This quote comes from a letter in today's New York Times that was signed by 200 leading economists (including Nobel prize winners) - it sums up very nicely my view (hence my willingness to endorse it!):
'To improve the economy, policymakers should focus on reforms that remove impediments to work, saving, investment and production. Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth."
Amen, amen, amen!
Thursday, 29 January 2009
Tuesday, 27 January 2009
Is Zopa right for me?
The Daily Telegraph ran a story today about the personal lending website Zopa (http://www.telegraph.co.uk/forumOtherInsertThread.do;jsessionid=D322C24DA9D9352CABBACE8A02BD4C6C.drtomcat2).
What puzzles me is that most people (IMHO) seem to be pretty useless at traditional DIY (just look at all the botched makeovers) - so why on earth does anyone think they will be any better at DIY banking?
There is something about this story that rings little alarm bells for me.
Is it the interest rate (which is not too high to be too good to be true but not too low to be unattractive) or is it the very small numbers taking part (230,000 worldwide) or is it that it just seems too neat a fit with the zeitgeist ("bankers are useless" - "personal is better")?
I know that people will scream that I am a cynic or a fool, enthral to the big corporations (other might even argue that anything is worth a try) - but when something becomes fashionable with a small yet fanatical following I just get even more worried.
It seems to me that there is the potential here for two very different outcomes - in that it might come to be seen as a classic example of either the "Wisdom" or the "Madness" of crowds. I guess only time will tell - but I'm no Dragon so I'm out.
What puzzles me is that most people (IMHO) seem to be pretty useless at traditional DIY (just look at all the botched makeovers) - so why on earth does anyone think they will be any better at DIY banking?
There is something about this story that rings little alarm bells for me.
Is it the interest rate (which is not too high to be too good to be true but not too low to be unattractive) or is it the very small numbers taking part (230,000 worldwide) or is it that it just seems too neat a fit with the zeitgeist ("bankers are useless" - "personal is better")?
I know that people will scream that I am a cynic or a fool, enthral to the big corporations (other might even argue that anything is worth a try) - but when something becomes fashionable with a small yet fanatical following I just get even more worried.
It seems to me that there is the potential here for two very different outcomes - in that it might come to be seen as a classic example of either the "Wisdom" or the "Madness" of crowds. I guess only time will tell - but I'm no Dragon so I'm out.
Thursday, 22 January 2009
Mervyn King admits it was policy not markets
Thank you to Mr James Randall at the Daily Telegraph for pointing out that Mr Mervyn King (Governor of the Bank of England) has confirmed what I have long argued - that the current crisis is down to a failure in policy.
As Mr King said on Tuesday 20 January 2009: "It is clear that policy did not succeed in preventing the development of an unsustainable position."
Please remember this the next time some socialist simply says it is all the fault of capitalists and free markets - it is not. Root and branch this is a failure of policy (both here and in the states).
The policy here was Gordon Brown's - robbing from the future to pay for his glory today - that is why total debt in the UK, relative to GDP, was allowed to double between the early 1990s and 2007.
What Mr King has failed to appreciate is that "policy" was never intended to prevent this crisis - it was simply an illusion designed to get Labour re-elected.
As Mr King said on Tuesday 20 January 2009: "It is clear that policy did not succeed in preventing the development of an unsustainable position."
Please remember this the next time some socialist simply says it is all the fault of capitalists and free markets - it is not. Root and branch this is a failure of policy (both here and in the states).
The policy here was Gordon Brown's - robbing from the future to pay for his glory today - that is why total debt in the UK, relative to GDP, was allowed to double between the early 1990s and 2007.
What Mr King has failed to appreciate is that "policy" was never intended to prevent this crisis - it was simply an illusion designed to get Labour re-elected.
Monday, 19 January 2009
Reply to Roger Bootle
Roger (http://www.telegraph.co.uk/forumOtherInsertThread.do;jsessionid=03B4C6833EB826DC48FF3D970A652A46.drtomcat2) - I am happy to accept most of your arguments (particularly on the circulation of money) and the need to do something - can we just make it the right thing?.
The problem seems to be a lack of capital in banks, in businesses, in government accounts and in private hands.
