Saturday, 6 August 2011

There will be No Swift Recovery

I keep trying to bang this home to people, but there will be no quick recovery after the Banking/Debt/Euro Crisis.

Its been three years now and we're still rolling around the precipice, trying to avoid the drop. The world economy has been SERIOUSLY over-valued for almost a decade and the bubble has by no means burst. We HAVE to HAVE a SERIOUS revaluation in the world economy. Its inevitable and the world economy will continue to be a dysfunctional mess without it.

Sad to say only when house prices are at least half of what they are now will I begin to consider the issue of recovery. That's the scale of the revaluation that has to come. It may take another 10 years, but eventually we will get governments that will realise the scale of the problem and actually do something about it. I said three years ago that the current crisis would last a couple of decades and on our present course it looks like I'll be proven right unfortunately.

The recent de-rating of America's credit rating is another slip towards the precipice. It slides and we follow. The lunatics really are in charge of the asylum over there and seem to not have a clue about responsibility to their citizens nor the repercussions of their actions worldwide. Their prevarications over the past week have shown them to be weak and uncertain. Weakness in finance is punished unmercifully and the US is sure to be punished, along with the rest of us.

THE most intelligent thing governments can do right now is to stop throwing money at the problem. Instead borrow the money not to go to banks and bonuses, but to provide a safety net for savers and for those who will lose their jobs. It will cost a fraction of the hundreds of billions we've already committed to the cause which has provided a small halt to the decline. Lets get serious about this: the banks got into this mess on their own and they deserve to fail on their own. Their shareholders may not be happy, but that's life: shares go up and down in value.

It may eventually send a warning shot across the bows of the banking industry to finally become more prudent and start to reduce costs, especially with regard to wages and bonuses.

Friday, 5 August 2011

Final Financial Nosedive?

We've been propping up the busted banks for over three years now. We've poured billions into indebted nations and now we're entering the finale.

The sane people are heading for gold and other safe havens, the insane are proposing to borrow more and try and prop up the rotten system.

It would have been better if the banks that had been sunk by bad debt had been allowed to fail and those with sense not to get involved could pick up the pieces.

Now it really is starting to unravel. American politicians wobbled for a week over increasing their debt and that lack of confidence has been enough to instil panic in the markets, which are starting to nosedive.

This may well be the start of the long-needed global revaluation. It will be rough, but it is necessary. For too long have we lived hyped-up above the true value of our net worth. Houses and taxes need to be reduced to a realistic and affordable level.

Until that radical idea isn't embraced, we'll still trudge along, slowly bleeding to death. We need a target, we need a plan of how to get there and above all we need leadership to get us there. We have the worst of all worlds, we have none of the things that will save us.

Sunday, 31 July 2011

A Reply from David Willetts MP

"Thank you for your email of 14th July about the UK's IMF contributions. We are a founding member of the IMF and have responsibilities owing to our continued membership. Member states' contributions to the fund are broadly based on their relative size in the world economy, MPs recently approved increasing the amount of the British money that IMF can borrow from £10.7 billion to £20.15 billion. This is in line with rising contributions of other countries and the proposal was initially agreed in 2009, before the Greek debt crisis.

The IMF has never defaulted on a loan provided to it by a contributing country since its foundation. The IMF enjoys a "preferred creditor status" which essentially means the IMF loans are prioritised and repaid ahead of others. These rules would also apply in the very rare case of a country defaulting. This has been a widely known and respected position amongst member governments as well as other official, and private sector, creditors.

On the eurozone, we believe that the UK should not participate in a new eurozone financial assistance package for Greece. The Prime Minister has recently secured an explicit assurance from the European COuncil that any new programme would be supported by eurozone countries and not the EU as a whole. Eurozone bailouts are a matter for eurozone countries and not us. Thank you for contacting me and making making me aware of your concern on this issue."

So, we already agreed the increased contributions in 2009 but didn't vote on the increase until 2010 eh? I find it hard to believe we would agreed something  during one Parliamement and then wait to vote on it during a different Parliament i.e. after a general election.

The IMF never defaults, which is good, but then if a member country defaults, how do the IMF make up the shortfall? By increasing the interest rates for loans to other countries? How is "preferred creditor status" enforced on a country that cannot or will not pay a loan back? How is paying money to a default risk sound business practice. Why should other countries not linked to Greece be expected to bail them out by increased  interest rates?

We're not contributing anything to the eurozone directly, but what about our obligations to the ECB if they agreed a bailout? What if the EU commission agree a bailout, would the UK be obliged to contribute?

No mention at all about any interest we're paying on this money, so I guess the answer to that is yes. The next question is what rate of interest we're paying on it and what rate the IMF are paying us.

What isn't answered in this letter says a lot.

Lots to look into and research methinks.

Anyone want to comment on it and suggest things I can add to my reply to David Willetts?