Two Years And What Changes?

This is another retrospective post.  This one appeared in June 2010 under the heading of “Jumping Beans” commenting on the then Deputy Governor of the Bank of England and his suggestions about how we should beat the bust.

Not a lot seems to have changed in that time and it seems to be getting worse.

Quote:

In 1961 the year the Berlin Wall went up and “West Side Story” and “La Dolce Vita” hit the screens, Viv Nicholson of Castleford in Yorkshire won the pools for the huge amount of £152,000 (say 40 detached houses in Tunbridge Wells) and declared she would “Spend, spend, spend”. 

For this she was excoriated by the press and from pulpits.  Sound and moral men told her to save, exercise due economy and to invest wisely to gain a reliable income and by doing so set a good example to her class and community.

Evidently she was a lady ahead of her time.  Today she would be regarded as a potential member of the board of the Bank of England and Charles Bean, the Deputy Governor would be praising her economic wisdom and sense of moral purpose.  Vince The Mince and Ed The Red would be hanging on her every word.

Avoiding all the very obvious jokes about Mr. Bean I understand he has told us all to loosen up on spending, take on extra credit, forget saving or run down those you have and for that matter draw down on capital perhaps by extending mortgages or going in for some fancy equity release caper. 

All that is missing is a big poster with the little children looking up at a pensive father and asking “What did you do in the Great Recession, Daddy?”

Perhaps I should take Mr. Bean to a quiet room, play calming music (not Mozart or Beethoven, they both died broke) and explain things to him gently in a soft voice and gentle manner.  Then I might clobber him with the shillelagh I keep to welcome door to door salesmen and debt collectors just to make sure he gets the message.

Firstly, my income has suffered steady deterioration in the last few years almost entirely due to the relevant indexes being fiddled to understate real price rises for the bulk of the population. 

Also, the way in which major financial entities now govern how companies operate to achieve very high and ever increasing rates of return on their highly leveraged investments has impacted in all sorts of ways on many of our basic expenses. 

Mr. Bean and his little friends gave up the idea of regulation without realising how they would impair basic consumer spending and saving.

Secondly, despite not taking foreign or indeed any holidays recently my savings have also depreciated in real terms because interest rates governed by the Bank have not reflected the realities of the markets. 

The interest on any credit etc. that do relate to market conditions are still way too high for any rational man to take them on.

Indeed, I have been on my own personal tax avoidance scheme and refusal to obey the advice of my masters.  We have simply stopped spending on almost all goods that carry VAT or not absolutely essential to basic functioning.  Also, we have cut our activities and therefore car and out and about expenses quite radically. 

We can manage quite well without all the heavily advertised consumer stuff that people are urged to fill up their supermarket trolleys with.  Yes we spend more time doing things that most people no longer do, like eating leftovers and preparing foods by hand rather than buying packaged versions. 

Economies and activity that were routine for earlier generations but forgotten now have been reinstated.  Threading needles and not throwing away is now something we are doing a lot more often.

Sorry, Mr. Bean, no can do.  We are already closer to the margins than we want to be.  If things go badly for us there will be no help from a shattered state machinery.  If I were fool enough to do as he suggests then I would in the same sort of trouble that so many have endured.

It was precisely the spending and credit ideas that he is recommending that have broken so many families, ruined so many others, caused so many repossessions, have put people into debt slavery for the rest of their lifetimes and reduced so many pensioners to penury.

Is this his vision for Britain’s future?

Unquote.

Can the expansion in the number of pawnshops and the scale of their activity be helping “economic growth”?

We do seem to be eating more beans.

Hearts And Minds

The article linked below from Science Daily offers the theory that love and romance and all that is all in the brain and the heart has nothing to do with it.

There you go then, another fond, if I may use that word, notion that us humans have entertained for a very long time turns out to be wrong.

Somehow if “You Are My Heart’s Delight” is now “You Are My Brain’s Delight” it doesn’t sound the same.

