Tuesday 31 March 2009

G20 - The Simple Mans Guide

There are three broad streams of thought to the thinking of the G20 powers. One is the Anglo-Saxon model, which derives neither from the Angles nor the Saxons but from the diverse hotch potch operating from London and New York of easy money and fancy financing. This can be called Enronomics after the famous Enron, the very model of a modern major company, that sadly hit the rocks before the Age of Bail Out dawned. It is not so much a policy of unintended consequences, as to hell with consequences if we get out with our money first, and then shut the door on the taxpayers. This applies to the UK and the USA.

The other is the German (oops Euro!) model, which actually owes more to the ancient tribal lands of the Angles and the Saxons and their habits of careful frugality and ordered community. This group demands care and careful regulation, and avoiding high risks in the handling of money. It is dull, slow, and demands discipline and does have its downsides.

The third is the Eastern Group, and these are likely to be running good old fashioned Mercantilist Systems. This may entail colonising recalcitrant entities, or at least taking over key sectors of their economies. In the UK we have sold off so much of our economic base, that there is not much left to sell, so if we fall prey to this, we do not have much more to lose.

None of this will emerge in the communiques, or in the media (they do not understand it). We will get some headline items. Some tax havens, in due course, and after careful analysis and reporting, will allow some information to be made available. This will give the High Net Worth Income community ample time to rearrange their affairs with those tax havens who stay outside the pale, new ones, or those Mercantilist powers who offer them a warm welcome.

In the meantime all my living costs are going up sharply, my income is going down, life is becoming more complicated, and I could be arrested if my refuse bin is the wrong colour. Just like nearly everyone else, with the exception of a lucky few...........well we know who they are.

Thursday 26 March 2009

G20 - Minding Your Manners At Table

It is alleged that the Credit Crunch really began with an AIG subsidiary hedge fund in Curzon Street, Mayfair, London, trying to pile it just too high. Mayfair, home to many different peoples in the past, is now the graveyard of the UK hedge fund industry. But as a district with a long history, there have been others in the past. Just along Park Lane is Hertford Street that has two blue plaques celebrating past lives.

One is for the Irish dramatist, politician, and theatre owner, Richard Brinsley Sheridan, whose fortunes rose and fell even more dramatically than his theatre productions. At one stage, the duns had gained entry and removed his china and silver as security for his debts. Unluckily, he was shortly to hold a private dinner for a number of leading politicians of the time. So he agreed with his creditors that they would lend him back his own china and silver, and the condition he had to accept was that they appointed the waiters. So the men who served at table were a number of Bailiffs, suitably dressed and washed for the occasion.

Across the street from Sheridan is where a close connection with his family lived, Jeremy Sneyd, Private Secretary to Lord North, and effectively then head of the tiny Civil Service. Sneyd grew up on the same patch in Ireland as Arnold Nesbitt, MP a close relative and city speculator who was one of the dealers who provoked the Credit Crunch of 1772, the one that lost Britain the American Colonies when the taxes had to rise to cover government borrowing.

Perhaps the IMF should provide the crockery, the cutlery, and the waiting staff at the not quite celebratory dinners that the G20 are due to attend in London soon. Given that the other blue plaque on the street is for General John Burgoyne, I think that President Obama should insist that the Special of the Day has to be Boeuf a la Bourguigonne.

Wednesday 25 March 2009

A Taxing Problem

Nassau, in The Bahamas, has an excellent museum devoted to the pirates and buccaneers of the past, those pioneers of free market principles, democracy,and racial and gender equality. They too imposed taxes on travellers to support their finances. Unluckily, they were blown away, by the weight of shot rather than influence, by the naval forces of Britain and Europe with their heritage of greedy government, elitism, and dirigiste policies. Now the locals have the OECD to contend with, as well as a complaining UK and EU.

The fiscal problems of The Bahamas are more complex than may appear, and the economy fragile. There are few real options open to the government in its search for revenue to support a full range of modern services for its growing population augmented by the many refugees from Haiti. Given the structure of the population, the types of employment available to the people, the narrowness of the base for taxation, and the way things work, it is very difficult to see how how an effective income tax regime could be imposed.

Moreover, in a small nation scattered over many islands the bureaucracy necessary to the task would be a costly item, and is likely to have very limited success. Sales taxes are certainly a burden, especially for those on lower incomes. The problems are to improve the earnings of the poor, to reshape sales taxes, and to strengthen the retail sector. There is no scope for industry or agriculture on any scale. So the emphasis has to be on service employment and on an international basis. This is highly tax sensitive. Also the educated and experienced local people engaged in the financial work would be welcome anywhere in the world, and Miami is only an hour's journey.

