Here I try and report on the economic questions after already having
looked at the political repercussions
The consensus amongst the punditry is that Gordon Brown is - er - on
the wrong track!
And a personal report from the West Midlands reaches me. It says ---
"My accountant has just left here, he told me he is worried, more
and more off his cliants are in trouble,The banks are after them, no
one is being paid and work and orders are disappeering. { he may
have to lower his bills]
These are last weeks livestock prices, beef cattle down to 90p from
115p there is a growing shortage of bacon pigs, the contract price is
136p the spot price is now under 130p, the auction price of lambs has
collapsed because the main exporter has gone bust and no one will
insure lamb
exports. Lambs have dropped from around £60-£70 as low as £17 in
Chelford auction last week.
Fertilizer is still over £400 a ton up from £135 early last year, one
of the reasons for this is most of it comes from Russia. By the way
Wheat is now £85 a ton down from £180 a ton.
A prediction, there will be an emergency budget, the clowns are
running out of money and they will not be able to borrow what they
need, I read that the IMF may have to start printing money."
XXXXXXXXXXXXX CS
===========================
TELEGRAPH 28.10.08
1. An economy pumped up on steroids of debt hardly needs another dose
Who was it who said you can't spend your way out of recession? James
Callaghan, of course, at the 1976 Labour conference when he told us
"in all candour" that this was no longer an option.
By Damian Reece
Now the inheritor of Labour's inbuilt incompetence is advocating just
that. A big difference with 32 years ago, however, is that inflation,
as far as we can tell, is heading downwards from its 5.2pc peak.
Deflation is now more of a threat than inflation as the world's debt
burden pulls asset prices and wealth down in a great deleveraging
spiral. Deflation and recession spells depression. Gordon Brown's
right in wanting to stimulate the economy but he wants to solve a
debt inspired problem by borrowing even more in a consolidation
strategy that should appeal only to the dumbest daytime TV addict. An
economy already grotesquely pumped up on the steroids of debt,
including a misshapen and overdeveloped public sector, hardly needs
injecting with even more of the stuff.
We should not pretend that the mess we're in was caused by anything
other than excess – excessive spending by the Government and
consumers fuelled by excessive lending by banks and their shadows in
the money markets. The time has come to pay for that, however
painful, but Brown's borrowing plans will merely delay the inevitable
. What's good for short term politics is bad for long term economics.
Time and again wasting money through public sector spending has been
preferred to growing the wealth-creating private sector, where the
existence of profit generally means that increasing efficiency and
reducing waste are more highly valued. In his speech to business
leaders yesterday, Brown said he wanted to "help restore demand and
to come to the aid of workers, businesses and homeowners." Fine, so
why not repeal the ludicrous increase in capital gains tax that small
businesses were subjected to back in March? Brown can also assume
that the Monetary Policy Committee will continue cutting interest
rates aggressively, further stimulating activity.
Why should boosting the economy automatically mean the government
borrowing more to spend more? Boosting the economy should mean taking
this crisis and using it as a rare opportunity. By cutting taxes in
specific areas that are a priority for investment, such as the
nuclear and other non-oil energy industries, infrastructure projects
and technology-based industries, the government would be reflating
and reshaping the economy at the same time. The private sector will
create jobs, given the right conditions, and they will be lasting
jobs in desirable industries rather than non-jobs pursuing the
business of bureaucracy that will inevitably result from public
spending.
Tax cuts need not be limited to business. Consumers should also
benefit from tax cuts which would deliver more immediate benefits to
the economy but both would deliver more jobs. Higher employment will
be needed not just to take up the slack in the flagging private
sector, but just as importantly provide opportunities for workers in
a public sector that has to shrink. And that is the final
opportunity, which I expect will be missed, of reflating and
reshaping the economy – redrawing the boundaries of government and
regulation so they are smaller, more efficient but ultimately more
effective..
=====================
2. (Leader) Don't borrow: cut spending and taxes
The strategy being pursued by Gordon Brown and Alistair Darling as
the economy slides into recession has the audacity of desperation.