As for “My Heart Cries For You”, oh dear.

http://www.sciencedaily.com/releases/2012/06/120620101011.htm

If you really want to give the brain a workout preliminary to your next romantic venture try this one below for size, from Naked Capitalism on Quants Models and the Blame Game.

It is about how a love for shapely figures led to the disasters in the financial services markets.  The key statement in all this is that “Decision makers really want simple heuristics.” 

This is perhaps the point at which the two items find common ground.

http://www.nakedcapitalism.com/2012/06/quants-models-and-the-blame-game.html

They’ll be trying to tell us next that the blood circulates.

Filling Up The Tank

Apparently the Wall Street Journal (pay walled) yesterday commented on the G20 paper concerning the regulation of transactions and reporting in the oil markets.  The nub of it, according to Naked Capitalism was that the regulators had wimped out of taking the financial trader boys in oils on to assert the need for transparency.

The supply of oil is the bloodstream of the world economy.  It is a highly complex collection of businesses that are interdependent and function at a high level of interaction.  Beyond that both almost all agriculture and most industry is critically dependent on oil supplies and the relevant markets.

This means that the money is attracted to it and that the monetary systems of the world are integral to it in ways that very few people understand at all levels.  If within those monetary systems the trading in and therefore the pricing of oil is governed by a small number of expert traders and speculators there is ample opportunity for problems.

These can impact on everyone and all the economies and almost all human activity.  But in the turmoil of recent years the oil prices and their trading at times has been become chaotic in form.  This means that the dependent economic policies of very many states can also become chaotic.

One web site mentioned often in this blog is the Oil Drum where a number of experts in the field of oil production can publish their findings, opinions and theories.  There is a lot to debate and to disagree about and this is reflected in the content.

Very recently in the UK there has been a issue over the shutting down of the Coryton Refinery in Essex which entails the loss of many jobs at the site and others in the local and wider community. 

The UK main media has concentrated on this and whether the government should have nationalised the plant or bailed out the loss making owners.  There was less comment about the need for around £500 million pound of work needed for updating and safety reasons.

But the issues are much greater than that and much more complicated.  The link below is to a 4500 word article on European Refinery problems.  It is not easy reading but it tells you a lot.  Below that is a quote from the text that gives the key to the issues involved.

http://www.theoildrum.com/node/9193#more

Quote:

The Source of Pain for European Refining

What is wrong? What has happened? The malaise in European refining has not happened overnight. The reasons are deep rooted and come from a number of causes:

Lack of profitability and therefore under-investment over decades.

High end use pricing due to taxation making up more than 50% of retail cost of transport fuels The refiners have been unpaid tax collectors.

Changing fuel specification standards, especially with respect to sulphur and aromatics

Change in product mix which does not now fit the historic refinery configuration.

Growing US gasoline exports making the European gasoline surplus more and more difficult to dispose of.

Biofuel blending especially with ethanol into the gasoline pool.

Carbon Emissions and ETS (emissions trading scheme).

Put together, the causes have made for a miserable 2011 and many refiners are either losing money or are barely profitable, and this is before they start paying for carbon emissions.

Unquote.

This is at the large scale end.  Down at local level there is the small scale, notably the filling stations owned by small businesses in less populated areas.  One good example of a closure last Autumn is this one in Scotland.

http://www.ellontimes.co.uk/community/local-businesses/ellon-garage-set-to-close-1-1905242

Ellon is in Aberdeenshire, just north of Aberdeen, the home town of the Scottish oil industry.  At present Scotland’s future is being predicated as a form of independence that will be funded by the oil industry and related financial operations.

This might not be as easy as the politicians suggest.  Moreover, for the Unionist’s there is another problem in that the Scottish oil industry in the not too distant future may turn out to be less of an asset and more of a liability.

If indeed the oil industry and the pricing of its products and management do go chaotic then nobody can know what can happen or where or what the effects may be.

It is said that there are now 50,000 Russians in Cyprus.  How did that happen?

