Taking the bait |
The Richter Scale
The Economy and other trivia
Sunday 15 February 2015
The Confidence Fairy
George Osborne has presented himself as the “Iron Chancellor” willing and able to make the tough decisions required to see-through the Tories “long term economic plan”. With an Election 80 days away it’s time to assess his track record in this regard as he is now promising (with some glee) another 3 years of austerity, as he tries to achieve a budget surplus in by 2018. Osborne believes the winning narrative goes like this: Labour wrecked the economy, we inherited unsustainable debts, we then embarked on un-popular but necessary polices to restore confidence in the UK economy and bring down the deficit, these policies took time to work but supported by monetary policy (QE) the plan is now paying dividends. One would have to be a dumb fish to swallow this story hook line and sinker.
Labels:
austerity,
debt,
deficit,
economics,
George Osborne,
gordon Brown,
interest rates,
public spending,
Recovery,
structural change
Saturday 7 February 2015
A Free Lunch for Europe
In three short years Angela Merkel has gone from being the Superwoman to the Boggiewoman of Europe. Having faced down the Euro crisis of 2011-12 she became the heroine of the hour – being fated around the world and the re-elected at home in 2014. Her unwavering commitment to securing the Euro based on secure fiscal framework has made her the Mistress of Austerity. It was she who enforced the bail-out process and the “Fiscal Pact” that accompanied the money.
Here's looking at you PIIGS |
Thursday 5 February 2015
The solo becomes a duet
The world economy is a bit like my early love life – long periods or inactivity and boredom interspersed with rare flashes of excitement. Growing up in rural England with no Facebook, mobile phone, nor any natural ability to chat up girls made things pretty dull! The same is true of the world economy - one minute we are in a world of dull stagnation and deflation and the next we are in mortal danger, thanks to Greece.
The excitement of a good riot |
Labels:
austerity,
central bankers,
debt,
deficit,
economics,
Emerging Markets,
Europe,
Fed,
Keynes,
krugman,
PIIGS,
QE,
Recovery
Wednesday 4 February 2015
Forgive and Forget
The Greek crisis is about the only story being covered by the financial press. It’s the perfect seasonal pantomime not unlike Cinderella – a damsel in distress (Greece and its distressed debts) the drama of a tight deadline (Greece could run out of cash in March), comedy villains (the Trokia of the ECB, the European Commission and the IMF), a grumpy old maid (Angela Merkel) a handsome prince (Alexis Tsipras, the Greek prime minister, and his henchman Yanis Varoufakis, the finance minister). The only questions are; where is the Fairy Godmother who might save the damsel in distress and will there be a happy ending?
George and Yanis - could this be the start of a special relationship? |
Labels:
austerity,
central bankers,
deficit,
economics,
Euro,
George Osborne,
Greece,
Recovery
Sunday 18 January 2015
Who is rigging the market now?
In the run up to the credit crunch the market manipulations perpetrated by the world’s largest investment banks are now well known to us. The banks rigged many of the important markets required for the global economy – proprietary trading held sway, credit and other derivative products were miss-sold, reference interest rates (Libor and others) were fixed and so it goes on. Fortunately for us governments around the globe and their central bankers have been on a mission to sort out these market abuses. The Wolves of Wall Street have been tamed by the Gnomes from Zurich, the ECB and the Fed – all very reassuring. That is until one looks closely at the market manipulation now being pushed through by Central Banks culminating in the completely unexpected decision of the Swiss National Bank (SNB) to remove the 1.20 floor on the Swiss franc against the Euro.
As Gavyn Davies tells us this was “one of the biggest currency shocks since the collapse of the Bretton Woods system in 1971. The decision has been heavily criticised, both for its tactical handling of the foreign exchange market, and for the collapse of the centrepiece of its monetary strategy, without (apparently) any overriding cause. The credibility of a central bank that has traditionally been hugely respected by the markets has clearly been dented.”
Anything the banks can do ..... |
As Gavyn Davies tells us this was “one of the biggest currency shocks since the collapse of the Bretton Woods system in 1971. The decision has been heavily criticised, both for its tactical handling of the foreign exchange market, and for the collapse of the centrepiece of its monetary strategy, without (apparently) any overriding cause. The credibility of a central bank that has traditionally been hugely respected by the markets has clearly been dented.”
Labels:
banks,
central bankers,
debt,
deflation,
economics,
economy,
QE,
regulation
Monday 5 January 2015
Demand for the old normal
For the last six years the developed world has been suffering from a chronic shortage of demand: demand for goods, demand and services, demand for investment. The need to deleverage personal, corporate and government debt has meant that there has been massive excess capacity and a huge shortfall in aggregate demand. This lack of demand has been driving up unemployment and driving down prices. All this has been complicated by the fact that we in the West are at the zero bound of interest rates this nasty cocktail has been characterised as secular stagnation. Over the last six years wages in all normal income groups have flat-lined and living standards will now be lower at the end of this economic cycle than they were in 2008 – this is extraordinary, almost unheard of in the developed world. Or is it? Thomas Piketty, the French Rock Star Economist (is that an oxymoron as the French have no rock stars?) would have us all believe that we are now returning to a more normal state of affairs, where vast pools of wealth lie idle in the hands of a financial elite and the rest of us jog along at a steady but uninspiring rate.
