China's moment

I expect someone in a moment will blame Gordon for this.

Maybe we are ignoring the massive disruption to steel etc markets caused by the Chinese Olympics.

With stories like this, and others detailing how the country was just hours from total banking failure, it's becoming clearer just how venerable the British taxpayer has become as a result of the Government's policies.

Our future as a 'prosperous nation' is in the lap of developing countries and banks that threaten to 'put the plug' if we don't bail then out. I guess we weren't so prosperous after all.

Time to withdraw a couple of months wages from the bank and keep it in a shoebox.

Dear Robert

Bankers are the problem lets Nationalise the whole of the worlds banks.?

It has always been absurdly unreal to assume that China (et al) could go on growing irrespective of the economic performance of the country's export markets.

And it has always been absurdly unreal to operate a version of globalisation in which China (et al) impose huge tariff barriers on manufactured imports whilst being free to export, without tariffs, into western markets.

Time to get real.

Hi Robert,

don't put all BRICs in the same bag. What you say applies only to China, and perhaps to some other "Asian tigers" like Taiwan and South Korea. Brazil and Russia habe been mostly exporting commodities and importing manufactured goods. At the moment Brazil is running into a trade deficit, despite the fact that the currency has been strongly devaluated (by the market, as the Brazilian government does not place currency controls).

So I'm afraid it's really up to China to change its ways, but don't count on it ...

Cash generation should be the most important goal.

Households, businesses and government should focus on paying off as many of their debts/ liabilities as they can afford.

It's important to build real net cash reserves, as the best way of protecting ourselves against falling demand within the world economy.

Businesses that cannot sell more goods and services shouldn't attempt to borrow more money.

Unfortunately, because current debt levels are already high in the UK and the USA, cash reserves are very low.
The only way to increase cash is to cut overheads, and ensure income exceeds expenditure.

The falling value of sterling reduces the value of our sterling cash reserves, which makes the challenge harder still.

The British government can attempt to incease its borrowing, but it must balance its borrowings against how much it can raise through future taxation.

" if there's no demand from other countries for the stuff made by British businesses, all the credit in the world isn't going to create revenues for them."

Exactly. And exactly for every other country. There's the rub - there is nothing any country can do to prevent this from happening - all they can decide is how much future money they waste on futile resuscitations of their own economies.

As for China re-valuing its currency it's about 30 years too late for that.

If the global economy were a smoker, giving up the weed after you begin to cough up blood will only help so much.

Robert,

"if they don't buy a bit more of what we produce . . . "

You've lost me there. If China (or the East in general) can ship stuff to us cheaper than the UK can make it itself then why on earth wouldn't they make it locally?

Well, this is because our consumer economies in the west on are on a downward spiral.

And the Chinese rely on the West to buy their goods.

But in the West, the Politicians and Business people have been happily holding Pay rises to below the real rises in the cost of living for the last twenty - thirty years, relying on peoples increased borrowing to keep the economy going.

Well now the workers are maxed out, and their pay rises aren't keeping up with cost of living inflation, they have no spare cash.

So Shops sell less, and less, some go out of business as we have seen. Unemployment soars, shops sell even less, unemployment grows further, with wage freezes and wage cuts, so the Consumer demand collapses further.

Until something happen to put money back in the hands of workers our economy will continue to sink.

Somewhat hypocritical to call for China, India and Brazil, to import more to save the world system. Why should they import more when the rest of the world is busy reducing their imports!

None of these counties produce anything unique. The only reason for their rapid growth was the off-setting of cost by the Western World.

An idea that has been tried before, is to give the Public Sector a nice big Pay rise , say twenty percent.

This money would be spent in Private sector businesses helping to protect jobs, etc.

Of course if Wages continue to fall, and unemployment continues to rise then the cost to the Taxpayer thro Nationalized Banks from loan defaulters will soar.

SO a couple of hundred million spent on the Public Sector wage bill can help avert multi billion pound losses to the tax payer from loan defaulters.

Makes you think.

BBC headline 'Brown warns against pessimism' - look at Brown's face on accompanying picture!

You've got to laugh!

#3, Total_Injustice "Time to withdraw a couple of months wages from the bank and keep it in a shoebox."

