Declining...

I was delighted to hear on the radio this morning some twit telling us all we should be jolly grateful that we lived in the fifth biggest economy in the world and it was unacceptable ( God I hate that word) that we still had child poverty. Of course, this is largely a matter of definition ( I believe it's if you have 40% of the average earnings you are described as being in poverty) - but it remains true that we have an underclass who will never escape. It's also bollocks, because we are actually 9th or even 10th now.
However, what exercised my mind was that before the 1997 election one G.Brown gave a speech, in which he said ( and I quote) " It is unacceptable that in the World's FOURTH largest economy that there should still be child poverty in the 20th Century."
So there you have it.
Kinnock may have talked of thirteen years of Tory misrule, but 13 years of Labour misrule has managed far worse...

Going to get better?

I know my reader is not keen on any political stuff here, but there is suddenly a different feeling running through the country.
I have no idea when it started, but there is beginning to be a "fizz" of expectation and hope which has been sadly lacking for a long time.
I agree it may just be the hopes for a New Year - but there was no such feeling this time last year.
I'm not even sure it is the prospect of a Tory Government - it may simply be the near certainty of Gordon Brown NOT being around.
But a buzz and an excitement there is, and it is starting to make a difference to people's planning and forward thinking.
It may be that the recession has finally run it's course, and the next quarter will at worst be flat or perhaps marginally ahead.
Or it may be the growing expectation, fostered by all the interested parties, that house prices will be higher in 2012 than they are now ( not too difficult in my view, even if there is a further dip)
Or it may simply be that people can only last so long feeling fed up and depressed and eventually they will break out and make themselves a new life.
I had an interesting conversation over the Festive Season with a man whose son has been swithering between two women - one he is living with and one who he lives with intermittently. Both sides appeared to know all about the other.
Some sort of final decision seems to have been reached and he is now much happier - but it's taken him more than a year to get there, and lots of unhappiness as far as he is concerned.
But hey - that's life. Bad things happen to good people - and vice versa.

Going Down

I'm trying to keep off the economic stuff as it is too depressing, but all the present indicators point to not a "V" shaped recession, a "W" shaped recession or an "L" shaped recession, but an "L" followed by another "L".
We are presently on the plateau between the two "L"s, which is why people are talking about stability and the like, and it's true, things have levelled off.
But I fear the next step will be heading down again. This is pretty much what happened in the US, and they are about a year ahead of us. There, they are now talking of a real plateau from which economic activity can grow. Their economy, of course, is infinitely more flexible than ours, which is why I am not holding my breath for things to get better. The real bank squeeze is just beginning, and it is a certainty that interest rates will have to start climbing soon - long before any real upturn takes place.
I remain convinced things will fall further until at least the spring of next year before we encounter the real plateau.

Don't hold your breath...

I'm glad someone has finally said it isn't as good as you think. Perhaps around the bars in Westminster things are looking better as the Summer Season gets going, but here in the real world things are anything BUT rosey. I can't get the graphs to come across, but if you have a look at the article, they are all there to be seen.
In essence, things are just as bad, if not worse, than in 1929. The only difference is the interest rate regime and the monetary response ( although one of the graphs worryingly points out that monetary growth continued for some considerable time after 1929)
More importantly, what's happening on the ground?
We landlords are always the first to feel the pinch and last to come out of recession. If you are a manufacturer, you give what little money you have to your suppliers - landlords come last. A landlord will always do a deal to keep you in the property as otherwise he has to pay the rates and the upkeep, so even NO rent is better than NO tenant.
A stark example is one of our tenants who until November was talking of taking extra space. Admittedly his business relies on entertainment, both corporate and private, but his business has literally died. He's fired everyone apart from one YT, and is back where he started 5 years ago -but in worse shape as the bank won't even give him the overdraft it gave him then.
Another is finding that every time he makes a sale, when he delivers, the client wants "£150 off" or some such figure, and his margins are already squeezed to nothing to get the sale. And then arbitrarily an extra 30 days credit is being taken, not least by government departments.
So it ain't over yet by any means.
I stick to my forecast of some time ago that things will continue to get worse until some time around Easter 2010 - and we'll then have 18 months or so of levelling off, before ANY talk of green shoots is appropriate.

Holding steady?