So dealing with the tax havens will not be a simple business. If the clamp down on finance is to be successful, many, like The Bahamas, are going to need a good deal of support. The major musical theme of the Nassau Museum is the old ditty "Over The Hills And Far Away". If the posturing of the EU and OECD, and others, result only in enforced tax changes, then that is a song which would be sung by almost all of the existing tax base of The Bahamas as well as most of the population, by sheer necessity.

So what would London do? Reopen Execution Dock?

Monday 23 March 2009

Three Naughty Pigs

Last week Global Witness (dot org) published a major report "Undue Diligence" on How Banks Do Business With Corrupt Regimes. It deals with several well known banks and the manner in which they handle monies taken from corrupt regimes, largely the rulers and their families, and the associated elites. As many of these countries have large proportions of their populations living in dire poverty, with rampant disease, and few if any modern services away from certain urban centres, it makes grim reading.

What is more worrying is the potential implications of this report. These are just the few where evidence has emerged in publishable form. What else is going on in these banks, and the many associated banks and agencies? Moreover, looking at the top echelon of executives and directors, many are close to our own government, and embedded in its financial operations.

As the drugs trade commands so much money, and is now so interconnected with other non-legal and legal economic activities, just how close are some of these people to each other? It is curious that whilst I face obstacles in moving money from one account to another in the same bank, along the road in the local gaol, the place is awash with drugs freely bought and supplied.

It is a strange world where people, including prison inmates, can access illegal drugs much more easily than I can get my electricity meter read, and where the money for these can be transmitted far more effectively than I can extract a reliable billing from my utilities.

Friday 13 March 2009

Systemic Risk And The Circus

There has been a lot said about risk, systems breakdown and the rest, and it all seems very complicated. But not necessarily. Think of jugglers in a circus, several, each with three items acting independently. If one or two fail to keep it up, the others will remain in action. When they begin to interchange, however, this changes and the risk of failure rises according to the complexity. If the interchanges are relatively simple and supportive, a failure could leave most of the jugglers effectively in action, although some could be compromised.

When the interchanges become complex however, the risks rise substantially, since then each becomes dependent on the other. If a failure occurs most could be affected, although some might remain more or less functioning, and they may revert to independent action. However if the Ringmaster is not watching carefully, or loses interest, or finds other things to do, then the risks increase dramatically. The jugglers may try to speed it up, or to add extra items to spice up the action. They begin to deliberately advance the risk, putting each other under pressure, shutting their eyes, or inventing new ploys to test the others.

Then a failure becomes almost certain, and it is not a case of "if" but "when" and how bad. The risks are such that most of the jugglers will fail leaving only one or two carrying on, but in a limited fashion. Then the Ringmaster has to step in, with his assistants to sort it out, if they can. The worst thing they can do is try to juggle themselves, or to supervise the juggling in detail. The real need may be to reduce the number of jugglers, getting rid of the high risk ones, and curtail the actions of the others. What the Ringmaster must not do, is to tell a surviving active juggler who is managing, let us say Lloyd, and tell him that as well as doing his own job would he kindly pick up the the items that HBOS has strewn around the floor, and add them to his act. This will not work, and Lloyd will quickly become inactive.

In the circus, of course, when things in the Ring go badly wrong, or a disaster occurs, the standard procedure is to Send In the Clowns. They may well try juggling of course but it will be only a crude comedy turn with the items flying all around the Ring. It may or may not raise a few laughs, but it is all the Ringmaster can do while be dances round the Circus trying to persuade the audience that this is the show they paid for. So will our present bunch of clowns be able to do a bit of juggling, and will the audience stay to watch?

Thursday 12 March 2009

Sales Figures

When everyone stops buying, except for food and the absolute necessities, then sales figures will stabilise.

Wednesday 11 March 2009

There's No Place Like Home

There is a good deal of heavy breathing in the media after announcements of the large amounts of money about to be sluiced into the housing market, notably by RBS and other banking subsidiaries (owners?) of the British Government. Given the substantial holdings of property assets by the members of the London Mediocracy, our governing political and media clique, and the obsessions of key centre swing voters in the most marginal constituencies this comes as no surprise. So bust banks to borrow, and then lend as if there were no tomorrow?

So what kind of lending? A long time ago the conventional mortgage deal was two and a half times the real major household source of income. No second income, no overtime pay, no bonuses or commissions. Even with these limits for the average household money was tight. But then, state taxation, local taxation in towns, food prices, clothing prices, and motoring costs were all relatively higher than has been the case for a decade or two now. There has been a note of horror at the suggestion that mortgages could now be limited to only four times joint incomes, loosely defined. It seems that six or seven times has been the norm.