Although it will take up more space, I would recommend converting these promissory notes into something real: such as dried, canned or bottled food.

1: It has been the policy of successive governments since Maggie Thatcher to hold workers pay below the real rate of Inflation.

Thus property prices were stripped out of the CPI index, and electronic goods (bound to fall in price were added in).

Each Gov't since Maggie Thatcher has 'liberated' the financial community a bit more, culminating in allowing the Retail Banks to act as investment banks as well.

Allowing Structured Investment Vehicles and the packaging and selling on of Mortgages IS a relatively recent development under Mr Brown's watch.

Mind you, British Banks have always lost money in America, and over the years American Banks have always gone bust.

The Americans just don't know how to run a profitable Bank ( and with the import of American board level 'talent' to the UK and Europe nor do we!)

Send the Yanks home and lets have some proper British Bankers of the old school!

Obama pointing out that the chinese currency must appreciate is a good thing, and will hopefully be a good first step in restoring the balance of the world economy. The 'vile' bankers have in fact spent the last few years devising ever inegnious ways to 'transmit' the excess savings in exporting countries into both productive and non-productive investment in the west, for non-productive read housing bubbles in the US, UK Spain, Australia, etc. and also bond and equity bubbles.
This was always unsustainable and its sudden reversal is causing the present disruption, making people scratch around for simlpe explanations such as 'there's a housing shortage' or 'we can give Jag/LR six month' tax[payer support until the 'recovery''. We have had decades of bubble demand in everything.
There will be no such recovery. This dislocation is the fundamental loss of competitiveness of west against east, with the banking system being the 'messenger'.
Hazarding a guess, over 20 years the Asians' currencies will appreciate, they will gradually consume more giving us in the west new markets to export into, and as their wealth rises and the west's falls (relatively), we will also 'make' things again with competitive wages.
I am confident this will happen, not because we in the west have become wiser. I still see far too many people and politicians still trying to reflate asset bubbles instead of talking about long-term restructuring of th Brotosh economy to find a competitive place in the world. Rather, it will be decision made in Asia not to lend and export to fundamentally bankrupt consumers who pay with worthless IOUs in sterling.
The challenge for the UK for a generation will be protecting our welfare state so that the poor still get shelter, food and medical care. This itself will require frugal living and higher taxation / inflation for all.

Excellent post, Robert.

We urgently need to accept that the world recession has now developed a momentum of it's own, largely independant of the ongoing financial crisis. Although the banking system needs to be stabilised, that in itself will not be sufficient to stave off the recession. We need to do a lot of other things as well.

The imbalances in world trade are a primary cause of the problem. We should never have allowed China to subsidise its exports to such an extent (60%+ ?) , and I think Obama is right to say that even now it is vital that this practice should stop.

Also, as the banks contract their lending ratios, Governments need to "print money" to fill the void - "quantitative easing" should be used now rather than when it's too late. We should adopt an Obama style stimulus package - coordinated action by Western Governments here would be more effective than each country acting alone.

Finally, if we can accept the seriousness of the forthcoming unemployment situation, then we can do a great deal on the supply side by drastic changes the taxation system in order to make it cheaper to employ people. Some (extreme?) examples might be

- replace employers' NI contributions with say a carbon tax (changes the bias in favour of labour intensive industries).

- make the system far more progressive by taxing the rich more and the poor less (changes the bias in favour of employing more on low incomes rather than a few on high incomes, and also puts more money in the hands of the poor who are more likely to spend it ).

- replace the current tax allowances and benefits with a "Citizen's Income" paid to every one whether working or not (fixes the current system where employers make people redundant but can't take into account the fact that the state will still have to pay them benefits, so redundancies occur even when it is not in the national interest).

In the long term Britain needs to export more in order to meet its Import bill.

If other countries do not wish to Import British goods, then we will hav eto import less from them.

Previous Gov'ts attitudes have been to hold down the Pay of those with little bargaining power whilst allowing those with bargaining power to continue to buy almost anything they like from abroad.

It may be that if we cannot Export more, that we will need some kind of trade controls, such as they have in Japan.

Perhaps put in quotas to reduce some of the floods of imports.