Interesting chat with the lady teller in the bank yesterday. I asked how things were going and she said she thought people were feeling they could cope.
The thinking was that if it didn't get any worse, then they had got through several months without the sky falling in, and so might get through with little or no further damage.
She said there was " cautious optimism" that things would "hold".
I'm not so sure. Is this the eye of the storm? The second half will hit later in the year, do you think?
The Mayor says things are going really well.
But then, they couldn't have been much worse there.....

Mad or what?

There has been a property forum happening in Edinburgh which, amongst other things, has opined that commercial property has declined in value by 40% in the past year . Then they say it represents a minus 12% return. Actually, compared to the markets that's quite good, but these two figures are incompatible.
Prime property was yielding about 5%. If it has delivered minus 12% then it has fallen 17%, not 40%.
I suspect, however, that the pundits are referring to the yield having fallen 40%. In the perverse and arcane way that property is valued this means e.g. a 5% yield is now a 7% yield - which actually looks quite tempting.
As my ex-banker advisor says anything yielding above 6% is a steal at the moment. The risk, of course, is of tenants going bust. In that regard, we've had one that is going to leave us. Not exactly gone bust, but as good as. He had a small overdraft of £10,000, pretty much unsecured on his business. It came up for renewal at the end of January, and he somewhat cavalierly rang to say he assumed he could rely on the bank's support for another year.
Not a bit of it. Despite banking with them for over 30 years, and therefore they had all his business transactions for that period, they asked him for a business plan and cash flow. He expressed incredulity, especially as he only ever used a small part of the overdraft and had never over-overdrawn.
Not only did they require the aforementioned, they also needed security, and a £1000 fee, and 7% over base.
Now the latter is hardly relevant, but the fee, as I've said before, means they would be earning a very tasty 18% on their money, if he drew it all down. As he might only draw say £2000, it means the bank would be earning 58% - or much more if he was only overdrawn say half the time. That would be 108%.
The banks "investment/own account" earnings are all gone and are seriously minus. They are going to make that up from people like our tenant.
To cut a long story short, he decided to give up, and I don't blame him.
But I digress.
According to the pundits, in the last wee while RBS and HBOS have accounted for 75% of all property funding in Scotland - and 50% across the whole of the UK.
With that gone, is it any wonder the market's knackered?
PS
A sign of the times. Nationwide will impose charges on overseas card transactions from next month. As Brian Boru has rightly pointed out, not in Europe.

Why printing money won't work

Peter Schiff yet again has an excellent, easy to understand piece on why the present rush to print money won't work.
He underlines the point that it is only savings that allow " credit" to work, and the reason the music has stopped is that the savings no longer exist.
Quite rightly, he says we must get back to making -or growing -things.
Otherwise, there will be a piece of paper on our plates instead of a steak.
Just like Zimbabwe.
PS
I've put a link to Takis Mag - it's become essential reading. Perhaps not every day, but certainly 2 or 3 times a week.
PPS
Fraser Nelson has a great piece on Coffee House today. Read the NoW address to Congress.

Chris Dillow has a lovely piece today about Alex Curran cutting back in these recessionary times. In her case, of course, it makes no sense as I'm sure Liverpool haven't cut back on Steven Gerrard's wage packet.
But somehow we all feel better for making an effort, and I'm assume she does too. I'm not sure it makes a lot of difference - many years ago, when Onassis was facing a real crisis, in so far as his ships were being laid up at a great rate as the oil companies were shunning him, he was asked why he didn't cut back on his personal spending.
" When the problem is $300 million, what difference does $300,000 make?"
Of course, not long after that the Suez Canal was shut, and the only person with ships available was Onassis for the extra voyage round South Africa. It's said he make enough to pay all his debts from the first set of contracts he signed the following week.
Now you might think that Livanos would be upset that he hadn't cashed in as he had long term boring contracts with the oil companies. Not a bit of it. He promptly revoked all contracts and did the same with his ships.
But I digress. My point is - unless outgoings are in excess of in-comings - saving a bit makes no real sense. If you were happy with your rate of saving before, what's the reason for changing now? And if you have a mortgage, you will be paying less so there's a bit more to tuck away.
The problem comes because quite large numbers of people are significantly worse off ( not Fred the Shred, obviously) notably those who have squirreled cash away and have seen their income drop by about 75% on average. They are the ones who will be cutting back, and they are the very ones who have done absolutely nothing to deserve a cut.
So in the spirit of these times, and in order to help the economy, I have been on a spending spree.
I have bought sugar, tea and milk for the office.
Oh, and some chocolate biscuits.

