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?
Tuesday, September 16, 2008
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.
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.
Monday, September 15, 2008
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.
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.
Sunday, September 14, 2008
A letter to the Spectator
I am constitutionally a sceptic ( a term which, like "humanist", has been degraded to mean simply atheist, a sense I don't intend), but not being cocksure either way, I think civilised life depends on a benevolent forbearance that is being eroded by Puritans of all stripes.
I've submitted the following letter to the Speccie in response to this by Rod Liddle, but like as not it will not be published, so you may as well have a preview.
Sir:
In typically flippant manner, Rod Liddle (13 September) mocks the alleged stupidity and cowardice of would-be Islamic martyrs. It’s true that there is an adolescent power-seeking element: I was confronted by a serious-faced posse of 15-year-olds in a school corridor on 13 September 2001, and the spokesman said, “Sir, what happened on Tuesday: good, innit?” With that, leaving their kaffir teacher satisfyingly speechless, the delegation walked off.
But the self-appointed leader was far from stupid, as I knew: he could probably have got his inflatable A* in GCSE English a year early. And teenagers mind-manacled by a few simple ideas can be very brave, which is why armies everywhere have been glad to use them.
Moreover, this is not a Children’s Crusade, but a war of ideas. We had our own a generation ago: “Smash the System”, Ho Chi Minh’s lantern fizzog stencilled on Oxford college walls, etc. If Liddle wishes for an answer, it is to be found in the article immediately after his own, where Harry Mount quotes Philip Larkin: “A hunger ... to be more serious.” Wiffy-woffy liberal democracy is under attack from both domestic Left and alien religious Right. The politico-religious settlement that was the Church of England is crumbling.
In a Gramscian campaign, the means of cultural transmission (the educational curriculum, the broadcast media, even some of the clergy) have been captured and turned against what used to unite us. Recently, we have gone from the martyrs’ certainty of Latimer, Ridley and Cranmer to the confusing fast-talk of Bishop David Jenkins, the slapstick clerical comedy of Dawn French and the nihilistic assertiveness of that scruffy peacock Richard Dawkins. When, a year or two ago, the BBC transmitted “Any Questions?” from a church at Christmas, the panel inevitably included a smug young atheist exhorting the faithful to “embrace the dark.”
The real Delusion is that we can cut down the ancient forests of our history and expect a lovely garden to spring up among the stumps. As Robert Bolt’s More says, “Do you really think you could stand upright in the winds that would blow then?” The seriousness for which people hunger is not found in the drunken debauchery alternately promoted and lamented in Parliament and the newspapers, and that which is being destroyed will find its replacement.
I've submitted the following letter to the Speccie in response to this by Rod Liddle, but like as not it will not be published, so you may as well have a preview.
Sir:
In typically flippant manner, Rod Liddle (13 September) mocks the alleged stupidity and cowardice of would-be Islamic martyrs. It’s true that there is an adolescent power-seeking element: I was confronted by a serious-faced posse of 15-year-olds in a school corridor on 13 September 2001, and the spokesman said, “Sir, what happened on Tuesday: good, innit?” With that, leaving their kaffir teacher satisfyingly speechless, the delegation walked off.
But the self-appointed leader was far from stupid, as I knew: he could probably have got his inflatable A* in GCSE English a year early. And teenagers mind-manacled by a few simple ideas can be very brave, which is why armies everywhere have been glad to use them.
Moreover, this is not a Children’s Crusade, but a war of ideas. We had our own a generation ago: “Smash the System”, Ho Chi Minh’s lantern fizzog stencilled on Oxford college walls, etc. If Liddle wishes for an answer, it is to be found in the article immediately after his own, where Harry Mount quotes Philip Larkin: “A hunger ... to be more serious.” Wiffy-woffy liberal democracy is under attack from both domestic Left and alien religious Right. The politico-religious settlement that was the Church of England is crumbling.