They aim to depict the profligacy of Mr Brown's 10-year stewardship
of the economy as a virtue. The then Chancellor used the boom years
to spend, not save, leaving the British economy ill-prepared for the
downturn. The Brown/Darling response? High borrowing is just the
ticket in a recession. It is the life-raft that will "get us
through". "The responsible course," the Prime Minister said
yesterday, "is to borrow now to maintain growth and output."
Such a stance would be just about defensible if the public finances
were sound in the first place. They are not. In the first half of
this year, the Government borrowed £37.6 billion. By the year's end,
that figure will have doubled; some fear it may even treble. To
depict this level of indebtedness - the highest since the Second
World War - as a conscious act of policy is, even from a party
addicted to spin, brazen.
The shadow chief secretary, Philip Hammond, nailed it most
effectively: "Increasing borrowing is not a strategy for dealing with
the recession; it's a consequence of the recession." He also
upbraided the Prime Minister for his assertion that this debt would
be repaid when the economy recovers, rightly pointing out that Mr
Brown "didn't pay back during the good times we've just had". There
is also a worrying vagueness about how this borrowed money is to be
spent. Mr Darling has talked about "bringing forward" big
infrastructure projects. But this country's glacial planning process
means big construction projects can't simply be whistled up. The lead
time is measured in years, not months. We will be out of the
recession before a brick is laid in any of Mr Darling's putative
"grand projects".
There is a deeper danger in this distinctly dated Keynesian response.
As a group of distinguished economists noted at the weekend, ramping
up the public sector could put the state in such a "dominant
position" that it would "stunt the private sector's recovery once the
recession ends". The Government's fixation with public spending has
ensured the recession in this country is likely to be deeper and
longer than elsewhere; to suggest it is the silver bullet that will
resolve the crisis stretches credulity. The solution proposed by the
economists - cutting spending and taxes to boost consumer confidence,
while bringing down interest rates aggressively - appears to have
been rejected by Messrs Brown and Darling. Yet America pulled those
self-same levers more than a year ago and, as a result, is set to
suffer a less painful downturn than this country. That is a lesson we
should not ignore.
=====================
BBC ONLINE 28.10.08
Repossession total 'is up by 71%'
This is only the second time this form of data has been released
The number of people losing their homes after failing to meet their
mortgage repayments climbed sharply, says the UK's financial watchdog.
The number of repossessions in the second quarter of the year was up
71% compared with the same period a year earlier, at 11,054.
The Financial Services Authority said the number of consumers
struggling to clear their home loan arrears was up.
This comes after the Bank of England predicted more woe for homeowners.
Rising concern
The number of repossessions has been rising since September last
year, the FSA said.
The number of people who have fallen behind with their mortgage
repayments for at least three months has been rising steadily for
more than a year, the watchdog added. Cases were up 16% on a year ago.
Not all of these will lead to repossessions, and homeowners are urged
to contact their lender as soon as they find themselves struggling to
make repayments.
The Council of Mortgage Lenders has estimated that 45,000 homes in
the UK will be repossessed in 2008, up from 27,100 last year.
This is the second time the FSA has released figures of this kind,
which are based on data from 300 regulated mortgage lenders and
administrators.
=====================
TELEGRAPH 28.10.08
IMF may need to "print money" as crisis spreads
The International Monetary Fund may soon lack the money to bail out
an ever growing list of countries crumbling across Eastern Europe,
Latin America, Africa, and parts of Asia, raising concerns that it
will have to tap taxpayers in Western countries for a capital
infusion or resort to the nuclear option of printing its own money.
By Ambrose Evans-Pritchard
The Fund is already close to committing a quarter of its $200bn
(£130bn) reserve chest, with a loans to Iceland ($2bn), Ukraine
($16.5bn), and talks underway with Pakistan ($14.5bn), Hungary
($10bn), as well as Belarus and Serbia.
Neil Schering, emerging market strategist at Capital Economics, said
the IMF's work in the great arc of countries from the Baltic states
to Turkey is only just beginning.
"When you tot up the countries across the region with external
funding needs, you get to $500bn or $600bn very quickly, and that
blows the IMF out of the water. The Fund may soon have to start
calling on the West for additional funds," he said.
Brad Setser, an expert on capital flows at the Council for Foreign
Relations, said Russia, Mexico, Brazil and India have together spent
$75bn of their reserves defending their currencies this month, and
South Korea is grappling with a serious banking crisis.
