Britannia Radio

The general tone of Halligan's report on Mervyn King seems right but 
I merely wonder why it took him so long to find his voice, or has he 
read the polls and wondered why he should go easy on Brown any longer!

He then turns to the complete collapse of President Obama's economic 
policies and the extraordinary appearance of the president on a late 
night comedy show!    Obama was the victory of demagoguery over 
serious politics.

And finally some economic headlines to ponder on.

XXXXXXXXXX CS
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SUNDAY TELEGRAPH 22.3.09
1. Bank of England's Mervyn King remains regal in the face of Gordon 
Brown's failures
Having observed Mervyn King for more than a decade, I see a man of 
ability and courage.

By Liam Halligan

The Bank of England Governor has been widely criticised during this 
credit crunch. But he's at the mercy of this Government's ruthless 
propaganda machine.

Brown and Co are well-versed in the black arts of blame deflection 
and anonymous briefings to pliable hacks. King, in contrast, is 
hamstrung by his acute understanding that splits between the Bank and 
ministers deeply damage what remains of the UK's policy-making 
credibility.

The Bank Governor is no political innocent. I'm sure he's aware 
Brown's henchmen spin against him. But it strikes me he's simply not 
prepared to make this country's ghastly situation even worse by 
dishing dirt on someone he's supposed to be working with in a tawdry 
attempt to save his own skin. In that regard, King and our Prime 
Minister couldn't be more different.

I mention all this because on Tuesday, King gave a speech in the City 
which, while woefully under-reported [but not under-reported by me! -
cs] , was the most compelling account I've heard from any senior 
policy-maker of how we got into, and get out of, this mess. These 
words were a blast of wisdom and desperately-needed truth.

When it comes to the cause of this crisis, King pulled no punches. 
Our investment banks, he insisted, were guilty of "increasing 
leverage and taking more risk while finding ways of making the degree 
of risk less transparent". In other words, the global credit crunch 
was sparked by the hubris, imprudence and dishonesty of some of the 
most prestigious Wall Street and City institutions - the ones we're 
now bailing-out. [But they were cheered on by Gordon Brown who hailed 
their achievements, not least in producing buoyant tax revenues for 
him -cs]

King harked back to an age when commercial banks were run more 
prudently too. "Forty years ago, the London clearing banks held 
around 30pc of their assets in short-term liquid instruments," he 
told us. "Today that ratio is only 1pc".

The Governor nodded to the "global imbalances" that germinated this 
crisis - namely huge Western deficits that sucked in capital, keeping 
market interest rates very low, so encouraging ever-more risky 
activity as investors "searched for yield".

But he focused on what he knows best - central banking and financial 
regulation. "When this crisis began," King reflected, "the most 
striking feature of our system was the absence of any effective 
regulation of liquidity". Calling for "simple and robust impediments 
to excessive risk-taking", he argued for a return to "counter-
cyclical capital requirements" - a policy this column has punted for 
years.

By reining in banks' ability to create credit at the top of the cycle 
and boosting it in tougher times, such measures are, in King's words, 
"the right response" - acting as useful supplement to the blunt 
instrument of bank rate changes.

For many years, desperate to prolong the UK's debt-fuelled feel-good 
factor, Brown limited the Bank of England's ability to rein-in 
credit. Most economists were reluctant to argue against a then all-
powerful Chancellor. But King has now broken this taboo - and 
deserves to be firmly backed.

Mindful of the financial and political vested interests he's up 
against, the Governor observed that earlier calls for a "counter-
cyclical tool kit", would have been seen to impose "constraints on 
the growth and profitability of bank balance sheets, a tax on the 
success of investment banking and the City of London more generally".

But despite that, King ploughed on, putting the cat among the pigeons 
but daring to make the completely obvious suggestion that investment 
and commercial banking should now be separated by law. Another hobby-
horse of this column [me too ! -cs] , such a firewall would divide 
the "utility" and "casino" aspects of banking, so preventing 
leveraged risk-taking from being backed by state guarantees - with 
all the dangers that entails.


"Should there be a Glass-Steagall-type provision to prevent retail 
deposits from being used to fund investment banking activities?" King 
publicly asked, referring to the Depression-era legislation. The 
money men on both sides of the Atlantic don't want it, having "swept 
away" such measures in the 1980s and 1990s.  [But we need it back 
desperately now -cs]

The Treasury now refers to those calling for a return to Glass-
Steagall as "hot-heads". So former Fed Governor Paul Volcker is a hot-
head. Nigel Lawson is a hot-head. Vince Cable is a hot-head. And now 
King is a hot-head. I'm proud to be counted among them.