In a Gramscian campaign, the means of cultural transmission (the educational curriculum, the broadcast media, even some of the clergy) have been captured and turned against what used to unite us. Recently, we have gone from the martyrs’ certainty of Latimer, Ridley and Cranmer to the confusing fast-talk of Bishop David Jenkins, the slapstick clerical comedy of Dawn French and the nihilistic assertiveness of that scruffy peacock Richard Dawkins. When, a year or two ago, the BBC transmitted “Any Questions?” from a church at Christmas, the panel inevitably included a smug young atheist exhorting the faithful to “embrace the dark.”
The real Delusion is that we can cut down the ancient forests of our history and expect a lovely garden to spring up among the stumps. As Robert Bolt’s More says, “Do you really think you could stand upright in the winds that would blow then?” The seriousness for which people hunger is not found in the drunken debauchery alternately promoted and lamented in Parliament and the newspapers, and that which is being destroyed will find its replacement.
Saturday, September 13, 2008
At last, BBC News says something useful
And so tour operator XL goes down, as City Unslicker warned.
But from the pile of horse-puckey that is BBC News gleams a speck of gold: advice on how businesses must survive recession. Participating in a price war isn't the way to do it, since you make yourself vulnerable to misfortune, such as the 44% increase in fuel costs (and tightening bank credit) that did for XL. No, here's their three valuable tips:
Things are a little different from the consumer's point of view, of course. We came back from Dublin a few years ago on a certain airline, and the electrics failed before takeoff. They fiddled with them for a bit, then we flew to Birmingham, where they promptly failed again just as we were taxiing to the terminal.
Good job they hadn't failed halfway across the Irish Sea, or we'd have been up there all day.
But from the pile of horse-puckey that is BBC News gleams a speck of gold: advice on how businesses must survive recession. Participating in a price war isn't the way to do it, since you make yourself vulnerable to misfortune, such as the 44% increase in fuel costs (and tightening bank credit) that did for XL. No, here's their three valuable tips:
- Go for custom with higher profit margins, like BA's focus on business class flights.
- Hold lots of cash, like Ryanair.
- Cut costs, like Flybe with their modern, larger, more fuel-efficient craft.
Things are a little different from the consumer's point of view, of course. We came back from Dublin a few years ago on a certain airline, and the electrics failed before takeoff. They fiddled with them for a bit, then we flew to Birmingham, where they promptly failed again just as we were taxiing to the terminal.
Good job they hadn't failed halfway across the Irish Sea, or we'd have been up there all day.
Friday, September 12, 2008
LHC update
Two days after the Mighty Marmite Machine was switched on, and no news. Did they run out of shillings?
Or is this proton recycling thing one of those EU subsidy scams? * At 11,000 circuits a second, the turnover would much quicker.
But I still think it's really a bunker and escape tunnel to Switzerland (geographically the sane eye in the mad mask of Europe). The elite have something to flee from, as Tony Sharp points out - this is the 14th consecutive year of accounts rejected by their own Court of Auditors.
I don't care; I'm off to look for the Great Wine Lake. If they'll tell me where it is, I'll sign the bl**dy accounts myself. **
* "In 2003 German authorities combined isotopic evidence with paper-trail analysis to put a stop to a sophisticated scam, known as "carousel fraud". A group of German companies had been illegally claiming subsidies by trading EU-made butter to and from Estonia (then not a member of the EU). Each time a butter lorry crossed the border from Germany to Poland the companies were given EU export subsidies. Once in Estonia the butter was repackaged and labelled to make it look like it had originated in Estonia, heaved back on a lorry and hauled back to Germany. This time, the importers took advantage of a tax break on foreign imports aimed at increasing trade with prospective EU member countries, as Estonia then was. The investigation revealed that 22 out of 25 butter samples taken from Estonian-labelled butter imported into the EU were not Estonian. In at least one case, the isotopic ratios of hydrogen and oxygen in a butter sample indicated it could only have come from Ireland."
** Wasn't a Chinese emperor deposed for excessive taxation, which he used to create an artificial lake and fill it with wine so that ships could sail on it and have mock battles for his entertainment?
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