The Debts Are Due

We are told that in the USA around half those recently graduated are either not in employment or engaged in work that does not require graduate status.  I know the feeling; at one time I was the highest qualified parcels porter on British Railways. But at least I was clear of debt.  


In those days credit was not available to the likes of me or my kind.  Unluckily, in the USA today it seems that the total student debt is running at $1 trillion or thereabouts. Quite what it is in the UK is less certain.  


However, the jobs market is not good at present for many graduates and there are few who do not have debt of some kind.  Apparently, there are many whose future in the next decade or two will be compromised by debt incurred as students. 


Allied to that are the reports that many UK household are one nasty or unexpected big bill away from trouble and the overall levels of purely personal debt are said to be a liability to increasing consumption or “investment” in motor cars or the latest gizmo’s to hit the market. 


It is not too difficult to see what may be happening and that is a sea change in the whole jobs market, the kind of jobs to be done and who are available for it.  Sadly, few of us do see this or accept that the world has turned upside down.
 Then there is government debt, much discussed and rising.  


Then there are the stratospheric levels of international debt and other states in difficulty.  Then there is all the banking and financial debt, much disguised.  To finish then there is all the corporate debt, the immensity of whose figures has yet to be revealed. 


In their widely read book “1066 And All That” Sellar and Yeatman stated categorically that “The National Debt is a very Good Thing and it would be dangerous to pay it off for fear of Political Economy”.  They were joking and the laughing soon stopped. 


Shakespeare in “The Tempest”, written around 1611 when the scale of the spending in London by King James VI of Scotland and I of England was becoming apparent has his own guarded comment.

James was fond of masques and theatrical entertainments based on fantasy and borrowed money.


 Quote: 


Our revels now are ended. These our actors,
As I foretold you, were all spirits and
Are melted into air, into thin air:
And, like the baseless fabric of this vision,
The cloud-capp'd towers, the gorgeous palaces,
The solemn temples, the great globe itself,
Yea, all which it inherit, shall dissolve
And, like this insubstantial pageant faded,
Leave not a rack behind. We are such stuff
As dreams are made on, and our little life
Is rounded with a sleep.

 Unquote.

Pictured above is The Debtors Prison by Hogarth from “The Rakes Progress”.  He knew Oliver Goldsmith, who knew the Marsh family, who were from the Cotswolds and married to the Aylesbury family who were married to the Somervilles who were Shakespeare’s best friends in Stratford. Like debt, all things are connected.  


Sleep well.

Illusions And Delusions Of Grandeur

On Wednesday 6 June, this blog in “The Government Is To Grow Turkeys” mentioned the idea of “Growth Bonds” being a kind of latter day “War Bonds” of unhappy memory.  It has taken nearly a fortnight, but today one of the Red Gobblers of the Left, Polly Toynbee has declared her support for the notion.

At the same time a division of opinion has arisen between our David Cameron, the Wayne Rooney of politics and President Francois Hollande, the Eric Cantona of the French.  It is that Dave suggests that increased taxes on the rich will have them fleeing to London for shelter, perhaps emulating the Huguenots’ of the past.

Francois demurs as the French do and claims that true patriots amongst the rich will pay up, perhaps crying “Aux Armes, Citoyens” on their way to the tax office.  Alas, for both of them, all the French rich that could move their wealth have long gone, perhaps crying “Marchons, marchons” as they did so.

A quick look at a map of Europe might suggest why.  Monaco is an enclave of France, not too far along the road from St, Tropez, Cannes or Nice and you can meet a good class of Russian there these days, albeit some of them have British hangers-on from Westminster on their yachts from time to time.

To the north is Luxembourg, recently featured because of its lovely tax wheeze for UK corporations in need of mega bonuses.  To the east is a larger place called Switzerland and to the south a smaller one, Andorra. 

These places are not stand alone entities.  They are part of a complicated network of other locations offering substantial tax advantages.  One key part of this is the City of London.  So much of the off shore French money may well be going through London in any case as it flits from one computer to another.

