Zombie Economy

First there was the insane decision to cancel a loan to Sheffield Forgemasters (deferring it may have been justified, cancelling was not), then another to favour Siemens over a British consortium for the Thameslink trains contract; now comes news of 3,000 job cuts in aerospace engineering at BAE Systems, the defence contractor.

The UK economy is supposed to be moving away from debt-fuelled consumption to export led growth, a formula for recovery virtually all economists and politicians agree is the only way to rebuild. Most of the news however seems to be a grim mix of retrenchment and continued deindustrialisation, a process which has been going on sinceMargaret Thatcher’s destruction of the traditional industries in the 1980s

True enough, immediately after the Great Contraction of 2008 industrial production appeared to recover quite swiftly. With the pound once more trading at levels low enough to give British factories a competitive edge, there was even talk of …

Read full post: Zombie Economy
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Prince Charles And His Lead Balloon

Prince Charles says humankind faces extinction if we do not reduce our lifestyles and save resources.

(So he’ll be giving up the classic Aston Martin and driving a G – Wiz will he – yeah right.)

Well old jug ears has a point. In a world of finite resources consumption cannot grow infinitely to fuel economic growth.

We can see Charlie’s opinion, as usual, going down like a lead balloon with those in power however, especially as when they don’t have their little green hats on to impress the other jug eared Berkshire Hunt across the pond, they want us to start consuming like crazy to get the economy growing again.

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Printing Money Failed To End The Recession

The world’s central banks have pumped £3 trillion into the global economy since the beginning of the financial crisis in 2008. This represents the equivalent of 8pc of the world economy, according to an analysis by Fathom Consulting. The figures will intensify fears that the extra cash flooding the system is responsible for rising stock markets, rather than any … read all

Central Banks Print Money But Fail To End Crisis
At last, Clegg is the first politician to see reality

Conflicting Views On The Economic Recovery

Nobody seems to know what is going on in the global economy. Take these two articles on the state of the recovery:

UK Economy Records Fastest Growth In Nine Years (The Guardian)

The British economy grew at the fastest pace in nearly a decade in the second quarter, higher than initially estimated, thanks to a pick-up in the construction industry and strong consumer spending.

The Office for National Statistics’ second estimate for the second quarter showed GDP rose 1.2% between April and June, the fastest growth since …

On the other hand:

Stock Markets Face A Bloodbath (Daily Telegraph)
Investors should brace themselves for an equities “bloodbath” and a further fall in bond yields when the current excessive optimism propping up the market seeps away, Albert Edwards, a strategist at Société Générale, has warned.
Mr Edwards said there was too much hope among investors, with excessive valuations in the US, but predicted it would come to an end in the coming months as economic data increasingly pointed to a double-dip recession.

“Equity investors are in for a rude shock. The global economy is sliding back into recession and they are still not even aware that these events will trigger …

The optimism of the left which credits the Labour government with saving the economy thanks to their wise and far sighted fiscal management is a little overstated. Do not forget that Labour printed money equivalent to 10% of GDP and pumped it into the economy to secure growth of just 1.5%.

It is true the economy is growing now but people had to start spending again sometime. We should also remember that although the economy is grpwing is is running behond inflation so in real terms is still contracting.

On the other hand reports that the global economy is sliding back into recession are based on evidence that the US economy is heading for a double dip recession.

Though the American economy is big it is not the global driving force it once was so perhaps we should focus less on what is happening across the pond or maybe direst our attention to the Canadian and southern banks and leave the USA to reap the biter harvest of their unbridled consumerism and sense of entitlement.

The party is over, the good times are gone. We must learn to put aside wants and focus on needs.

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The G20 And Deficit Reduction

The G8 and G20 summits of financial leders running simultaneously in Toronto are both revealing deep divisions among governments about how quickly publid spending deficits should be reduced. This has caused uncertainty in financial market jover the past few days, with the American “broow and spend” economists of the Obama administration warning that reducing deficits too quickly will push the economies of developed nations into the double dip recession governments have feared.

Leading European economies, particularly the Germans, are emphasising the need to curb government spending, and it is a possibility a G20 communique at the end of the conference will set out a timetable for how far and fast countries should retrench spending.