A French Rock Star?? |
Labels:
austerity,
banks,
central bankers,
consumer spending,
debt,
deficit,
deflation,
economics,
Energy,
inequality,
krugman,
Larry Summers,
Recovery
Tuesday 30 December 2014
Crude benefits of falling oil prices
The ending of QE in the US and the fall in the price of oil from over
$115 a barrel to under $60 a barrel were the defining economic events
of 2014, but their consequences will not be felt until next year. The ending of QE in the autumn brought to an
end the huge expansion of the US Federal Reserve’s balance sheet, since 2008
the Fed has pumped some $2.3tn of “new money” into the world economy which has
had a wondrous effect on asset prices in all sorts of weird and wonderful
places. London property prices have
boomed, stocks in emerging markets reached new heights and bond prices sky
rocketed as yields collapsed – also commodity prices boomed and oil was not
left out of the party. Between 2009 and
2011 oil prices rose from $40 to $125 a barrel, driven by ever increasing
demand from emerging markets and $1.9tn of US and UK QE. Following the boom in commodity prices between
2011 and 2013 prices stabilised at a high level before falling off a cliff in 2014.
The Crude Story |
Labels:
central bankers,
deflation,
economics,
Emerging Markets,
Energy,
interest rates,
productivity,
QE,
Recovery
Thursday 27 November 2014
Floating free from Germany
Mario Drahgi has called for more integration and “sweeping powers” for the ECB to control fiscal policies and efforts to reform the Eurozone's economy. Is this “joined-up” thinking is a throw-back to the darkest days of the Euro crisis, when it became obvious that there was lack of cohesion between member states? Or is this a power grab by the ECB, using the interminable recession, as an excuse to take control of a “fiscal and economic union”. Currently the ECB owns interest rates and sets budget targets (roundly ignored by all but Germany), in this new and enlightened world the EBC would like set tax rates and drive to through supply side reforms to drive productivity and competiveness.
Drahgi believes in the “importance of each country sticking to its commitments under the stability and growth pact “and that this should now be beyond debate”. He would like to go further by saying that in matter economic “sovereignty should be exercised jointly” – what a great line!! What are the things that could do with harmonisation?
1. Actual interest rates
2. Rates of business taxation
3. Minimum wages and hours of work
4. Actual spending limits (properly enforced)
Drahgi believes in the “importance of each country sticking to its commitments under the stability and growth pact “and that this should now be beyond debate”. He would like to go further by saying that in matter economic “sovereignty should be exercised jointly” – what a great line!! What are the things that could do with harmonisation?
1. Actual interest rates
2. Rates of business taxation
3. Minimum wages and hours of work
4. Actual spending limits (properly enforced)
Living in Harmony |
Friday 21 November 2014
Winning the productivity race
Seven years on from the start of the Great Recession the slump looks set to go on and on. Even David Cameron who seldom mentions the economy was stirred this week to reinforce the message that - the worst may not be over.
Certainly, in the UK we have had some growth but we still have high levels of government debt and a crippling trade deficit and our main trading partner is in real trouble. It is now certain that the major economies in the developed world will never recover the lost demand that has opened up between actual GDP and the trend line established over the last 20 years. This puts us in new territory, as in every other recent recession the global economy has always been able to close gap in “temporary” lost demand during the expansion phase of the economic cycle. In real terms, people in virtually every developed country will be poorer at the end of this economic cycle than in 2007! This is a pretty stunning revelation – we have forgotten how to grow!
Labels:
austerity,
banks,
debt,
deficit,
deflation,
economics,
GDP,
interest rates,
Living Standards,
productivity,
public spending,
Recovery
Friday 7 November 2014
What a hedgehog knows
When, in 1948, Mikhail Naimy wrote “The more elaborate his labyrinths, the further from the Sun his face” he was already living in a world that was being over-run by complexity. Most of the greatest insights in art and science since the end of the Second World War have been conceived in a dense soup of analysis. There will no more be simple insights that change the world – mastering the complexity is everything. The keen amateur who is able to think freely and creatively is no longer taken seriously; the potting shed had been replaced by the data centre such is the explosion of data and variables required to understand the problems we face. We are living in the age of the Fox (who knows many small things).
This up-tick in complexity is obvious in the world of macro-economics as the simple relationships between money, prices, capacity and rates of interest no longer seem to work. Also old certainties about productivity and wealth have been debunked – this is an uncomfortable world for the Hedgehog – (who only knows one big thing). Obvious problems create resolutions that can be faced with bravery, although tactics may vary we can unite behind a shared vision or oppose it full on. If the problem is too complex to articulate then there will be no solution only a vacuum.
This up-tick in complexity is obvious in the world of macro-economics as the simple relationships between money, prices, capacity and rates of interest no longer seem to work. Also old certainties about productivity and wealth have been debunked – this is an uncomfortable world for the Hedgehog – (who only knows one big thing). Obvious problems create resolutions that can be faced with bravery, although tactics may vary we can unite behind a shared vision or oppose it full on. If the problem is too complex to articulate then there will be no solution only a vacuum.
Where are the hedgehogs |
Labels:
austerity,
debt,
economics,
Elections,
immigration,
inequality,
Living Standards,
politics,
productivity
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