Month: April 2009

Wokingham Times

April 30, 2009 1 Comment

The Chancellor should say sorry.

He should say sorry for the deepest and longest recession since the Thirties of the last century.

He should say sorry for their regulatory system which did not see banks and building societies were going bust.

He should say sorry to all the people out of work or about to lose their job.

He should say sorry for the huge damage caused to many pension funds b y his tax and regulatory policies, leaving people with little or nothing for their retirement.

He should say sorry for heaping so much debt on the British people.

He should say sorry for the wild conduct of monetary policy in recent years, which stoked the boom and then plunged us into the crash.

Instead, he played silly and dangerous political games, seeking to use the budget to vilify the Tories and set them policy traps. He said Tories wish to do nothing, and wish to damage crucial services. This is simply untrue.

The Chancellor should give us an honest account of the dire state of the public accounts.

He should tell us they may lose us £200 billion through the banks they have bought and guaranteed, as the IMF have warned. That’s more than £3000 for every man, woman and child in the country. Even his own rumoured figure of losses of £60 billion means he admits he has lost every one of us £1000 on his bank nationalisation madness.

He should tell us the build up of debt has been too fast and too great, and poses us a big threat to our future growth rates and living standards.

He should tell us that his forecasts a year ago were wildly optimistic, and his forecasts last autumn were so wrong as to verge on the mendacious. He should give us a sober assessment of the extent and duration of the downturn

Instead, he went for too low a figure for banking losses, was wildly optimistic about the extent of the recovery in subsequent years, and continued to understate the future debts by a huge margin..

Finally, the Chancellor should say that he intends to start getting the UK public sector to live within its means. He should not delay this until after the next election, and not treat reducing public spending as some kind of imaginary game or political challenge to the Tories. He should instead this year make large reductions in undesirable, wasteful and not strictly essential expenditure. Schools and hospitals, nurses and teachers should be safe. ID cards, centralised computer systems, unelected regional government, more subsidies to banks and other large companies, increases in regulation and public administration will all go. He will require all MPs to cut their costs and the costs of Parliament by 10% to show a lead.

Instead, the cuts have been delayed, are political, and often not for real. It was a fantasy budget and a very political budget. It was the McBride memorial budget.This government not only divorced Prudence, but continues to hold a drink and drugs party on her grave. That is bad news for all of us.

Reading Evening Post

April 30, 2009 0 Comments

What do we want from the budget? We need some better control over the public finances so we do not get pushed more and more in to collective debt. We need better management of the public services, so they deliver more for less.

Consumers are still spending. The latest figures show that has held up reasonably well. The savings rate is also on the rise, mainly owing to people borrowing less or repaying some debt. That’s no surprise, given how difficult it is to get a loan and how overborrowed some had become. The public is learning to handle the new situation, by getting out of debt and by shopping around for the bargains and discounts.

Those with floating rate mortgages and other loans have the pleasure of deciding how to spend the extra money they can keep as interest rates disappear, as long as they keep their jobs. Those on savings income have to tighten their belts, as their needs are ignored.

The two parts of the economy we need to do better, business and exports, remain weak. The government continues to hijack the money , increasing the squeeze on companies through its taxes and regulations. We need a recovery based around increased business investment and a higher level of exports. So far we just have the favourable consumer impact from lower interest rates and the extra incomes of the growing army of public sector employees.

We learn that Mr Darling may admit he needs to borrow a colossal £175 billion this year to pay for all the excess in his public spending figures and to feed the ever hungry nationalised banks. That’s borrowing £3000 extra for every man, woman and child. It would be good if he would start by admitting he borrowed more than £150 billion in the year to March 2009, and not the £78 billion he told us about in the Pre Budget Statement. We need an honest presentation of how bad the public finances are before we can start to clean them up.

We also learn he will be setting out some combination of higher taxes and lower spending to start to plug the gap in the Budget. The problem with higher tax rates is they can send business abroad and jobs overseas. In a highly competitive world you need to keep tax rates at a competitive level in order to maximise tax revenue. The UK is no longer very tax competitive and needs to be careful about any proposal for higher tax rates on individual and company income or gains.