Read full article: G20 20 Divided On Deficit Reduction by John De Roe at The Daily Stirrer

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Unemployment Falls, Number Not Working Rises, It’s Magic

How can it be that there are less people in work than last month but also less people claiming jobseekers allowance. Well preparing statistics has always been an occultish activity and government statistics is definitely among the dark arts. The deception on this conjuring trick by the desperate and discredited Labour government is achieved by simply paying people to be out of work so they do not have to sign on as unemployed…

read full post Unemployment Falls, Number Not Working Rises at The Daily Stirrer

No real jobs in the new economy

One of the daftest ideas to emerge from the Ploitically Correct Consensus that is fighting the election under three different party banners is that the “new” economy will be driven by jobs created in high tech and gree industries.

The economic engines of this new economy will be Universities that will be undertaking exciting new research project and finding ways to “monetize” the “intellectual property” created by this academic industry.

If you have not yet decided this all sounds like the kind of bullshit that fuelled the property bubble, the dotcom bubble and the debt bubble you can read more in The Daily Stirrer’s piece No Jobs In The New Economy

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The Future Is Cancelled

After taking a few days to digest Chancellor Darling’s Pre Budget Report (and not much else as I have been a tad off colour – and that’s not just the humour on Boggart Blog – I have found that all the optimism and “recovery is just around the corner bullshit is just Labour spin.

What has happened in the bond markets since the PBR exposed our darling Chancellor’s borrowing plans to reinflate the economic bubble with debt shows we are totally up shit creek.

Any signs of movement in the UK economy merely show it is turning into a zombie.

The Future Is Cancelled

Follow our debt crisis round up at Greenteeth Labyrinth

The Dollar Is Sinking – Man The Lifeboats

Quite recently, back in August I think, The Daily Stirrer, the publication that Little Nicky Machiavelli does most of his work for now, predicted the demise of the $US as China decided not to buy any more US Treasury bonds and to demand interest payments due on the $2trillion of US bonds they hold in gold bullion rather than cash.

Last week the United States suffered the indignity of having to stand by, powerless as small South East Asian nations including Malaysia, Singapore and Hong Kong (not acutally a nation but an autonomous province of China) had to step in and buy up billions of dollars that were flooding the world markets in order to protect the value of their own holdings.

Is this another example of the “change” Barack Obama promised?

The old Chinese curse goes, “May you live in interesting times.”

We do, we surely do.

The Dollar Is Sinkng, Man The Lifeboats.

Could the recession have been predicted?

The government is standing by its unfeasible claims that the recession could not have been predicted.

Here Chris Colvin attempts, quite successfully, to show how plotting the movements of the Gross Domestic Product (GDP) could have enabled economists and treaury ministers to see what was coming.

Little Nicky Machiavelli says there is no need for Colvin’s graphs, worthy as they are. The astounding thing was the recession needed to be predicted, after all it has been with us since 1991.

We are still in the recession of the early 1990s, caused by the collapse
of the industrial base after it had been undermined for over a decade by the economic lunacy of Margaret Thatcher’s government.

The recovery and sustained growth which continued through the 1990s and until 2007 was an illusion of accounting created by writing up asset values to insane levels. Those who looked past the smoke and mirrors to see what was really going on had been warning since the millennium of the inevitable crash.

Now we are less well placed to cope with the collapse of globalism because thanks to the free market obsession we have outsourced all the real, wealth creating work to low labour cost economies and are left with a candy floss economy.

See veteran agony aunt Claire Rayner podcasts here on how the recession is truly a depression in the making and politiciand and business leaders do not have a clue what to do about it.

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Crazier and crazier

The religious hysteria whipped up by The Obamessiah’s election campaign is just getting go insane I can’t write about it.

The Socialist International – Barbara Eichenreich cooks up a theory of right wing conspiracies because John McCain had the audacity to say he thought he would be a better President that his opponent. Poor Johnny Mac, he forgot The Obamessish is the anointed of God and must not be questioned. What would the Democrats be like if The Republicans had managed to find a credible candidate.

Why This recession will be a doozy – Henry Blodget.
Meanwhile the news on the global economy and the financial just gets worse. The glass is not half empty, it is lying on the floor shattered, its contents spilled.

Magic Money, the great free market illusion.

At the height of summer, in those carefree days of endless sunshine and picnics in bee – loud, clover – scented meadows by languid steams (I’m writing in a metaphorical sense here obviously) it seemed the good times would go on forever. Like Keats’ Autumn the economy kept burgeoning, oblivious to setbacks. So how did it all go wrong so quickly? Sit down and I’ll tell you. You’re going to like this, not a lot but you’ll like it.

The free market, the miracle that turned us into worshippers in the high Street Temple of consumerism, the perpetual motion engine that drove global economy was no more than an illusion. The world economy was based on magic money, dreamed up by politicians and bankers and underwritten by ridiculous asset values that bore no relation to reality.