But Cameron is not thinking of this kind of investment.  To nobody’s surprise he is talking about the London property market.  As the UK does not have a property tax as such this is one advantage. 

Others are the ability to evade Stamp Duty, the paying of Council Tax, in any case loaded in favour of high value properties or indeed the need for the registration in the UK to divulge the real owner.  Add to that the real matter of which Probate Law and inheritance issues might apply the UK has great advantages.

In this context what Polly is proposing is fully in support of all this.  Basically, Growth Bonds will enable the Government to extract loans at one rate of interest to allow Quantitative Easing to banks at a lower one, who will buy up many of the bonds, thereby instantly reducing their liabilities, with the taxpayer as security.

Along with this will the encouragement of lending for “Growth”.  The major field for this will be housing and other sectors of the property market, which is where we came in.  The chattering classes as a whole are heavily committed to property. 

If Polly were to reveal her holdings of wealth we could then judge if she is one of them.  There is no more chance of that than finding out where David’s money is.  As for Francois it is claimed that he owns some flats on the Cote d’Azur but that story was quickly buried.

There is one major snag to all this.  Polly has said that Europe is awash with wealth that can be used as the backing for such bonds.  But that “wealth” is denominated in money terms. 

Indeed, much of it is invented, or fiat money and beyond that a host of financial instruments based on that illusionary money constitutes a huge theoretical “wealth”. that is supported by only a small proportion of identifiable holdings.

Everything else, property, savings, investments, goods, services and everything relates to its money value.  If the money values collapse, one way or another, then the “invented” wealth simply evaporates and what might be real wealth is sharply reduced both in money and real value.

This might be about to happen.  In the meantime at the G20 meeting in Mexico, one of the most corrupt and criminal states on the planet, Europe is blaming America for the problems.  As America is already blaming Europe it is understandable.  That not only both are to blame but a lot of others as well they are all wasting their breath.

“The charter of thy worth gives thee releasing;

My bonds in thee are all determinate.

For how do I hold thee but by thy granting?”

Shakespeare had property in Stratford upon Avon, some of it burned down later following a major fire that swept through the town.

I've Got A Gal In Kalamazoo

Tottering through town, stepping gently around the holes dug by essential services through all the expensive newly laid granite blocks in the costly revamp of the roads and pedestrian areas, it was impossible to avoid the windows of the estate agents.

The prices of properties are now one hundred times, roughly, what they were when I first looked in agents windows seeking a first home on what at the time was around average salary.  Do not mention the word “inflation” if you want a polite conversation.

As well as the amazement at the fortunes asked for some decidedly iffy homes there were investment opportunities.  Some were in the USA quoting a guaranteed rate of return of around 14% for the lucky buyer. 

Guaranteed, that is, depending on the rental being paid, relative pricing being secure, what might happen with local property taxes and above all, the comparative rates of inflation in the USA and the UK as well as the exchange value of the pound against the dollar.

The properties are located in the State of Michigan in the USA.  This is in the North and has the advantages of easy escape to Canada if necessary and should Prohibition be reintroduced unlimited scope for profitable enterprise.  In a decade you could become a second Joe Kennedy.

They were substantially built colonial styles houses, detached, with three bedrooms and a garage and decent sized gardens.  They looked to be the kind of very decent ordinary family homes that much of Middle America might aspire to.

Yet they were priced at £30,000 each.  Looking at comparative UK properties on sale through the same agent, depending on location and condition, you would expect to be paying £240,000 to £300,000.  That is eight to ten times more.  Also, mortgages were available.

Avoiding a long analysis of incomes, conditions, the problems in the mortgage sector of the USA and a lot of other complex economic issues, all well discussed around the web, clearly there is something very badly wrong going on here.

How come the houses in Michigan cost so little that in the UK they are on sale at give away prices?  How come the cash prices in the UK are now so much that a middle income family may need six or seven times income to buy the British equivalent?  Fifty years ago they were more or less on a par at two to three times incomes.