This has come about mainly through defective government and central bank policies (rather than simply the greed of bankers and consumers). These policies has messed with the real price of money (the Greenspan put is just one example). This has led to a mispricing of risk which has distorted competition in the markets by encouraging excess leverage, so leading to a gross misallocation of resources. Whether we like it or not (and I don't like it and hate to see the suffering) these imbalances have to be sorted (preferably quickly).
Before people can start consuming again at the old levels (and let's face it people are still consuming on a vast scale simply to survive in our modern world - long may that continue - no basket weaving for me thanks) we all need to rebuild our capital. The fastest way to do this is to cut business and personal taxes substantially leaving governments to carry the burden for a while with increased borrowing.
To make that burden lighter, governments must cut back substantially on the raft of non-jobs (and the red-tape that goes with them) that hamper rather than help wealth generation (regional development agencies should be top of the list – then every other QUANGO). They must also spend but it should be on long term investment in infrastructure projects that support economic development – a good start would be to dual all our A-roads and supply high speed broadband to every corner of the country. (If they wanted to do something very grand that would help regenerate the East Coast, they could build a tunnel or bridge linking Hunstanton and Skegness and put motorways at either end, one leading north to the M180 and the heading south to the M11).
Cutting business taxes substantially would improve the cash flow of many firms that might otherwise go under (cash flow is and always will be the biggest corporate killer). Healthier businesses and the chance for greater profit would encourage investment (particularly inward investment and investment in equities), which would boost job creation. More jobs and more secure jobs would help those with money gain the confidence to borrow and spend again (there is nothing wrong with either of these habits in moderation). It would also put a floor under the commercial property market (which will otherwise crucify the remaining banks as rental demand and prices collapse and leveraged property funds fold like a pack of cards) and the stock market (where the sharp sell-off over the last years has helped undermine good companies by increasing their pension fund commitments and consumer confidence amongst pensioners).
Meanwhile cutting personal taxes for everyone (but mainly for the poorest by simply taking them out of the tax system all together by raising allowances to £12,000 each) would enable individuals to rapidly rebuild their own balance sheets. Yes, this might mean paying off excess debt and even increasing the savings ratio – but it would also increase disposable income and therefore consumption (even a marginal increase would be better than a slump).
A recovering economy would generate higher tax receipts (even without raising new taxes) and this would help pay down government borrowing – so freeing savings in Treasuries for savings in more profitable wealth creating funds.
The problem seems to be a lack of capital in banks, in businesses, in government accounts and in private hands.
This has come about mainly through defective government and central bank policies (rather than simply the greed of bankers and consumers). These policies has messed with the real price of money (the Greenspan put is just one example). This has led to a mispricing of risk which has distorted competition in the markets by encouraging excess leverage, so leading to a gross misallocation of resources. Whether we like it or not (and I don't like it and hate to see the suffering) these imbalances have to be sorted (preferably quickly).
Before people can start consuming again at the old levels (and let's face it people are still consuming on a vast scale simply to survive in our modern world - long may that continue - no basket weaving for me thanks) we all need to rebuild our capital. The fastest way to do this is to cut business and personal taxes substantially leaving governments to carry the burden for a while with increased borrowing.
To make that burden lighter, governments must cut back substantially on the raft of non-jobs (and the red-tape that goes with them) that hamper rather than help wealth generation (regional development agencies should be top of the list – then every other QUANGO). They must also spend but it should be on long term investment in infrastructure projects that support economic development – a good start would be to dual all our A-roads and supply high speed broadband to every corner of the country. (If they wanted to do something very grand that would help regenerate the East Coast, they could build a tunnel or bridge linking Hunstanton and Skegness and put motorways at either end, one leading north to the M180 and the heading south to the M11).
Cutting business taxes substantially would improve the cash flow of many firms that might otherwise go under (cash flow is and always will be the biggest corporate killer). Healthier businesses and the chance for greater profit would encourage investment (particularly inward investment and investment in equities), which would boost job creation. More jobs and more secure jobs would help those with money gain the confidence to borrow and spend again (there is nothing wrong with either of these habits in moderation). It would also put a floor under the commercial property market (which will otherwise crucify the remaining banks as rental demand and prices collapse and leveraged property funds fold like a pack of cards) and the stock market (where the sharp sell-off over the last years has helped undermine good companies by increasing their pension fund commitments and consumer confidence amongst pensioners).