"Right now the IMF is too small to meet the foreign currency
liquidity needs of the larger emerging economies. We're in a
dangerous situation and there is the risk of extreme moves in the
markets, as we have seen with the Brazilian real. I hope policy-
makers understand how serious this is," he said.
The IMF, led by Dominique Strauss-Kahn, has the power to raise money
on the capital markets by issuing `AAA' bonds under its own name. It
has never resorted to this option, preferring to tap members states
for deposits.
The nuclear option is to print money by issuing Special Drawing
Rights, in effect acting as if it were the world's central bank. This
was done briefly after the fall of the Soviet Union but has never
been used as systematic tool of policy to head off a global financial
crisis.
"The IMF can in theory create liquidity like a central bank," said an
informed source. "There are a lot of ideas kicking around."
For now, Eastern Europe is the epicentre of the crisis. Lars
Christensen, a strategist at Danske Bank, said the lighting speed and
size of Ukraine's bail-out suggest the IMF is worried about the geo-
strategic risk in the Black Sea region, as well as the imminent risk
a financial pandemic. "The IMF clearly fears a domino effect in
Eastern Europe where a collapse in one country automatically leads to
a collapse in another," he said.
Mr Christensen said investor sentiment towards the region has reached
the point of revulsion. The Budapest bourse plunged 10pc yesterday
despite the proximity of an IMF deal Meanwhile, Standard & Poor's
issued a blitz of fresh warnings, downgrading Romania's debt to junk
status, and axing the ratings Poland, Latvia, Lithuania, and Croatia.
The agency said Romania was "vulnerable to a sudden-stop scenario
where capital inflows dry up or even reverese", leaving the country
unable to cover a current account deficit of 14pc of GDP.
Romania's central bank has taken drastic steps to defend the leu,
squeezing liquidity so violently that overnight rates shot up to
900pc. But there are growing doubts whether this sort of shock
therapy can obscure the fact that economic booms are now turning to
bust across the region.
Merrill Lynch has advised to clients to take "short" positions
against the leu. "The fundamental picture suggests that Romania may
face a currency crisis in the near term, similar to what Hungary has
gone through over the last week," it said. The bank also warned that
Turkey and the Philippines are vulnerable.
Hungary was forced to raise interest rates last week by 3 percentage
points to 11.5pc to defend its currency peg in Europe's Exchange Rate
Mechanism. Even Denmark has had to tighten by a half point, raising
fears that every country on the fringes of the eurozone will have
resort to a deflationary squeeze.
The root problem is that Eastern Europe and Russia have together
borrowed $1,600bn from foreign banks in euros and dollars to fund
their catch-up growth spurt over the last five years, according to
data from the Bank for International Settlements. These loans are now
coming due at an alarming pace. Even rock-solid companies are having
trouble rolling over debts.
Mr Schering said Turkey was likely to join the queue for bail-outs
very soon. "Their external liabilities have reached $186bn, and a lot
of this is short-term debt that has to be rolled over in coming
months," he said.
Turkey's prime minister Recep Tayyip Erdogan said over the weekend
that his country would not "darken its future by bowing to the wishes
of the IMF", but it is unclear how long Ankara can maintain its
defiant stand as capital flight drains reserves.
Pakistan - now facing imminent bankruptcy - has also raised political
hackles, balking at IMF demands for deep cuts in military spending as
a condition for a standby loan. Diplomats say it is unlikely that the
West will let the nuclear-armed Islamic state slip into chaos
=====================
NEWS and comment IN BRIEF 28.10.08
==Telegraph -“Petrol may dip under 90p a litre”
The paper in reporting that oil prices have fallen under $60/barrell
expects petrol prices to fall even further. What it nowhere mentions
in its article is that the present petrol price is based upon a $100/
barrel price and the pound being worth about $1.90. (this would equal
a barrel price of £ 52.63) . But the pound has fallen to around
$1.53 sdo that that the oil price today in sterking terms has not
fallen as much as in dollar terms and is therefore around £ 40/
barrel. So don’t expect too much in terms of petrol price cuts. They
will be modest.
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