Message to the people: Suck it up!

Peter Schiff has a good article over on Takimag.com. I always think that's a bit of a misnomer as tacky it is not.
Anyway, his argument is basically the well rehearsed one that previous US administrations forced relatively prudent banks to give incapable borrowers money to buy houses. The borrowers knew they couldn't pay after the teaser rates fell out, but thought they could make a quick turn - which some of them did. But many more remortgaged, simply compounding the problem, and this, broadly is what the US and UK governments are now doing to the whole economy.
Of course, the US also repealed the Glass-Steagall act which had laid the foundations of good banking for nearly 70 years - one of the many mistakes the Clinton administration made in finance and economics.
In the UK, this vandalism has it's counterpart in the splitting of responsibility for bank oversite by Gordon Brown - and we all know how that turned out.
Aaron Murin Heath has a piece highlighted by Iain Dale, which has the right attitude:
" What bothers me though, is that people - politicians and the media mainly - view this recession as something that needs treating. When in fact, rather than being the disease, the financial crisis is the cure.The recession is a market correction of a hugely over-inflated housing market (it will correct, and home values will/may return to a more realistic level of appreciation). The recession is a reaction to borrowing on a massive and wholly unsustainable scale. The recession is the global economy snapping back, as rampant growth surpassed the finite resources we have available.We should stop thinking of the recession as something we can spend our way out of, and just swallow our medicine. Governments, rather than trying to perpetuate a bankrupt economic status quo (see the reduction in V.A.T.), should be using funds to provide basic safety nets for those who fall through the cracks.We should stop lying to ourselves. We need to be honest. We can’t afford to continue spending money we don’t have. Continuous growth is an illusion. Markets will fluctuate. That’s the way it is. We spent more than we had. We borrowed beyond our means. And now we have to suck it up.Sorry. But we need to grow up. And our politicians need to stop bullshitting, and tell us what we don’t want to hear. The recession is the cure. Now let’s stop making matters worse, and deal with it."
Yup, that's it chaps - it will only get better with time and we have to live with it.
Oh, and Brian Boru, this means saving, not borrowing and spending....

How to destroy the middle classes

Chris Dillow on Stumbling and Mumbling has an excellent post today ( not that they aren't always, especially those with pictures of well endowed young ladies with a minimum of clothes).
I did my economics a long time ago, and I had forgotten that borrowing and saving are two halves of the same coin - someone can't borrow unless somebody else has saved.
So the explosion in Government borrowing should not be a shock. We are all saving or paying down debt in one way or the other ( either through thrift or because the banks won't give us any money) so the Government is the only body that can borrow to balance the equation.
PoliticalBetting has a copy of the Mail's headline today, mentioning £2 trillion as what the UK Government now actually owes. This is quite scary as the Yanks, including all their present bailouts, only owe about £7.5trillion - and their economy is considerably more than 4 times bigger than ours. In effect we are over 100% of GDP and the US still only about 75%.
I was speaking with a person who is a real spook recently, and he was saying that he had been astonished at the vitriol that was being poured over this government and Brown in particular. In a narrow sense I suppose the thought was that people tend not to blame in quite the way they have recently.
But on further reflection, and ignoring all the spin ( or lies depending on your point of view), what Brown has done is reduce lots of people to near-penury. Even at the worst point of the last recession, there was quite a large middle-class band that was doing OK. Brown's profligacy, and subsequent taxation policies, has reduced that band considerably, with many falling out of it altogether. As lots of other posts today have pointed out, everything was going along just fine whilst Blair and Brown stuck with the inherited Tory budgets and policies - it was only subsequently that it began to fall apart. I doubt those middle classes will ever vote Labour in the same numbers again. I believe that after the next election the political landscape in the UK may change forever- and I don't mean we will have a permanent Conservative government, but the growth of radical parties across the spectrum.
In my view the critical bit of language/spin was Brown's forever mentioning his "investment" in various areas.
In fact, of course, this was just one more lie. The investment made was largely dead expenditure - whilst real investment was conducted under PFI. It's rather like taking £250 cash out of the hole in the wall, blowing it all on a party, then borrowing £10 to pay the interest on the money spent.
It's Brown wot did it. And because he did it, millions more thought it was OK for them to do it too.
Unfortunately.