The government plans seem to be based on the assumption that households will have the benefit of the low price levels of the past. This is not going to be the case, notably on taxation, incomes are already being squeezed. Moreover, as much spending in the immediate past has been on credit, if that is curtailed what happens? With low interest rates, many savers are pulling out, and few other people are going to be able to save. How is the government going to sell all its loan tranches at low interest levels and with sterling at significantly low value?

Does the government really think that buyers can take on the financial burdens and debt as in recent years? A lot of mortgage lending has been in remortgages, second mortgages, second and third homes, and equity release schemes. The government is crying housing shortage when half the homes in rural and coastal areas, or more, are priced out of the reach of the local population. In the mean time the buy to let sector has bombed, rentals are curtailed, and allegedly there are three hundred thousand flats vacant and nearly a million homes unoccupied.

This is not a policy, it is simply a gadarene rush to be first to the lifeboats by a selfish elite.

Sunday 8 March 2009

Digging For Victory

The day the bank bailouts broke out, the missus said to me, “So what are you going to do to save the economy?” “It isn’t up to me!” I said, “What can I do about it in any case?” “Well,” she said “you can make a start, and my hair needs cutting.”

So after we cut each other’s hair, normally free, gratis, and for nothing, this time we exchanged cheques for £1000 each. “There,” she said, “that’s a nice boost for the GDP” “But what do we do next?” I asked, and she had an answer for that, well she always does have an answer.

So we go down to at Thresher and Porbeagle Financial Services, Cookiecutter House and meet a gent’ called Fred Sands. Nice chap, the sort of Scottish burr in the voice you like to hear on the customer services helplines telling you there is nothing they can do to help, who makes us an offer we could not refuse. They had only just set up after he had left his old firm to improve his prospects.

Grabbing the cheques from our hands, he told us he could immediately lend us up to £100,000 to spend as we wanted, or to take part in a wonderful investment deal that had only turned up on his laptop that very morning, limited offer, closing in half an hour, so we had to make up our minds quick.

He wrote us a cheque on the spot for the £100,000, gave to us, and then snatched it back, saying it was now an asset and collateral for buying £5 million pounds worth of rented garages in Arizona, Beijing, and Moscow, and these would become the assets for investing in a lot of Hedge Funds, who would do a lot of other lending. Because all the loans were assets, and not what my father told me, income was guaranteed at fifteen per cent, and the whole value would grow at least thirty per cent a year, so we could soon have our villa, yachts and all the rest, and even get invited to a Paris fashion show.

I tried to tell the missus that I was happy with our caravan at Bognor, but she would not listen, all it would cost us she said was trivial money, small change, for all the administrative fees and bonuses, and I should be grateful for everything. Then she went into the back room with Fred and came out smiling in a way I hadn’t seen since she was a part time barmaid at “The Dragon’s Head”.

So we have now “kick started” the economy and Fred says with luck I could get a knighthood and the missus will then become a lady, at last. “It will all be worth it,” she said, “and Fred even gave me a tenner, for the service economy he called it.” When I told my neighbour, Jim, he gave me a funny look, asked for his lawnmower back, and told me not to bother with Christmas Cards this year as he was a bit short.

Apologies to Rob Wilton and Michael Williams.

Saturday 7 March 2009

Where's My Dinner?

On Friday 6 March in the New Statesman there was an article "Planet Overload" by David Nicholson-Lord addressing the issue of population growth, referred to by some as a taboo subject when discussing the environment and the future. The figures given estimate 6.8 billion of us now, forecast to go to 9.2 billion in 2050. This poses some questions, not least relating to how finite our resources are and how capable we are of responding to the challenges involved.

We do not "know" how many people the planet can sustain or on what basis. We can only estimate. It is argued that after the Toba eruption of about 75,000 years ago we were reduced possibly to only thousands in Africa. Before then we cannot know the numbers subsisting on a hunter gather basis. It may have been over a million or two, but we do not know. All that the archaeologists and paleontologists can suggest is the size of territory certain numbers of our hunter gather forebears needed, and these are thought to be greater than expected, in that humans could use up an area quite quickly, and it was this that caused the movement across landscapes that was integral to their survival.
During the last Ice Age, it is assumed that the numbers were again curtailed, and it is suggested that there was a significant reduction in human populations in the mid 6th Century. Plagues and climate shifts have held back the rate of growth since until the last couple of centuries. From all this it is very likely that the present numbers are not sustainable, and some kind of major setback is due if we now live in a world were the recources have become relatively finite.
The questions are when and why could something go wrong? Climate shift one way or another seems very possible, the fry or freeze question. Geophysical events can happen, and will, sooner or later there will be a "big one". But with these apocalyptic events it is possible that the large scale chemical contamination and associated effects on humanoid reproductive systems could be the triggers of a population collapse, anyone for Atrazine?
Of course, as humanity now depends largely on fiat currency systems and financial services to sustain all the trading, communications, and organisation necessary to survival, should they ever collapse, then we might all just eliminate each other as we seek to establish our family territories.