Meanwhile cutting personal taxes for everyone (but mainly for the poorest by simply taking them out of the tax system all together by raising allowances to £12,000 each) would enable individuals to rapidly rebuild their own balance sheets. Yes, this might mean paying off excess debt and even increasing the savings ratio – but it would also increase disposable income and therefore consumption (even a marginal increase would be better than a slump).
A recovering economy would generate higher tax receipts (even without raising new taxes) and this would help pay down government borrowing – so freeing savings in Treasuries for savings in more profitable wealth creating funds.
Tuesday, 13 January 2009
Why did The Great Moderation fail?
The Great Moderation failed because central banks (following government policy) kept messing with the price of money. This distorted the price of risk (and blurred the variance between different levels of risk) and this led to a misallocation of resources. And it's still happening.
Sunday, 11 January 2009
Liam Halligan gets it.
Thank you to Mr Liam Halligan (writing in the Sunday Telegraph http://www.telegraph.co.uk/finance/comment/liamhalligan/4213920/What-this-economy-needs-is-for-us-to-spend-some-time-on-saving.html) for backing our call for policies that increase savings (and our view that cutting interest rates so low is detrimental for the long term health of our economy).
Maybe the wind is shifting after all.
Maybe the wind is shifting after all.
Thursday, 8 January 2009
AA-rated fund manager tells it like it is...
In a 6th of January 2009 interview on Citywire (http://www.citywire.co.uk/adviser/-/news/fund-manager-views/content.aspx?ID=325287&re=4473&ea=33016), Jupiter Asset Management's AA-rated fund manager Julian Gibbs said:
"The market and government policy makers have consistently underestimated the depth of the banking crisis and its effects on the global economy. We are still at the early stages of the global recession, with the implications of rising unemployment and falling house prices only just being felt.
Credit conditions are far from normal, with interest rate spreads remaining significantly above historic levels. This implies that banks are unwilling or, more likely, unable to extend credit in an environment where personal and corporate bankruptcies are on the rise and rebuilding balance sheets remains a priority."
Mr Gibbs made +7.25% last year!
"The market and government policy makers have consistently underestimated the depth of the banking crisis and its effects on the global economy. We are still at the early stages of the global recession, with the implications of rising unemployment and falling house prices only just being felt.
Credit conditions are far from normal, with interest rate spreads remaining significantly above historic levels. This implies that banks are unwilling or, more likely, unable to extend credit in an environment where personal and corporate bankruptcies are on the rise and rebuilding balance sheets remains a priority."
Mr Gibbs made +7.25% last year!
Saving might still make sense...
Surely, if asset price deflation sets in, holding cash could still make sense even with zero rates (that certainly seems to have been the case in Japan these last 10 years)?
Why risk capital on the FTSE today (at around 4400) when in 5-7 months you might be able to pick it up at 3500? Why buy a house today when you will be able to buy it for 20% less in 12 months time (and your rent is linked to CPI)? Why buy a new car today when your 10-year old VW is still running smoothly and you will be able to buy a new one in say September for 15% less than today.
Even if the socialists impose a tax on savings accounts it would have to be onerous (and so political suicide) to justify me spending my savings on assets I don't need or still feel are over-priced.
Why risk capital on the FTSE today (at around 4400) when in 5-7 months you might be able to pick it up at 3500? Why buy a house today when you will be able to buy it for 20% less in 12 months time (and your rent is linked to CPI)? Why buy a new car today when your 10-year old VW is still running smoothly and you will be able to buy a new one in say September for 15% less than today.
Even if the socialists impose a tax on savings accounts it would have to be onerous (and so political suicide) to justify me spending my savings on assets I don't need or still feel are over-priced.
Beware the socialists
The real problem is that this socialist government doesn't want you to save. It wants to destroy savings and with it private wealth (it is deliberately fleecing savers to support its own feckless policies and deterring the rest).
It wants you to spend spend spend until you are so in hock to the usurers that you have to beg it for support (called tax credits etc).
That way the socialists hope to destroy the free market and democracy while entrenching themselves in power for three generations as the servile population votes for those who hand out the bread and soup.