Labour's not Working - and even their aspirations aren't working

So the fall in the pound would help exports would it? Not according to official statistics it won't.
What this shower of economically illiterate novices failed to understand was that we don't make enough anymore to be able to export more.
Our imports are up 6% and exports only up 2% leading to the biggest ever gap. And all the celebrity hairdressing and financial services in the world will not bridge it.
Only the re-balancing of the budget and a sharp drop in imports of the trash people buy will get us out of this.
That means saving. Brian Boru takes me to task for repeating this mantra, but I promise you, it really is the only way. Think about it for a minute. What's the cheapest finance the Banks have? Answer, your and mine current accounts ( and savings accounts now, too) The more there is in these, the lower the average cost of funds to the Banks. The lower the average cost, the lower the rate they have to charge to lend money. The more they lend money, the more the multiplier will start to expand again ( down from about 13 to about 4 as far as I can see at the moment.)
So start putting that cash aside for a rainy day. It looks as if the savings ratio, which had fallen to zero, was 1.8% in November. Not much, but I suspect we will soon see this up around the 4/5% mark, which will be when things start to improve again - round about the summer.
PS
Peter Oborne has an excellent critique of Brown et al today. The most startling point is there is not one member of the Cabinet who has ever occupied a wealth creating job. Mind you, that's obvious from their actions.
PPS
Various people have been suggesting this article is a travesty, as Jacqui Smith was a teacher and Alan Johnson a postman. Er, how exactly are these wealth creating? Teaching a young person is worthy, delivering letters is useful, but neither action creates wealth. See Iain Dale below ( hyperlink not working)
How Do You Define 'Wealth Creating'?
Iain Dale 3:47 PM
James Forsyth has kicked up a right old storm on Spectator Coffee House with a post highlightling Peter Oborne's assertion in the Mail this morning that not a single member of the Cabinet has ever occupied a wealth creating job. I often use the statistic that only five out of 350 Labour MPs has ever run a business.James's post has prompted a furious reaction in the comments. Our old friend David Boothroyd says...
How exactly do you define "wealth-creating job"? Jacqui Smith was a teacher and economics lecturer, which gave other people skills to create wealth. Alan Johnson was a postman, delivering mail to business and thereby helping them create wealth. David Cameron worked as a political adviser and head of PR for a TV firm - is that wealth-creating? Even if it is I would have thought being a teacher in a comprehensive school provides more benefit for society.Tiberous puts the counter view...
Wealth creators are those who take business risk with their own assets. They are people who indeed do have to meet a payroll. There would be no public sector without private sector taxes. In the generally understood terminology, then, the public sector is non-productive and does not create wealth. It is designed to serve those who do, but latterly has assumed a self-importance and self-justification which is grotesque, none more so than at the BBC. The humility of public service of yesteryear has been taken hostage.If we go by the Adam Smith definition of wealth creation, as the combination of materials, labour, land, and technology in such a way as to capture a profit (excess above the cost of production), then Oborne and Tiberius are certainly right. I would add a further element - risk. How many politicians have risked their own money in a business investment? How many politicians have ever directly employed other people in their own companies?Not many, I suspect.

Exponentially worse in Tchermany..

Actually, it's not. Mr. Fact, that repository of all knowledge, has emailed me the following about one of the States of Germany - Bad Wurrtemburg.
It only has just under 11million inhabitants, but has a GDP of Eur 330billion plus ( he mentions the figures are a year or so out of date). So with about 15% of UK population they produce about 23% of our equivalent GDP.
Secondly, their exports ( meaning out of Germany) just of manufactured goods stand at Eur 125 billion. Remember this is just one of Germany's states. The UKs total exports are about Eur 240 billion.
So one German State with about 15% of UK population produces a higher GDP than the figure for UK exports in total; and exports in manufactured goods about half what the UK exports in total.Oh, and they have a State budget surplus and obviously a balance of payments surplus.
And the UK is uniquelly well placed to weather the downturn?
Don't make me laugh.