What we need are some cuts in public spending. Not from the 25% of public spending that goes on the salaries of nurses, teachers, doctors and other front line service providers, but cuts from the rest. What we need is a government that understands spending too much will cause problems raising the money, will crowd out the private sector, and will make bringing the balance of payments back into order more difficult.

You can’t solve a crisis brought on by borrowing too much by borrowing more. Government spending is not necessarily reflationary, as you need to take the money from the private sector to be able to spend it in the public sector. Let’s hope this budget begins the necessary process of sobering up. The Prime Minister did not merely divorce Prudence. He is now holding a drink and drugs party on her grave.

Simple banking – ignore base rates

April 30, 2009 41 Comments

Yesterday I spoke to someone running one of the smaller banks in the UK. He told me he lent less than he collected in deposits, for prudential reasons. He said he currently offered 2-3% on deposits, depending on size and length of time people would leave the bank with their money. He lent out at say 5-6% to reasonable prospects. They stopped following the Bank of England rates when they moved them below 2%, as they could not see how they could attract or maintain deposits if they followed the rate down.

It all made perfect sense to me. What a pity the authorities cannot understand this. I suppose they are setting their rates now with an eye on how much government stock they have to sell. In the real world depositors need a return, and banks need deposits. The UK authorities have not been in control of money markets or rates for almost two years now. Their destructive lurches in interest rates – first too low, then too high, now too low – have done damage. Today any sensible bank just ignores them.

The Economic crisis – are you happy but not satisfied?

April 30, 2009 7 Comments

Yesterday I heard an account of where we are and what we need to do next.

In the popular mode of self assessment I had hoped we would be told the financial establishment were “gutted and dissastisfied” with their performance so far. Instead, our spoeaker blamed the bankers, told us the Regulators had to do more regulating, and advertised the attractions of investment in UK government securities.

He did not give us all the usual regulatory warnings. We were not told gilts could do down as well as up. We were not told to seek independent advice, as gilts may not be suitable for all investors. We were told they are “safe”.

I guess we are going to hear a lot more of this from the authorities. I understand the Treasury has a few to sell, understand the Bank is rather long of them, and understand the FSA is recommending them to banks on an heoric scale. If you look at most of the gilts available in the market, the one thing you can say for sure is you will make a capital loss on many of them if you hold to repayment by the government, as many are priced at more than £100 per £100 of repayment. It is true you could make a profit in the shorter term, if government and Bank buying power is used to push their prices up some more, and to force interest rates down further. It is also true you could lose money if markets worry about the volume of issuance and the extent of the borrowing requirement.

I would expect to hear from a measured public official comment on how the authorities plan to get us from a position where gilt prices are heavily influenced by a large government buying programme, to a position where the authorities can offload them again and sell the large volumes they need to sell. I want to know how the authorities think they can curb the mighty and rising deficit. I wish to hear how they can in future set interest rates which stabilise the economy, instead of continuing on the ruinous roller coaster ride we have suffered in the last decade. I wish to be told how they will start to make the right calls on banking cash and cpaital, not that they are going to intrude into an ever wider range of detail in banking in lieu of making the big judgements they are paid to make.

So, in the spirit of self examination, I am “disappointed but not surprised”.This site has offered advice to set interest rates, government borrowing and spending and banking rules in a way which would stabilise instead of destabilising the economy. That does not make me “pleased but not satisifed” with its performance. I remain “angry and unhappy” because the financial establishment has been so determined in the UK to make the cycle more violent, whatever we say.

Expect representatives of the public financial establishment to act as gilt salesmen from here. Pity the poor banks and pension funds which will be made to buy these stocks, locking into low yields after a long bull market in bonds. If all goes well they will earn 2-4% per annum interest on them. That’s not enough to fill the black holes in their accounts. If all goes badly they will be showing some unpleasant capital lossses at market price.

Government loses vote in Commons by 21!

April 29, 2009 26 Comments

The Commons has asserted itself against the government. The hapless Gordon Brown and hopeless Home Secretary lost the vote on their treatment of the Gurkhas.

It is another sign of just how much authority the Prime Minister has now lost.

Just to remind you, at the last Election the British people voted for 356 Labour MPs, 198 Conservative MPs and 62 Lib Dem MPs. Labour should not be losing votes, if they had a sensible leader!