Of course the collapse in the value of sterling will act to Ration Imports amongst those who can afford them.

Put how far Sterling will need to fall against other currencies in order to balance our Imports against our Exports is anyone's guess, but I would say it has a fair bit further to fall yet.

So invest in new technologies and product development and find out what other countries would like us to do / produce for them , thats the way ahead.

#7, MrTweedy:

"Households, businesses and government should focus on paying off as many of their debts/ liabilities as they can afford."

You (like myself) are way behind the curve when it comes to modern political thought :o)

Nowadays, the idea is for governments to borrow more and more so that business and households can borrow more and more to spend on what they can not afford. We're obviously just not smart enough to realise that this is the way forward.

Robert,

surely people can see that deflation is more of a problem than the commentators are talking about.

If you cannot sell a product for more than the cost of production then the cost of production has to be reduced. This is through either job losses or reduced wages, or a combination of both.

I detect a threat to the link of pensions to the Retail Prices index. The government will say that to link pensions to the RPI is now not relevant and the the link ought to be to the Consumer Prices index.

Furthermore, this government wants to link pensions to wages, well with wages falling that is a really good idea, is it not. I say no.

I find the focussed economic analysis on this blog very illuminating.... I would feel I am moderately up on that side but my own interest is in History , and so here in Economics History...and what lessons it may have.

One weakness in recent attempts by Government and Governmental organisations to rebuild confidence has been the idea that because of what happened in past recessions/depressions lessons have been learned.

Which is all very well but it can sound a lot like the problem of Military history where Generals learn the lessons of History....but they are the wrong lessons and they end up fighting , and losing, the last war..instead of fighting and winning this one.

There are a number of major differences with this recession/depression but the most important is that of the velocity of events.

The sheer velocity of events is constantly outpacing the attempts to control them---and a 'good solution' applied to slowly is no solution at all.

Whether it's the 'always on' internet, 24 news media or globalisation the fact is things just combine to out pace the governments trying to form solutons.

A really shocking example of this unprecedented velocity, for me at any rate, was when Merrill Lynch went into a meetings with the rest of the big Wall Street players to find a solution to Lehmann Brothers ---- and never came out...less than 48 hours later they were themselves being taken over by BoA.

The Banking crash hasn't finished yet (The share prices show that graphically) but unlike in 1929-32 (or 1929-1939) the connectivity across the entire 'real' economy also means the dominos aren't falling serially, as one topples into another (so the 'powers that be' can race round the table and remove three to halt the chain reaction)--------

-----it's much more like the whole table has been tipped up and every domino thrown into the air at once.

Hence China (and even the middle eastern soveriegn wealth funds) can't escape the effects.

(I wonder if the Quatari and Kuwaiti investment managers will be queuing up outside 'action meetings' with the Northern Rock 'grannies' to plan Court actions when their cash thrown into Barclays and other Banks evaporates without trace.....?)

Its a hell of a mess...but at least its a fast moving one!!!

we need to make things in the UK again on a much bigger scale and stop going down the road of cheapness.

this has a price but paying people to be idle and allowing the gap between the haves and the havenots to grow is not the way forward.

the Tories will never admit that their sell-offs of public utilities was anything other than a way to allow, after time, the people here to be ripped off to reinforce their divided society.

we need many new homes, better public transport with the reopening of some old railway lines and much more investment in trams in our cities.

much of the material to do this COULD be produced here but many of the places where this would have been used for production have closed.

we must start from scratch just like the Victorians did in building all what they needed !

we have allowed the accountants to rule for too long and they must be made to be servants not masters !

Re 3: Total_Injustice

Sorry for my 'venerable' swap in place of 'vulnerable', rushing my post.

I think it is time people were directed to

https://cynicuseconomicus.blogspot.com/2008/07/what-is-going-on-in-world-economy.html.

Make sure you have a lot of time as there is a great deal to read, but everything that has happened this guy foretold.

read what he has said about China in todays blogg.

1. At 09:53am on 26 Jan 2009, mrmosky wrote:
I expect someone in a moment will blame Gordon for this.


Good Idea! I blame Gordon Brown ,i shall work on the transmission meccanisms immediately.