Sterling Schmerling

You could say the markets are adjusting to the certainty of another drop in UK interest rates - but I wouldn't. The smart money can see how completely this government has destroyed our economy.
Many years ago I read an excellent book that made the case for making things - its the only real way to add value. Selling hairdressing, financial services etc etc is all very well, but it won't pay the bills in this environment.
I had lunch today with a well respected financial figure in Scotland who told me of visiting NOMADS in London recently. The four most senior people in the firm met him to do a £2million transaction. Why? Because they had nothing else to do.The last deal they worked on was in June.
Until the feel good ( or at least the feel better) factor comes back you can forget pay increases, or even being sure of your job. Another 600,000 out of a job? That's about half what it will be when the high street really crumbles in the next month or two.
And that's why Sterling is tanking.
And why credit default swaps on it are triple those on Germany and double those of France.
PS
The news about USC, Tom Hunter's retail business, being in and out of administration, only serves to reinforce the point.
"Scotland's richest man" was forced to sell his stake in Dobbies at a loss when his bankers ( HBOS by the way) said they wanted the cash back. My guess is that anything he owns is currently on the block, and I wouldn't be at all surprised if he ends up ( along with many other HBOS customers) NOT owning very much.

The Sales and The Box

What are we actually witnessing here? In Manchester, London and elsewhere, the BBC brought us reports on how much more was being spent this year than last in the sales, and there were the usual stories of people having queued all night to get the article of their dreams.
Is this biassed BBC parroting Liebore's theme that things are sort-of-not-too-bad? Or is it the last Huzzah! before the deluge?
Two interesting snippets that have wafted over the ether. A "young" 60 year old staying with her daughter and son-in-law is complaining bitterly about the heating not being on during the day - nor a fire. Both workers are very well paid, although they spend a lot. Feeling the pinch rather too much?
The second was on the BBC report from Manchester. The store manager was waxing lyrical about Prada bags with 70% off at £200 and Armani suits at £300 for 50% off.
But the lady who had been the first through the doors had bought a dress reduced from £45 to £22.50, a bag down from £60 to £19 and t-shirts for ther boyfriend reduced from £36 just £24.
Clearly the cheaper end of the market will get the sales.
Who, on the other hand, would ever pay £24 for a t-shirt, never mind £36?
The other thing that caught my eye this morning was the BBC project " The Box".
This follows a container around the world for a year whilst it does its job. It's already taken whisky from Scotland to Shanghai, and tape-measures from Shanghai to New Jersey.
In the meantime, since it set off about 3 months ago, freight rates are down 50%, the Chinese factories are laying off 30% of their workers, as well as cutting their wages by up to 40% and the retailers are busy telling their suppliers either you give us a backdated discount or we'll find someone else.
The most interesting part of this is that effectively the headline 70% off retail prices sounds great - but the new sales prices going forward will probably settle at about 50% off what they were with all parties still making ( some) profit. Hence the fears about deflation - why buy today when it'll be cheaper tomorrow? It happened in Japan for 15 years. Maybe that's why the sales have got off to a good start - people waited for the cheaper prices.
Tough it will be - but good for everyone longterm.

The most famous of those 364 economists.

Today's Peter Oborne article shows exactly why I said in an earlier post that the answer to our present financial problems was saving not spending. It's what Mrs.T and Lawson did in 1981. We were pretty much in the same position then as we are now - although now may be worse. Brian Boru took me to task and said that saving would drive us into a slump.
I didn't know this, but one of the 364 economists who signed the famously wrong letter was Mervyn King. Terrifying - but it explains why he is so far behind the curve all the time.
Saving will not drive us into a slump - it's a rising savings ratio that creates the conditions for expansion and posperity. Remember Germany, Japan, China, India and so on. Remember too that they all make things.
In the same way that the beginning of the bank's problems getting better will be when they finally reveal the true extent of their losses, so the pain a sharp contraction will inflict will be the lancing of the boil. It hurts, it hurts like hell - but it's the only way to get better.

I just love people who believe their own PR..

.. and the Russians really really fell for it. Strongest reserves? They'll be gone in another 6 months.....

Brown's Economic competence? I don't think so.

I came across this from " Burning our money"
From day one of NuLabour being in charge I have argued that they had no beliefs other than power and retaining it; that they have no understanding of economics,of how markets operate, of how trade operates; no ( see Ed Balls latest what a bloody cheek) desire to raise people up; and nothing for anyone except themselves.
How depressing that we have had a complete waste of 11 years. And probably at least another 4 or 5 to stabilise the complete and utter shambles that will be their legacy.
But then, it was ever thus. A period of Labour power, spending, taxing and ruining society, followed by a period of Conservative power sorting out the mess. And just when it's all right again, people want a change and allow Labour to bugger it all up again.
Sigh.