So if you do not believe that economies and finances are now out of joint around the world this is a practical demonstration that they are and the implication is that one way or another there has to be another major reordering of the world economy soon.

So while the USA goes through a messy election campaign as the roof falls in, in the UK market the financial authorities are pushing as much money into the property market as possible with the added inputs of hot money from Europe and elsewhere.  Something has to break.

The picture above is of President Obama giving a speech at Kalamazoo Central High School, I could not resist the yawn. 

If you want entertainment go to the Youtube 7.43 clip of the Glenn Miller band doing the “I’ve Got A Gal In Kalamazoo” routine from the 1942 film “Orchestra Wives” which features an astonishing dance routine by the Nicholas Brothers.

Back then, most of us in the USA and the UK were renting with ownership just a dream.  Now most of us are dreaming again.

Trooping The Culandar

Needing a cup of tea and to check the news on text I realised that Trooping The Colour was on TV and thought to watch. 

Luckily, it was not long before  the marches “The Garryowen” followed by “Hieland Laddie” came up.  Later there was “Blaydon Races”, so that’s Newcastle United relegated next season

How many people spotted “Prussian Glory”, featured on this blog a while back referring the King Frederick The Great of Prussia?  Was this a secret message declaring to Angel Merkel von Mecklenburg support for her version of the Euro project?

It has been announced that the Army will be reduced to a target total of 82,000 troops together with other Defence “management” arrangements.  If this is correct then the Diamond Jubilee parade signals the end of the UK Army as an effective striking or defence force in any long term context.

An Army consists of those who are either in action or immediately available, equipped and organised to be deployed.  Then there are the units who have been in action or are being stood down for remanning, retraining and equipping.  If the Army has been seeing real action this latter group will be larger.

Before all that there are those who are in training and preparation for future deployment.  Today, this takes a lot longer than in the past because of the highly technical nature of much of the Army’s work and the complexity of the systems in use. 

Another group will be those doing and managing the training and equipping and beyond that yet another group doing a number of other tasks essential to the functioning of the whole.

Quite how many should be in each category is difficult to calculate and there is often a fine and variable balance.  Managing this successfully is a real challenge and accounts for the long chains of command and extensive needs. 

Additionally, an Army cannot be maintained on a “just in time” basis, so spare capacity is necessary at each level to cope with the potential and actual challenges.

So at the 82,000 level predicated by the Government the actual size of the active element will be only a small part of the whole.  During World War 2 it was common to suggest that for every seven men only one would be at the front.

Even allowing for out sourcing and some handing over of duties to civilians it means perhaps only ten to fifteen thousand active front line troops at any stage. 

This is not enough to defend the UK, especially if any are engaged in overseas missions of one kind or another.  Additionally, it means that in any venture abroad even relatively small numbers used will constitute a major commitment.

All this refers to outside action and commitments.  We forget history and that the Army once had a major internal commitment to maintain order in support of local police and volunteers.  We are assuming that there is not likely to be any problem when it is becoming clear in some districts that the armed gangs are taking over.

There are signs that this is not the case and in many areas police cover is not and cannot be enough to do the job if it really does get bad.  Some are calling for “armed police”, but these effectively are just an Army by another name.

Politically, however it is very difficult to either arm the police or admit that the situation in some districts may become so bad that force may be necessary to restore law and order.  I will not say protect property because the government has already given up on that objective.

A culandar is a word for a kitchen item that is essential for straining certain kinds of food and is more substantial than what is called a strainer.  The UK Army will soon become a useful but small and limited item in our system of government, with a limited function and unable to do the big jobs.

The picture above is “The Retreat To Corunna” which occurred in late 1808 and early 1809, the number of soldiers you see would now be a high proportion of the active numbers envisaged by the present government.

In the case of Corunna however, the British were soon back in Portugal and Spain with a much larger force under Arthur Wellesley, later Duke of Wellington.  In the 21^st Century as things stand the British will not return  anywhere.

Even in their own back yard.