Friday 6 March 2009

An Icelandic Saga

In "The Ecologist" this month is an interesting piece by Molly Scott Cato on the lessons of Iceland for the rest of the world. Iceland is a small crust on top of a lava vent, and prone to erupt now and again. In the period 1783-1785 we now realise that the Laki Eruption caused climatic and other disruption in Northern Europe. In 2007-2oo8 they capped this with a systemic financial collapse. Molly ends her piece with the following paragraph:
What can we learn from the Icelandic object lesson? It demonstrates the unsustainable nature of the globalised capitalist system that has come to dominate provisioning and trade over the past 40 years. The most important lesson is to cut your coat according to your cloth. Once you strip away the financial fluff, an economy is worth what it has in terms of resources: its people and its land. Losing sight of this basic fact has created overinflated currencies and excessive asset prices; the other side of the coin has been the devaluing of the resources that really matter: people and planet. Creating green jobs is all very well, but until we tackle the economic system’s underlying destructive logic, sustainability will always be out of reach.

Molly Scott Cato is a reader in green economics at the Cardiff School of Management

Thursday 5 March 2009

Quantitative Easing And Rates Of Interest

There is enough informed comment on the Bank of England decision to cut interests and trying to pump money into the system. My recommendation is to watch a DVD of the old musical "Paint Your Wagon", which portrays a community bent on gain and its final collapse. I quote:

Gold Gold Gold Gold Gold Gold Gold

Gotta dream boy
Gotta song
Paint your wagon
And come along

Where am I goin'?
I don't know
When will I be there?
I ain't certain
What will I get?
I ain't equipped to say

But who gives a damn?
Who gives a damn?
Who gives a damn?
We're on our way

Wednesday 4 March 2009

The Mercantile System - Back To The Future

In the turmoil of the 1970's a few people were arguing for a "Fortress Britain", outside the EU, paying its own way, and accepting the level of austerity and restrictions that might be needed. As most of those were well over to the Left, with some a little too close to the Soviets, this was not a thesis that gained much support. Moreover, we all wanted our goodies, and the price of houses were going up. The notion of "Free Trade" was still thought to be basic to progress. Of course, it had never been entirely free, for the Brit's it had largely meant embroilment in an overstretched Empire to keep business going and the City happy. Also, these were happy days when we thought resources were infinite, money was infinite, and happiness meant cranking up the GDP as fast as we could. Climate? Food supply shortages? Fuel supply exhaustion? Degradation of the environment? All hocus pocus.
But there was a time when men believed that money was finite, riches were finite, and that food supply was finite. There had been more than enough famines and shortages in Europe in the memories of many people to assume that world was a generous place. It wasn't, it was mean, and a nation needed to protect what it had, protect its farmers and food, and command its own trade in its own way and in its own shipping. So the essence of economics was the Mercantile System whereby the State managed and controlled the external trade to ensure it was able to access the bullion, always the bullion, and the other goods it needed to survive.
Britain built its Navy on the back of the merchants, the Navy built its Empire and possessions, and they provided first the bullion, and then the goods that London wanted. It was the bullion that then paid for the expansion of British trade, together with the growth of associated credit and banking systems.
Having done that, and established a world lead, then it seemed that with the world in its grasp, Free Trade would be a good thing. But was it? American watchmakers, German chemists, French motor engineers, a variety of bulk food producing nations, all demonstrated even in the late 19th Century that there was a price to pay for British industry and agriculture. With with new sources of gold, new products, growing populations, and apparently unlimited land to be found so we went on.
We finished up in the EU, an organisation alleged to be free trading, but in fact a closed trade area in many respects, so we went for broke in financial services to pay for all the goodies. And we went broke, so now where do we go? Telling the USA to free up their trade when they face an EU that is anything but free, a China with its own ideas, an India ditto, a Russia ditto, and others scrambling to protect themselves, what is America going to do?
Back in Britain, where we lately sold off much of our gold at the bottom of the market, perhaps it is time to start building our own ships again.