The Government’s waste line and the BBC

April 29, 2009 33 Comments

This morning I heard the BBC asking the new Labour question, Where would you make the cuts, to some brave representative of the business community.

He explained in general terms how businesses go about cutting waste and improving efficiency. He said those techniques should be adopted by people running the public sector. That was not good enough for the BBC. They always act like Labour Ministers, regarding only a painful cut in frontline services as a cut that counts.

The businessman got more specific. He said the public sector should try a pay freeze, as many companies are doing. That would be big money, given the large payroll. He said the public sector should change its pensions schemes in the way most businesses have. Again that would be mega bucks.

The BBC interviewer left the the impression that once again a “cutter” had failed to name a single thing that would reduce public spending.

It’s a dialogue of the deaf. Labour Ministers and most BBC people clearly have never run anything efficient in their lives, so they have no understanding of what you need to do to run a cost conscious high quality service.

Meanwhile they lavished praise on President Obama for sending US taxpayers the biggest bill in their history. Apparently because most of the excess spending will be financed from borrowing in the first instance, that is a triumph.

They still have not grasped that if a government “spends what it takes” to “pump up” demand, it means the private sector has to spend less to be able to lend them the money and then to pay the public sector bills.

The government’s wasteline

April 29, 2009 4 Comments

Last night I heard a speech by the Government’s Chief Scientific Adviser. It was more evidence of the government’s bulging wasteline.

Without a reference to the Credit Crunch or the borrowing disaster he told us he was just completing his project of hiring a Chief Scientific Adviser for every government department. With no sense of irony – or doubt about the wisdom – he told us the Foreign Office has just hired one for the first time. If we managed to get through the World War and the Cold War without the Foreign Office having its own Scientific Adviser, why do we suddenly need one? Why can’t the Foreign Office if it needs scientific advice ask the Government’s Chief Scientific Adviser, or draw on the science skills in the Ministry of defence?

The main purpose seemed to be to combat the loneliness he feels in the EU, where apparently only Ireland has an equivalent job to our Government Chief Scientific Adviser. Germany, with better controls over public spending and with an excellent science based industry we were told sees no need for such a role.

I would be happy to settle for keeeping a Chief Scientist for the government as a whole, but doubt every department needs its own. No wonder we are short of money, when there is this kind of bureaucratic expansion going on.I remember having to stop the Welsh Office appointing more economists to do forecasts – I said to them I was happy to use the Treasury’s which taxpayers were already paying for.

ID cards next to go?

April 28, 2009 39 Comments

I am glad to have helped push the ID card and ID computer system to the top of the media list for spending cuts.

Given the way this government does everything for political effect, they may now well cancel the ID scheme themselves “to shoot the Tory’s spending fox”.

I don’t mind if they do. We can always then promote another big unpopular programme. Step forward unelected regional government and the public sector rich list.

Two U turns and a listening Minister

April 28, 2009 16 Comments

Yesterday was a good day for democracy – for a change.

One of the few Ministers who does believe in Parliament, Jack Straw, came to the House. He had held a consultation on building 3 Titan prisons. Most people had said a big “No” to the idea. Jack has scrapped the proposal. Amazing. Simple. Couldn’t possibly catch on with the others.

Meanwhile the usually absent Two Homes Secretary failed to turn up again to make a Statement on prying into all our emails and web visits. She made a written statement so we could not cross examine her, although she was available for media interviews.

It was good news that she has dumped the idea of a big national computer system at public cost to monitor us even more. It was bad news that she wants the private sector to do some of the job for her. That is presumably why she was not going to submit herself to questioning in the House. We would have asked her how many more obligations there will be on private computer firms? How much will it cost them? How much more intrusive is it going to be? In the media interviews I saw I did not hear her being asked that. She was just allowed to pose as a believer in civil liberties! What a racket.

The far away Prime Minister was also busy U-turning. Hour by hour we learnt from the media that more of Gordon’s expenses package for MPs was heading for the waste bin. Sky News was a better source than the Commons tea room. By the close of business the Attendance Payment was dead. So well done bloggers on this site- your silly names for the payment must have been the last straw for this proposal!