In 1976, Jim Callaghan was the undertaker for the post-war social democratic order when he said: “We used to think that you could spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you in all candour that option no longer exists.” Now, instead of thrashing around trying to find a way to rescue the bankers from the consequences of their folly, the prime minister should stand up and say: “We used to think you could borrow your way out of a recession and increase employment by increasing debt and setting the City free. I tell you in all candour that option no longer exists”. It would bring the house down, literally.

A year after Callaghan faced his crisis, socialism was dead, its ideals of social justice hijacked by special interest groups advocating not fair treatment for all but advancing arguments for the preferential treatment of minorities. Into the political void stepped Margaret Thatcher, as much an illusionist as any other politician but one who claimed she could really perform magic. Having got her party elected and started an unnecessary war to arouse patriotic feelings and disguise the incompetence of her government she pulled her first rabbit out of the hat, giving council tenants the right to buy their homes.

Here next trick was to make the money raised from selling council properties disappear instead of investing it in new properties so that people could get on the ladder as young tenants and earn the right to buy their home later when their lives and incomes were more settled. The lack of available homes to rent created an artificial demand for property to buy at the bottom of the market which forces prices up to unrealistic levels. In turn this pushed up prices in the middle. Meanwhile a new, classless (in every sense) elite was created. These people wanted to live in exclusive neighbourhoods for the status they imagined that gave them. They were prepared to pay over the odds for property at the top of the market but wanted top money for their suburban semis.

The madness ought to have been regulated by lending restrictions but the newly deregulated financial institutions tore up the conventional financial wisdom of not lending more than people could afford to repay, “If customers default on the loan, we take the house” they said, smugly assuming that as long as there was demand in the market their investment was safe. They were wrong, so long as the madness continued and unrealistic values continued to be placed on properties used as collateral the illusion could be maintained. Once economies slowed and earnings started to fall more and more people started to default on loans. Very soon panic set in.

The recession of the early 1990s was deep, swift and painful. It ought to have taught us about Magic Money but very soon more rabbits were being pulled out of hats this time based on a notion of The Internet changing everything in a way that would enable us to become rich by giving stuff away for free, the dotcom bubble. Ridiculous values were put on startup companies with no track record, no revenue stream and in some cases no product to sell. The first dotcom startup to fall, in the month after its shares started to be traded on Stock Exchanges had had millions of hits on its web site but converted just three of these into sales.

No matter, the dotcom tycoons continued to spend their investors venture capital as if the end of the world was imminent and to behave like Conquistadors, treating the captains of traditional industries as if they were members of some stone age tribe.

Once the rot set in the dotcoms fell like dominoes.

Enter the superheroes who would save the world. The Free Market maniacs with their mathematical models, their structured investment vehicles and their billion pound bonuses. These people had learned a new trick, not for them the tired old illusions like sawing the girl in half, making the monkey disappear, pulling the rabbit out of the hat. These guys has learned how to do transubstantiation. They were not interested in turning brad and wine into flesh and blood however. The new trick involved turning a liability into an asset.

When once people had bought a house the lender who financed the mortgage had a claim on the house which secured the debt, thus balancing the account. Thanks to a piece of financial sleight of hand which was possibly invented by the people who brought you the Enron and Worldcom corporate bankruptcies, in the brave new world of creative accounting a mortgage became a double asset for the lender. They owned the house and they owned a slice of the borrower’s future income ‘til the debt was paid.

Suddenly the balance sheets of mortgage lenders showed a doubling in the asset value of the organisation. Value of their shares rocketed and on paper they had oceans on money to lend. And lend it they did, to anybody, because every loan they made immediately doubled in value on their balance sheet. And that really was magic.

So as you stand surveying the wreckage, should you hear anyone ask “What went wrong, where did all the money go?” you can tell them; “There never was any money, it was all done with smoke and mirrors.”

Ian thinks he is the first poet out of the starting gate with poems on the meltdown:
Holy City
Chasing Bubbles

A Quiet Day In The Blog Office

No big news stories today as we all all election watching. Will it be Boris or Ken, will the Labour core vote crumble in the old indistrial areas, will the Greens get their well deserved breakthrough in traditional Con /Lib-Dem Nimbyland consituencies.

Who will come up with the most ridiculous excuse for a mediocre performance?

We will be back on the case tomorrow. Meanwhile you might like to check out these stories:

Defining Insanity Hufington Post examines the apparent determination of The Democrats to lose the Presidential election in November. Could it be they have worked out just how screwed the US economy really is?

