There was a moment - a minor incident - and I can't track it down. It was either Matthew Parris or Quentin Letts, watching Tony Blair perform in Parliament some years ago. The PM reacted scornfully to something he appeared to have heard from the Opposition benches, yet when the journalist asked his colleagues in the Press Gallery, nobody had heard that something. It seemed that Blair was simply indulging in brazen invention. A tiny incident, but revealing a character trait that has cost the country dearly.
In this week's Spectator, Charles Moore publishes an SMS text from a businesswoman friend, giving her immediate impressions of meeting David Cameron, and although she is clearly struck by the man's looks and personality, one little sentence jumped out at me: "Doesn't really listen." I think I know what she means, because it gels with how I read his body language every time I see him on the news: he is tightly focused on maintaining his grip on the Protean figure of Success, and will not be distracted. That has its dangers.
Friday, August 01, 2008
Thursday, July 31, 2008
Breaking radio silence
How much debt does the USA have, compared to its income? According to Ned Davis Research, the previous all-time high was in the Depression of the 30s (265%); NDR's latest estimate is 350%, The Mogambo Guru reports.
So, inflation or deflation? The Mogambo Guru rants that only inflation (which he hates) can save us now. But in the first link above, Louis P. Stanasolovich comments:
High debt levels also have another side effect: disinflation. Because consumers and businesses have limited spending, they must retrench once they reach their saturation points. When the demand for goods and services diminishes due to the over-extension of credit, the result is disinflation.
In other words, we will have to live poorer - no matter what the currency does. We see in Zimbabwe that you can have billions and it won't buy you a square meal. What inflation can do, is disguise the problems for a while (as it did post-2000) - until the system breaks down completely. Who has the public spirit and grit to stop the charade now?
By the way (since The Mogambo Guru loves gold)... Krugerrand = going out to get more champagne.
So, inflation or deflation? The Mogambo Guru rants that only inflation (which he hates) can save us now. But in the first link above, Louis P. Stanasolovich comments:
High debt levels also have another side effect: disinflation. Because consumers and businesses have limited spending, they must retrench once they reach their saturation points. When the demand for goods and services diminishes due to the over-extension of credit, the result is disinflation.
In other words, we will have to live poorer - no matter what the currency does. We see in Zimbabwe that you can have billions and it won't buy you a square meal. What inflation can do, is disguise the problems for a while (as it did post-2000) - until the system breaks down completely. Who has the public spirit and grit to stop the charade now?
By the way (since The Mogambo Guru loves gold)... Krugerrand = going out to get more champagne.
Friday, July 25, 2008
Inflation, deflation, the world economy and freedom
This article by Matthew Beller on the Mises website tries to show how the US government can't "print its way out" of the present crisis.
The Federal Reserve controls the "monetary base" of physical currency and bank deposits, which represent only 15% of the money supply; the rest is bank lending. Currently, the banks are in a fright, so they are reducing credit, on which the economy depends. But if the Federal Reserve increases the monetary base, the banks' ability to multiply their deposits could lead to hyperinflation and the destruction of the dollar altogether. Hence the attempts to maintain confidence in the banking system instead, even if that means expensive financial support.
This isn't enough for the monetarists. They say the lending in the recent boom went on consumer spending, which encouraged producers to make too much of the wrong stuff and so the economy developed in the wrong way. The econo-Puritans say we should accept deflation because, although temporarily painful, it will rebalance the economy for a more sustainable long-term future.
However, nobody likes nasty medicine, so a political question is whether democracies will allow politicians to take timely corrective action. Past history suggests that we'll only vote for the treatment when we're half-dead, and even then, we'll curse the doctor afterwards.
My feeling is that this tendency to delay means that underneath the business cycle is a fatal linear trend, moving wealth and power to less democratic countries. When the world economy recovers, it may be on very different terms: for although (e.g.) China may suffer a setback as the Western consumer reduces spending, Chinese industrial capacity has been growing over recent years - not only the factories and tools, but equally importantly the skills base. At the upturn, the East will be well-placed to cater for reviving demand, while the West struggles to supply appropriately-skilled labour, and tries to buy back some of the industrial materials it had previously exported. And as the East industrialises, it will generate locally a greater proportion of world demand.
I cannot see how we can avoid becoming poorer, on average, than we have been in past decades, even if an elite in our society grows richer and more powerful (a phenomenon associated with more impoverished economies). We cannot rely on high-end production: China will address its quality issues, as Japan did in the 1950s. Nor can we be complacent about intellectual property rights, in a world where might makes right.
But China itself has deep problems - an growing and ageing population; an increasingly unbalanced demographic structure, thanks to attempts to limit family size; pollution; water shortgages; declining quality of farm land. The Chinese leadership faces a long-term challenge in dealing with unsatisfiable domestic expectations, which will tend to make it intransigent in its relations with foreign powers. The East-West contest may become characterized by desperation on both sides.
