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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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.

RELATED POSTS:
Magic Money

Comic verse on the recession from Ian Thorpe: The Slug and the Snail

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A Tale Told By An Idiot

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

Dirty Electricity

There is a capitalist myth gaining currency that electricity is “clean energy.” When we are sucking the watts out of sockets or batteries it is clean enough of course, no columns of yellowy grey smoke rising from tall chimneys, no nasty oily smell as of exhaust fumes from internal combustion engines.

That might seem to confirm the claims of commercial operations promoting the virtues of the electric car or electrical home heating systems but think again. Electricity is not a clean fuel, most of the electric power used for domestic and industrial purposes is generated by burning coal, oil or gas. Power stations are the biggest emitters of CO2 and NO2, running 24/7, pumping these pollutant gases into the atmosphere.

Plus your Prius into the main supply and you can feel virtuous, the generating plant that produced the electricity flowing into your batteries is well away from town so out of sight, out of mind. But the power station is not the only source of pollution drivers of electric cars should be aware of the environmental impact of manufacturing and disposing of Nickel Metal – Hydride (NiMH) batteries. both are absolutely filthy processes. Lithium – Ion batteries would be a better option but for the scarcity of lithium and the abundance of people who want to own cars.

Still, so long as the batteries are not manufactured in our back yard the public relations peoples’ job in persuading us to scrap our perfectly good conventional cars and buy new hybrids or electric cars. We can continue to be concerned without actually changing our lifestyles.

Clean generation systems are the answer but what does The Great Conspiracy come up with? Carbon Capture Systems. Even if the technology works it only succeeds in moving the problem out of sight.

Nuclear power from fission offers CO2 free electricity but pollutes in other ways. So much for electricity being a clean fuel. It is time we stopped letting the media and the evangelists for free market solutions divert attention from the grim realities. As things stand we have no reliable and environmentally friendly way of providing the electricity modern societies need. And the effing Government are pratting about with windmills.

Nuclear fusion would seem to provide and answer but research has not progressed much in the last fifty years.

We will only have abundant clean energy when we are prepared to elect Governments that are not slaves to big business and big finance, that will not prioritise the profit factor but sink public money and human resources into developing power generation technologies that utilise genuinely reliable and sustainable sources, the Sun, tides, river flow.

I hate to say it but…..

I TOLD YOU SO.

Ever since I started Little Nicky Machiavelli in 2005 I have been telling you regularly there is only one end to a bubble.

And now, somewhat later than I predicted the third bubble of the Blatcherite era has burst.

So now will all those people who were keen to tell me that unbridled capitalism is the only way to organise society and to parrot the mantra “Mrs Thatcher did a lot of good for this country,” like to eat their words? With a big slice of humble pie to follow.

Market economics is just another way of saying ” selfish, blinkered short-termism. Just remember where yoiu read that as your investments evaporate, the value of your house plummets, your job goes east and inflation eats your savings.

And next time you vote VOTE GREEN. Then I will not have to say “I told you so again”.

Stealing From The Poor Box?

It sems the American government, ever anxious to advance the cause of war on poverty – sorry, I mean war on the poor, is lobbying Downing Street in support of megaPharm’s efforts to have the NHS market opened up to unbridled competition. The American Paharmacutical giants do not like our quaint Olde English way of having drugs evaluated by independent experts before they can be launched on an unsuspecting public.
“If we say our anti cancer drug works then who the eff are you to question us?” is the line. Of course the patients may die of heart failure after a few weeks on the drug, but that provides evidence of the drug’ efficacity, after all the poor sods will not have died of cancer will they.

The line being ppeddled by the White House (and swallowed hook line and sinker by the money grubbing scumbags of New Labour is that marketisation will increase “choice” and thus benefit everybody.

Now haven’t we heard that before?