The cunning Realist on Fuel Price Protests Fuel prices are squezing the “cojones” of those redneck SUV drivers in the USA resulting in protests by drivers going round in circles slowly, thus wasting expensive fuel. But with the pump price still below $4 per gallon we can only wonder WTF they are complaining about.

Live Blog – The Apprentice Last night the stubbly one said “you’re fired” to obnoxious shortarse Kev but are this years crew of desperate wannabes the most repulsively egocentric yet? Would you employ any of them.

Someone’s Having A Laugh

Surely we are all a tad fed up of all the B.S. coming out of government circles about the need to reduce our carbon footprint. Its in a good cause we tell ourselves, saving the planet and all that. So we put up with patronising speeches and punitive taxes. After all its not just us ordinary punters, its the rich and big business too. Same rules apply.
Or do they?
At the same time as the government is lecturing us and hiking up fuel taxes they are dismantling the planning regulations that give the public a say on decisions to build new roads and extend airport runways. Today we hear the totally unneccessary extension to Stanstead airport is to be railroaded through the approvals process.
The governments of the G8 countries are doing nothing to make it less profitable to ship carrots halway round the world to our supermarkets simply because greed and short termism are the controlling issue.
Without growth the global economy falls apart. And growth depends on putting more cars and trucks on the roads, more planes in the air and more fossil fuel in the engines and furnaces of industry.
While politicians mouth hypocritical platitudes about reducing emissions they are actually working to a plan that will INCREASE emissions by around 25% by 2030.

Someone is having a laugh at our expense.