On fiscal policy, King challenged our politicians to come up with "a 
credible plan for the consolidation of future deficits and debts". 
And getting bank lending going again "will require", King insisted, 
"a forensic audit", so that "uncertainty about the values of some of 
the more opaque assets on bank balance sheets is dispelled".

So, there you have it. It's not just me. The Governor of the Bank of 
England wants "full disclosure" too. When on earth are other so-
called policy-experts going to back him, face down our banks, and get 
this economy moving?
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2. From now on, think of the US as a bigger Zimbabwe
"I've been condemned by traditional economists who say printing money 
drives inflation," observed Gideon Gono last month. "But once the IMF 
advised America to print money, I decided God was on my side and had 
come to vindicate me."

By Liam Halligan

For readers who may not know, Mr Gono is governor of the Central Bank 
of Zimbabwe. He'll be feeling particularly pious this weekend - as 
the mighty US has, indeed, just started printing money. We're 
supposed to call it "quantitative easing", I know. But if Mr Gono can 
tell it as it is, why can't we?

On Wednesday, the Federal Reserve finally pressed the panic button - 
unveiling plans to buy $300bn (£210bn) of treasury bills. The US 
government will also purchase an extra $750bn of dodgy sub-prime 
securities from investors stupid enough to own them (on top of $500bn 
already pledged).

The Fed's move sparked a 50 basis point drop in US 10-year government 
yields, while the dollar lost 3pc - its biggest one-day fall in more 
than two decades. This is monetary "shock and awe". Before last 
September's collapse of Lehman Brothers, America's monetary base 
amounted to 6pc of GDP. Wednesday's plan will swell that figure to 30pc.

Such unprecedented policies are needed, we are told, to "fight 
deflation". As regular readers know, I think deflation is largely a 
myth - an alibi for wildly expansionary fiscal and monetary policy 
concocted by Western governments and their media lackeys.

After all, where is deflation? Data released last week put annual US 
core inflation at no less than 4pc. So why is the Fed doing this, 
following the Bank of England's lead? Because the real solution - 
forcing banks to face the music, while rescheduling massive private 
and public debts - is too politically frightening for our so-called 
leaders to contemplate.

A decision has been made, but not announced: we'll inflate away our 
debts instead - another policy Mr Gono knows well. That's why gold, 
the ultimate inflation hedge, surged in response to the Fed's 
announcement.

Amidst this policy maelstrom, Barack Obama resorted to the comfort of 
Jay Leno's sofa last week. For a US President to appear on the well-
known comedian's TV chat-show, at a time like this, shows the White 
House is now desperate.

America's economy is on a knife-edge, policy-making is out of 
control, and most posts in the Obama treasury team remain unfilled. 
Perhaps the President could sign up Mr Gono and Mr Leno? Could they 
really do any worse?
==================
ECONOMIC  'Shorts'   10.3.09

SUNDAY TIMES
=Lawyers use NHS as £100m cash cow
LAWYERS are earning £800 an hour from the National Health Service and 
taking "indefensible" fees of tens of millions of pounds in legal 
disputes. The money is coming from a government scheme intended to 
compensate patients for medical blunders and inadequate care, an 
investigation has found.
=Democrat anger at Obama overkill
Concern is mounting at the president's tactics   The AIG saga has 
prompted some senior Democrats to distance themselves from Obama
=Energy firms demand £2bn to save wind farms
Rocketing costs opened up a funding gap of about £2 billion for nine 
projects that have planning consent but haven't been built.  [They 
are completely uneconomic and hopefully will not BE built -cs]

SUNDAY TELEGRAPH
=UK to remain in deflation trap until 2012, economists warn
Britain will be mired in a deflation trap for years despite the 
radical efforts of the Bank of England to pump extra cash into the 
economy, economists have warned.
The forecast, by a team at BNP Paribas, states that prices in Britain 
will keep falling for at least another two-and-a-half years, as 
Britain suffers an apparently intractable bout of debt deflation.
=US rescue 'not enough'
US poised within days to unveil a new trillion-dollar plan aimed at 
restoring crippled banking system.
=Barclays' problems grow
Amid allegations over tax-avoidance schemes, the bank focuses on 
trying to avoid nationalisation

FINANCIAL TIMES
=Enjoy the FTSE's rally while it lasts
Few are willing to bet that the London market has bottomed out or are 
confident the gains will hold

OBSERVER
=G20 warned unrest will sweep globe as recession hits poorest
Fears that downturn will drive millions back below the poverty line 
unless major powers provide aid
=Protectionism row flares as Renault 'repatriates' production

EU competition commissioner Neelie Kroes condemns move by French car 
giant to 'repatriate' Clio production to France from Slovenia