And so democracy in the West will come under pressure. In difficult times, people are thrown back on a network of social relationships and mutual expectations, but sudden, unreal access of wealth has tempted us to put our faith in the amassing of cash, and/or government intervention, to the detriment of agreed internal social control and support systems. When the system enters its failure phase, which Fischer ("The Great Wave") thinks may be starting, the social threads begin to snap: inflation, crime, family breakdown, war. The reification of the ties that bind us together tempts our government to maintain the social order through externalised means of surveillance and enforcement. Ultimately, the mismanagement of national budgets is a freedom issue.
The Federal Reserve controls the "monetary base" of physical currency and bank deposits, which represent only 15% of the money supply; the rest is bank lending. Currently, the banks are in a fright, so they are reducing credit, on which the economy depends. But if the Federal Reserve increases the monetary base, the banks' ability to multiply their deposits could lead to hyperinflation and the destruction of the dollar altogether. Hence the attempts to maintain confidence in the banking system instead, even if that means expensive financial support.
This isn't enough for the monetarists. They say the lending in the recent boom went on consumer spending, which encouraged producers to make too much of the wrong stuff and so the economy developed in the wrong way. The econo-Puritans say we should accept deflation because, although temporarily painful, it will rebalance the economy for a more sustainable long-term future.
However, nobody likes nasty medicine, so a political question is whether democracies will allow politicians to take timely corrective action. Past history suggests that we'll only vote for the treatment when we're half-dead, and even then, we'll curse the doctor afterwards.
My feeling is that this tendency to delay means that underneath the business cycle is a fatal linear trend, moving wealth and power to less democratic countries. When the world economy recovers, it may be on very different terms: for although (e.g.) China may suffer a setback as the Western consumer reduces spending, Chinese industrial capacity has been growing over recent years - not only the factories and tools, but equally importantly the skills base. At the upturn, the East will be well-placed to cater for reviving demand, while the West struggles to supply appropriately-skilled labour, and tries to buy back some of the industrial materials it had previously exported. And as the East industrialises, it will generate locally a greater proportion of world demand.
I cannot see how we can avoid becoming poorer, on average, than we have been in past decades, even if an elite in our society grows richer and more powerful (a phenomenon associated with more impoverished economies). We cannot rely on high-end production: China will address its quality issues, as Japan did in the 1950s. Nor can we be complacent about intellectual property rights, in a world where might makes right.
But China itself has deep problems - an growing and ageing population; an increasingly unbalanced demographic structure, thanks to attempts to limit family size; pollution; water shortgages; declining quality of farm land. The Chinese leadership faces a long-term challenge in dealing with unsatisfiable domestic expectations, which will tend to make it intransigent in its relations with foreign powers. The East-West contest may become characterized by desperation on both sides.
And so democracy in the West will come under pressure. In difficult times, people are thrown back on a network of social relationships and mutual expectations, but sudden, unreal access of wealth has tempted us to put our faith in the amassing of cash, and/or government intervention, to the detriment of agreed internal social control and support systems. When the system enters its failure phase, which Fischer ("The Great Wave") thinks may be starting, the social threads begin to snap: inflation, crime, family breakdown, war. The reification of the ties that bind us together tempts our government to maintain the social order through externalised means of surveillance and enforcement. Ultimately, the mismanagement of national budgets is a freedom issue.
Banks: the legal recriminations begin.
I wondered a while ago where bankers would flee when the reckoning came. Looks like the lawsuits are starting already.
Thursday, July 24, 2008
For the gold bugs
"Jesse" does a chart suggesting the gold price could drop to $875 before taking off for $1,200 and upwards.
China shakes the steel world
Shen Wenrong, the billionaire who bought Dortmund's Phoenix steel plant and moved it to the Pearl River, is increasing his hold on the privately-owned sector of the Chinese steel industry, as reported in SteelGuru here.
Readers of James Kynge's "China Shakes the World" will recall that Wenrong acquired Phoenix in 2004 partly in order to get into production fast, but also because, having bought it at scrap valuation during the last steel recession, he would not be encumbered with the debts that would wipe out his rivals in the next one.
Which means that he's looking beyond the next recession. And when the recovery comes, where will the West's capacity be found? Those who say that the East's fortunes are bound up with those of the West, had better get new spectacles to correct their short-sightedness.
Readers of James Kynge's "China Shakes the World" will recall that Wenrong acquired Phoenix in 2004 partly in order to get into production fast, but also because, having bought it at scrap valuation during the last steel recession, he would not be encumbered with the debts that would wipe out his rivals in the next one.
Which means that he's looking beyond the next recession. And when the recovery comes, where will the West's capacity be found? Those who say that the East's fortunes are bound up with those of the West, had better get new spectacles to correct their short-sightedness.
GSE losses "only $25 billion"
Bloomberg reports on the bailout plan. Only $25 billion? Phew - a couple of Senators were thinking maybe $1 trillion, as The Motley Fool's TMFSinchiruna points out.
Could I please have "only" 1% of the lower figure for my modest needs? You won't miss it - after all, look at what you haven't missed so far. I'd even write you a specially nice letter of thanks.
Could I please have "only" 1% of the lower figure for my modest needs? You won't miss it - after all, look at what you haven't missed so far. I'd even write you a specially nice letter of thanks.
Subscribe to:
Posts (Atom)