economy of the USA than about that of the UK where I live. Here, the truth seems harder to establish and dissent increasingly crushed. For although there is guff-talk about our being citizens, essentially we are merely subjects whenever it pleases our masters. Absent overruling by the courts of the European Union (itself a highly undemocratic organisation), our civil rights and liberties could be abolished at a stroke by the Privy Council, the legacy of the Anglo-Saxon kings' witan, or committee of high-born advisers (and potential rivals for the throne).

Long live the American Constitution: for all your well-founded instinctive distrust of power and authority, and for all the powerful businesses that lobby against any change that might slow their own accumulation of wealth at the expense of the citizens, Uncle Sam is still a people's government - so long as the people take an interest.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

Long term care, insurance & "Death Panels": fact and fiction

US insurers MetLife (MET) and John Hancock (HPI) are backing out of the long care insurance market, according to an article by Anna K. Pfaehler in Economic Policy Journal today. The former will stop selling new policies at the end of this week, and the latter is asking for a 40% hike in premiums.

Partly this is because insurers' investments have performed poorly in recent years, thanks to the artificially low interest rates to which governments on both sides the Atlantic are now haplessly committed.

But also it will have something to do with the volume of claims, and how long modern medical science can keep the sufferer alive. The Family Caregiver Alliance says that 63% of claimants are over 65 but the rest (37%) are younger. The average stay in a nursing home is 2.44 years, says Long Term Care Link; but over half of inmates are 85 or older, a demographic that is expected to "increase dramatically" in the next 20 years.

I seem to remember an interview with Whoopi Goldberg in which she joked that children are keen for you to pass on "so that they can git yer stuff", but inheritance is certainly an issue, as well as the increasing burden on the State of the elderly poor. Here in the UK, ever since the Community Care Act of 1990, there's been a battle between local authorities who were thereby charged with the duty of providing care, and sufferers and relatives who don't want to pay for it directly.

There is a moral hazard in this financial pressure, and one wonders whether it's a factor in the British Government's seeming reluctance to punish those who "help" relatives to make a quicker end. I think we should resist the temptation and if you possess a Kindle, please read my e-story, "Dignity"!

P.S. Looks as though President Obama is already going down the road towards officially-sponsored euthanasia.

Rolf Norfolk

Disclosure: author of "Dignity"

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

On reading Adam Fergusson's "When Money Dies", an account of the German hyperinflation of 1923: Part 1

I am obliged to "Jesse" for publishing via Scribd the text of this book, which first appeared in 1975 and has just been reprinted. As the printed version is 288 pages in length and many readers are pressed for time, I shall attempt a hurried and necessarily partial and imperfect summary of some of the main points:

Chapter One
Paper currency became legal tender in Germany in 1910. When the Great War broke out, the right to exchange Reichsmark notes for gold was suspended. From 1915-1917, the financing of the war was through borrowing, not taxation.

The truth of economic affairs was hidden from the people: the stock markets were closed and foreign exchange rates not published. By the end of the war, standards of living had halved, but many had attributed price rises to shortages cause by war and profiteering.

There were factors other than monetary in the multiple crises that hit the country. After the war, stability was undermined by a militaristic Right that refused to accept responsibility for defeat, and a revolutionary Left inspired and sponsored by the recent events in Russia. A coalition government was formed, with overwhelming popular support, to resist both extremes.

Germany's postwar economy was hit by the loss of her African colonies plus c. 14% of her prewar sovereign territory and the other reparations and unfair trade terms demanded by vengeful victors. Economically crippled, and facing the consequences of 1.6 million dead and 3.5 million other casualties, Germany also had to cope with over 250,000 newly-unemployed soldiers.

Pre-1914, a British pound was worth 20 marks; by December 1918, it was worth 43 marks; by December 1919, 185 marks.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

Will rising interest rates crash the market?

This item may seem to be UK-based, but essentially the situation is much the same on the other side of the Atlantic. It's a story, not about domestic mortgages but about the sleeping bear of the bond market:

The UK's Daily Telegraph reports comments by MPC member Paul Fisher that homeowners should steel themselves for an increase in interest rates, with an ultimate target of 5% (currently the Bank of England's lending rate is 0.5%).

This would be a two-edged sword. It would combat inflation and begin to reward savers; but it would also worsen conditions for business, by reducing the consumer's disposable income and raising the cost of commercial finance (which is already hard to get, particularly for smaller businesses).

The effect on the stockmarket would be negative, as higher costs and lower turnover would squeeze profits; and debt-fuelled share speculation would become more expensive and so riskier for the investment banks, who might give up looking for a bigger fool and race for the emergency exit.

However, there is no timescale given for this process and the article says that the market expectation is that the rate will rise to only 2% within the next two years.