Read Hayek's the Road to Serfdom, he predicted how and why they will try to do this over 50 years ago.
It wants you to spend spend spend until you are so in hock to the usurers that you have to beg it for support (called tax credits etc).
That way the socialists hope to destroy the free market and democracy while entrenching themselves in power for three generations as the servile population votes for those who hand out the bread and soup.
Read Hayek's the Road to Serfdom, he predicted how and why they will try to do this over 50 years ago.
Tom Stevenson is right...
...when he writes in today's Daily Telegraph (8 Jan 2009) that the Bank of England would be wrong to cut rates again. As I have said before: Governments, businesses and individuals all need to rebuild their balance sheets - and fast.
The best (most efficient and effective) way to do this would be to cut taxes (and our highly inefficient public spending) substantially and raise interest rates sharply (to 5 or 6%, so reflecting the real market price of money) so as to encourage saving and to reward thrift.
Yes this will cause more pain for the over-extended (often feckless and reckless) borrowers - but that might teach them a valuable lesson in prudence and long term planning. However that pain will be much shorter and more beneficial than this protracted and ill-conceived attempt to keep the debt merry-go-round spinning.
More people saving will help banks rebuild their balance sheets without further bailouts - that will help them to lend again to companies that want to invest (though I hope this time more responsibly - but that is more about state policy than the decisions of individual bankers).
The best (most efficient and effective) way to do this would be to cut taxes (and our highly inefficient public spending) substantially and raise interest rates sharply (to 5 or 6%, so reflecting the real market price of money) so as to encourage saving and to reward thrift.
Yes this will cause more pain for the over-extended (often feckless and reckless) borrowers - but that might teach them a valuable lesson in prudence and long term planning. However that pain will be much shorter and more beneficial than this protracted and ill-conceived attempt to keep the debt merry-go-round spinning.
More people saving will help banks rebuild their balance sheets without further bailouts - that will help them to lend again to companies that want to invest (though I hope this time more responsibly - but that is more about state policy than the decisions of individual bankers).
Wednesday, 7 January 2009
Pulling us out of this debt hole
It seems to me that government, corporate and personal balance sheets are shot to pieces. We need to rebuild our capital fast. The quickest way to do this is to cut taxes substantially (along with highly inefficient central government spending). There is no point in governments trying to help businesses (selectively - and consequently distorting competition) if at the same time they are crucifying them with high taxes.
Cut taxes and radically restructure the role of central government to focus on the bare necessities that the market cannot provide efficiently or equitably: defence, basic health care focused on prevention, core infrastructure and law and order - (education can be subsidised through vouchers which would drive improvements in service through competition and increase social mobility).
When people and companies are financially secure and are not being bled dry by the tax system they will start to spend - and more efficiently than any bureaucrat. A smaller, less interventionist state is necessary to avoid the policy mistakes of the past, which stem from the over-zealous desire of politicians to command and control what they do not comprehend.
Cut taxes and radically restructure the role of central government to focus on the bare necessities that the market cannot provide efficiently or equitably: defence, basic health care focused on prevention, core infrastructure and law and order - (education can be subsidised through vouchers which would drive improvements in service through competition and increase social mobility).
When people and companies are financially secure and are not being bled dry by the tax system they will start to spend - and more efficiently than any bureaucrat. A smaller, less interventionist state is necessary to avoid the policy mistakes of the past, which stem from the over-zealous desire of politicians to command and control what they do not comprehend.
Tuesday, 6 January 2009
House price falls worse - and getting worser!
The official figures are way behind the curve - look at asking prices and they tell a harder, sorrier story.
For instance I looked at a very good new-build house in pleasant village just outside Norwich 3-years ago - then on for £480K (I still have the brochure even though it was and is way out of my league). A similar house on the same development was on in Jan 2008 for £499K.
Now one of those houses is on the market for £320K - still out of my league despite a 35% fall in asking price BEFORE any buyer negotiates!
For instance I looked at a very good new-build house in pleasant village just outside Norwich 3-years ago - then on for £480K (I still have the brochure even though it was and is way out of my league). A similar house on the same development was on in Jan 2008 for £499K.
Now one of those houses is on the market for £320K - still out of my league despite a 35% fall in asking price BEFORE any buyer negotiates!
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