How Saddam May Yet Win The War

When Saddam Hussein is not in a courtroom he is safely locked up in prison somewhere in Iraq and like all right minded people I hope he stays there once his trial is ended. Unfortunately that hope may be in vain for even from a prison cell the old tyrant may yet disrupt our lives. When the neo – cons in the White House were whipping up the American people and Tony Blair to support the case for invading Iraq and overthrowing the regime, they failed to see the big picture. Economic tunnel vision seems to run in the Bush family but I suspect some of the others did realise what was going on in the world economy but chose to exploit short term economic opportunities and let the ordinary people of America suffer later.
It is about four years now since Saddam made his most astute move ever although it was probably done in a fit of petulance rather than with foresight. Maybe however some Iraqi economists did know the true state of the American economy when they advised their president to demand payment in Euros for Iraq’s oil. The U.S.A. far more than any other nation except perhaps Switzerland depends on the strength and stability of its currency. Exports are weak, the national debt is out of control and trade deficits are insupportable. If the dollar was not the currency the world trades, the U.S.A would be, if not quite a basket case of African levels then certainly in no better economic shape than “walking wounded” like Brazil and Mexico.
The American economy is both beneficiary and victim of the fact that the dollar is the world’s reserve currency. Whatever nations buy from across national borders they must pay for in dollars and whatever they bring to the world market to trade they want to be paid in dollars for. So it does not really matter how big the US deficit on oil, steel, foodcrops and coffee because what Uncle Sam is really selling in the world market is the dollar. This means the Federal Reserve Bank can print dollars to buy whatever the consumers demand.
The situation had persisted since the British economy crashed and burned in the early nineteen – sixties. The pound is still a trading currency but mostly within the British Commonwealth. In the world market a wodge of British wonga no longer begs the question “how much of our stuff would you like, sir?” but “how many dollars will that monopoly money buy, schmuck?” No matter, we own enough of America to ensure we have a ready supply of dollars flowing in through our holdings in the Caymans, Bermuda, The Isle of Man etc. World trade is truly wonderful.
The happy situation of dollar supremacy would have continued but for the push towards European integration. After the fall of the Soviet Union certain economists and political philosophers (mostly in France and Germany) decided that to have only one superpower would be bad for the world community. Another trading bloc was needed and the European Union could easily be adapted to fill the void.
It is easy to follow the reasoning, around 70% of the world’s currency reserves are held in dollars which of course means that essential commodities, particularly oil, are valued in dollars. While the U.S.A. controls the money supply in effect it gets imports for free. As a bonus most of the dollars that other nations have worked hard to earn have to be invested back in the U.S. economy. It is so smart we should be surprised the Mafia did not think of it first.
In spite of its recent enlargement the European Union’s economy suffers from none of the systemic weaknesses of the American economy. This being so, the Euro is the only serious competitor to the Dollar as a world currency. There we have one of the true, but unmentionable, reasons why The White House was so anxious to bring about regime change in Iraq. Now American interests control Iraq’s oil it is once more priced in dollars.
The lesson has not been lost on people who are not friends of America however.
The nations of the Middle East do more trade and have better political relationships with Europe, the EU imports more oil and the European economies are cashflow based rather than debt based and so are more sustainable in adverse trading conditions. There have already been rumblings from within OPEC (the Organisation of Petroleum Exporting Countries) that a switch from dollars to euros for pricing oil could be a serious option. Should Europe’s two main oil producers, Britain and Norway adopt the euro it could well be the tipping point at which a switch by OPEC becomes not possible but inevitable. On top of that there is another risk. Western News Media portray Al Qaeda as an organisation intent upon destroying western civilisation but this is a dangerous over estimation of terrorist ambitions. There are surely terrorist cells around the world who meet in gloomy basements and mutter darkly through beards of mass destruction about the downfall of the decadent west and the triumph of Islam but Osama bin Laden is certainly neither mad nor stupid. He knows well the American collective psychology, the siege mentality that sees enemies (and Satan) lurking behind every rock and tree along the borders. The destruction of the World Trade Centre was a perfect tactical move and in his response George W. Bush played right into the terrorists hands. Now with the threat is inflated beyond all feasibility in the American psyche and the death toll in Iraq creeping past a thousand, isolationism is starting to look like a good option to American voters. A shift to a more inward looking stance on foreign policy could well open the way for a Bin Laden inspired coup in Saudi Arabia, overthrowing the House of Saud and replacing it with an Islamic fundamentalist regime. And with the fundamentalists pulling the strings in the world’s main oil producing area you can bet the exodus from the dollar would be rapid and total.
The American currency is already weak in world markets, the past twelve months have seen first a decline against other major currencies and now a resurgence. The situation is so far out of America’s control that with either a weak or a strong dollar they are the losers. The weak dollar mean imports, particularly oil, get more expensive and Americans regard the right to cheap gasoline alongside the right to free speech and the right to have bed dress sense. A strong dollar means America’s exports get dearer and a country already up to its neck in debt cannot afford a drop in its income from exports. Finally the American domestic economy is consumer led. A few hikes in the price of gasoline will cause panic to set in and people will stop spending. And then the trouble starts.
Central banks have started to shift reserves into more stable currencies and create a snowball effect. With demand for its main trading commodity diminishing the US economy faces possible collapse and America’s position as the world’s strongest nation looks precarious.
Europe may constitute a significant threat to America’s domination in trade but whereas the Soviet Union was a military superpower but an economic island, Europe and the U.S.A. are allies militarily but economic competitors that, under the unwritten rules of free market economics, would have go head to head in a trade war like two bull elephants. Free market economics compels all participants to compete for a bigger share of the cake at a time when America is more vulnerable than it has been in well over a century.
The problem in predicting how this poker game will be played out is that there is a third power and nobody truly know what kind of hand they hold. The Chinese are a military power, not so well armed in high – tech weaponry but with strength of numbers and a more compliant population. The risk of upsetting China, and the possible consequences of that may thwart America’s political ambitions but all the while the vast dollar reserves China holds can be used to influence the world economy in ways that suit the Chinese government.
The only way to avert a series of economic crises in the coming is for the other nations of the industrialised world to persuade America to adopt a more responsible and internationalist attitude to the obligations that go with its role as the world’s most powerful nation. Before we can begin to do that though, the American people must play their part by making sure the political establishment understands that being the biggest and the richest does not absolve a nation from its moral duty to the world community as a whole.
Before plunging into a war in Iraq, a war that Saddam Hussein knew he could not win on the battlefield, the U.S. Government and that of Britain should have consulted with experienced diplomats of other nations. In the west we are ruled by short – termism. The troops were in Baghdad within a month, a great triumph was proclaimed. It should have been all over but anyone experienced in Middle Eastern affairs would have advised that the Arab mindset is different and well suited to playing a long game.
So far the war has gone the way Saddam would have predicted. He knew his army could not withstand the assault, even if the British had not been involved the Iraqis would have been overwhelmed. But America has been sucked into a prolonged and costly occupation that has done inestimable damage to its standing in the world.
The consequences of a collapse of the global economy could result in global cultural war and plunge the world into a new dark age. The message that G8 has failed to send to the White House is that the world needs a strong and confident and outward looking America but America needs a supportive world community in order to regain its confidence and its sense of moral duty. If that message is not heeded soon then Saddam will truly have won the war.

Ian slams the madness of free market economics in
Holy City, a savage indictment of the attitudes that let to the global economic meltdown.