I think Mr Fisher's statement, ostensibly warning borrowers to tighten their belts, is actually intended to be overheard by the bond market, trying to reassure the latter that it won't be ripped-off by inflation.

I also think it's a tactic characteristic of the previous government, namely to make a tentative policy announcement in order to gauge reactions and trim sails accordingly. It's come from a source that can later be spun as having been a personal view or at most, merely a long-term aspiration of the Monetary Policy Committee.

There are dangers in this type of nebulous news management. To me, it's a sign of the real weakness of our current economic position. And if the bond market thinks it's being bluffed because the government hasn't a clue how to proceed, it may decide to call for a show of the cards. Then the rate rise would come, in a quick and uncontrolled way, triggering a crisis that would end in deep recession, or some combination of default and currency devaluation.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.

Christmas shopping in the British Aisles

Earthquake in Cumbria

There was a minor earth tremor in north-east England yesterday as reported here.

It reminds me of the spoof charity appeal email I received from a Dudley-born friend after the quake there in 2002. It is, as they say, a classic and is preserved on this site. We Brits are never more comfortable than when mocking ourselves. The following is the closest to my memory of the original, though it's been reworked since with regional variations:

At 00:54 on Monday 23 September an earthquake measuring 4.8 on the Richter scale hit Dudley, UK causing untold disruption and distress -

* Many were woken well before their giro arrived
* Several priceless collections of mementoes from the Balearics and Spanish Costas were damaged
* Three acres of historic and scientifically significant litter were disturbed
* Thousands are confused and bewildered, trying to come to terms with the fact that something interesting has happened in Dudley

One resident, Donna-Marie Dutton, a 17 year old mother-of-three said "It was such a shock, little Chantal-Leanne came running into my bedroom crying. My youngest two, Tyler-Morgan and Megan-Storm slept through it. I was still shaking when I was watching Trisha the next morning."

Apparently though, looting did carry on as normal.

The British Red Cross have so far managed to ship 4000 crates of Sunny Delight to the area to help the stricken masses.

Rescue workers are still searching through the rubble and have found large quantities of personal belongings including benefit books and jewellery from Elizabeth Duke at Argos.

HOW YOU CAN HELP

* £2 buys chips, scraps and blue pop for a family of four
* £10 can take a family to Stourport for the day, where children can play on an unspoiled canal bank among the national collection of stinging nettles
* 22p buys a biro for filling in a spurious compensation claim

PLEASE ACT NOW

Simply email us by return with your credit card details and we'll do the rest!

If you prefer to donate cash, there are collection points available at your local branches of Argos, Iceland and Clinton Cards.

Bank of America to be hit by Wikileaks

As I relayed here on 1 December, Julian Assange hinted at revelations about a major US bank. Now, according to the London Times, (htp: EPJ) he confirms it's BoA. He's going to be releasing much material next month and if its management is "responsive" there "will be resignations".

Journalists like to hint at causative connections - Yahoo News says "Shares in Bank of America have fallen amid speculation that it was a WikiLeaks target" - but in fact according to Yahoo Finance itself, BoA's shares have been trending down since mid-April and have actually risen slightly in the last week. Perhaps Assange appeals to the chip-on-the-shoulder Robin Hood element in the powerless scribe's psyche.

Men reveal their ambitions in their persons, but their souls in their writing. Assange set out his agenda in a couple of essays several years ago, and if you read with attention they tell us plenty about him. If you'd like to know a little more about how he thinks, I've recently done a little piece here.

That's not to say I trust banks any more. If there were no depositor insurance, I'd have my stash (accompanied by their ATM withdrawal slips) in my workplace locker or something similar. I started to do this when the banking crisis was on, and it seems the Irish are doing it now.

Buy your popcorn and sit down for the bank show overture in January. And, if Seeking Alpha commenter "Savelife" is to be believed, the whole investment and economic Ring Cycle drama over the course of 2011. Maybe it'll be best not to have a front seat.

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More on Barnes & Noble - a contrarian view

Phil Wahba's article in ABC News / Money points out (a) that Borders outlets overlap substantially with B&N and (b) the leases on Borders stores are long, which suggests they could go out of business first - leaving a cannibal boost for B&N.

We should also remember that in addition to the high street presence, B&N have 637 college stores. Blackwell's has done famously meeting the text needs of generations of Oxford University students and I'd have thought the college connection will continue to be much to B&N's advantage.

Further, the Nook Color is getting favourable reviews e.g. here and here , and this says they expect a million sales by year end.

I don't tip shares - but I'll keep an eye out for B&N news and wouldn't be surprised if the shorters get a surprise in 2011.

Disclosure: None.

DISCLAIMER: Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog.