The end of the dollar? But where else can we go?

The market is inherently unpredictable: if you think an accident is bound to happen, that still doesn't tell you when it will happen. However, this article by Paco Ahlgren takes the long view and maintains that the dollar must one day become worthless.

In the short term, who knows? In times of panic, many investors could run back to holding the dollar and temporarily boost its value.

Other countries are also weakening their currencies. Even the Euro suffers from flaws in the economies of some of its member countries, so although it may seem strong now against the pound and dollar, it too may be overvalued.

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.

Education or Indoctrination?

Sackerson directed me to the following article: http://www.overcomingbias.com/2009/12/school-is-propaganda.html

In response, I argue that we have public schools because (based on the data):

a) they are cheaper than private schools;

b) they out-perform private schools, on average;

c) it is better to educate than imprison;

d) education is the only modern means for social mobility.

Bringing down the Temple of Dagon

I listend to Radio 4's Any Questions? last Saturday and a question about bankers' bonuses reared its lovely head. And then the pundits fell down, one after another.

I can't answer the conundrum about the sound of one hand clapping, but I sure heard the sound of punches being pulled. Perhaps some of the speakers have banker friends; perhaps some are hoping not to alienate the Masters of the Universe in the weary stagger up to a General Election. But here's what I'd like to have said, and it proceeds from a simple question:

Did the bankers know the likely consequences of their actions?

If they didn't, they are incompetent and instead of dithering about the threat of the RBS' board to resign, the government should sack them and all like them. Doctors who are that bad at their jobs would be sued and/or worse.

If they did, they should be jailed. In my view, Max Keiser is not exaggerating when he calls them terrorists. They have wrought destruction on our economies and though the human cost may be hard to assess accurately, it is and will continue to be terrible.

So, why isn't it happening? A number of reasons occur to me:

1. It is convenient for politicians to have a few people earn (sorry, be given, legally steal) vast sums of money. The lucky recipients of this largesse can be taxed at 40% (or even 50% as under today's draft Budget proposals) and still have more than they can possibly eat, drink, wear or stick up their noses. "Tax doesn't have to be taxing", as that wretched radio advert chirrups.

2. Clapped-out politicians may one day be looking for a well-overpaid sinecure, like T--- B----. Best not to be too hard on your potential future employer.

3. Embarrassingly, the roots of the credit crunch are not (not merely) in socialist profligacy, but date back to the early 1980s. It was a so-called Conservative government, supposedly a convert to monetarism, that opened the floodgates of credit and tsunamied the economic "boom". Not a genuine boom, and now a very real bust. Criticising the present hapless bunch too sharply would beg a loud, sustained argument of "tu quoque" ("thou also didst so").

4. Just as an addict is partly responsible for the sins of the dealer, the consumer is implicated in the phoney house price rises and the spending spree. But I say that the Devil has the lowest place in Hell, because his knowledge was greater.

5. Nevertheless, if push came to shove, the bankers could point out that effectively, they were acting as the agents of a government determined to win re-election.

Very well, then. Let us have our punishment - we shall, anyway, and the next generation after us. But they must have theirs - the bankers, the politicians and the Fourth Estate that got too close and too cosy for too long.

Go for it.

Debt: UK economy worse off than USA's

This article from Credit Writedowns looks at the development of debt over a long time, in both the US and UK economies.

Two things stand out (see charts 1a and 1b):

1. US debt (as a proportion of national income) is a worse problem now than in the Great Depression of the 1930s.
2. The UK's debt burden is signficantly worse than America's.

Consumer indebtedness exploded in the early 1980s - see the the first chart on this site. Up to then, it had pretty much kept pace with the growth of the economy generally. This is a major part of how our economic problems have developed - a deliberate loosening of credit to restimulate the stagnant economy of c. 1982. The banks grew fat on the loan-financed consumer boom, and on the inflation of property prices.

Now, our governments are looking for a way out. Mass unemployment and bankruptcies will turn the voters against them, so they have tried to keep the banking system going with loans that future generations must pay off. Insiders will tell you that they don't really know what they are doing, but they are in a panic to do something.

Technically, we are experiencing deflation - the total amount of money plus credit in the economy is shrinking, as lenders and spenders have become more cautious. But just as with Dubai recently, foreign investors are losing confidence in our ability to repay debt, and the dollar and pound have become worth less on the currency exchanges.

In the UK, as in the US, we spend a lot on things that come from outside our economy, and some of them are hard to cut out - energy, for example. So while house and car prices may be coming down, other costs are still rising, in pound terms. And as economic problems continue, it is possible that the pound may have further to fall.

So a combination of a slowed-down economy with price inflation - "stagflation" - is a potential threat to the UK.

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.

Beware the stock market boom

Another commentator I follow is an American called Warren Pollock. Here he says you should think twice about investing at this time. Companies raise cash from you by offering shares; now they have money, and you have hope.

In 1999, I attended a monthly meeting for brokers where a representative from one of the investment houses gave his views on the boom in technology shares. According to him, what we we were seeing was nothing to what would come after - the "super-boom". This was what we were to think, so we could advise our clients to buy into his company's technology fund.

Fund management companies earn a percentage of the money invested with them, so according to them it is always a good time to invest - the bigger their fund, the bigger their earnings.

If you are an investor who bought your shares through a stockbroker and you got in at the right time (low price), you need to get out at the right time (high price), so you need another buyer who thinks the price will go even higher. If you bought via a collective investment (e.g. the unit trusts that underpin most ISAs), then you can simply sell your units back to the fund - which means the fund has to find the cash to give you. And if the fund doesn't find new investors, it will shrink. So, maybe, that's the time to send their rep round to the brokers.

So you can see that at least two groups of people have a vested interest in encouraging optimism in you, even when they may not feel it themselves.

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.

Can we trust government information?

This snappy clip from the Mint.com blog (tip of the hat to Nathan's Economic Edge) examines official U.S. unemployment criteria and argues that the real jobless rate is not 10% but 17%.

As governments on both sides of the Atlantic continue to flounder, perhaps we can expect more misleading information and carefully-biased definitions. The inflation rate looks like another good candidate for this kind of treatment.



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.

Britain faces stagflation, says Walayat

Sheffield-based market analyst Nadeem Walayat argues that Britain's debt burden will continue to increase, accompanied by inflation as the government prints more money and the pound weakens against other currencies. Interest rates will have to rise to attract further lending to the UK, and the result will be economic stagnation.

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.