But i suspect a historical lay line connection between Hadrians wall and the great wall of China has something to do with it .

And the Scotts jumping off their wall in order to send shockwaves through the earths crust to China, thus dissrupting Chineese industry to bring down the English financial system ,after seeing Rob Roy for the thousanth time.

Their can be no other rational exlplanation.

If demand from overseas is drying up for the moment, why don't UK businesses concentrate on making things to sell on the domestic market ?

The BBC reported there was a wheelie-bin shortage not so long ago, because the only country that makes them is Germany and they were inundanted with orders .

Why on earth can't we adjust our manufacturing processes to make our own wheelie bins... ?

Give the relevant businesses a loan to do that if need be. I really don't mind if we're helping our balance of payments by reducing imports at a time when it is much harder to export to the rest of the world...

Dear Robert,
British people should start buying purley British commodities, EVERYTHING British, because if China can sell things cheaper than we can make it we have to turn our backs on Chinese goods, and so on ,
"WHY IMPORT WHEN WE CAN PRODUCE OURSELFS"?
and Totally buy British even from our local store,
ITS TIME THE BRITISH PEOPLE BOUGHT BRITISH ONLY AND STARTED THE CIRCULATION OF THE POUND WITHIN THE COUNTRY TO KICK START THE ECONOMY
We cannot compete if British prices are three times higher than places like China to produce, we need to look after Britain first,
With many of Britains Companies now Foreign owned and sacking people in the thousands, we have to renationalise these companies like the banks, and create Hundreds more Manufacturing jobs to supply Great Britain PLC, ONLY.
When your backs to the wall, you have to look after number one and stuff GLOBALISATION.

Welcome to my world, Robert.

The wheels are fast coming off in China. The Chinese government has been exhorting their factories to embrace higher value better quality product. Those which have done so are doing quite well: those that haven't are going down the tubes. They have a lot of the latter and there has been trouble on the back of it. China will do what China must and they are going to disregard anyone who tells them the opposite: a bit like the Americans really.

Japan is trying to deal with a massive revaluation of their currency at the same time as the customers of their exporting industries are in their own trouble.

To a degree Mr. Brown is right in that these are global problems. The solution needs to be coordinated but, as usual, there is little sign of that.

The absence of understanding the nature of the problem by the self-appointed great and good is worrying. If they can't give us answers instead of more and more problems, then what is the point of them?

Is there a paln afoot to take the heat of Messrs Brown & Darling by throwing in a googlie regarding China.

Nothing but noithing will get sorted until we get to the core of the problem and why it happened.

Lord Myners has rightly said the banks behaviour was OTT but failed to register the ignorance in government circles or the incompetence of the FSA.

The FSA has said it was the bonus culture alone that led to ridiculous excess and as an institution was apparently innocent of its lax monitoring.

The problem in my view is unmistakeably that caused by grreed of the banks bonus culture and incompetent regulation by those not fit for the purpose.

We now have a government chucking money hand over fist at a problem but with no definitive controls on how itis to be handled or monitored, a regulator reducing Tier one capital obligations of banks and allowing assets not to be marked to market and finally banks going pff to party at Davos oblivious to their excesses and the contempt they are held in. Nero playing the fiddle whilst rome burned comes to mind!!

WHat we need is a clear out of the FSA senior management as thay have undeniably failed the test of time.

We also need a clear out of senior bank management with no compensation simply because nothing suggests they are capable fo sorting out this mess.

Finally we need to start thinking outside the box and that means having an election to clear out the dead wood that was so unable to control events when it had the opportunity to do so, not forgetting its continued raid on our pensions and early notice to raise taxes again.

If this is what 'experience' brings to the nations management then we truly will be written off as a third rate country posturing as a leading economic power.

You can not repair a problem with the same people who were all party to making it, and to pretend to assume otherwise in this instance is economic madness.

13. GRIMUPNORTH77:

"BBC headline 'Brown warns against pessimism' - look at Brown's face on accompanying picture!

You've got to laugh!"

Spot on. Mind you, with this bloke it's usually difficult to know whether to laugh or cry..........

1. At 09:53am on 26 Jan 2009, mrmosky wrote:

'I expect someone in a moment will blame Gordon for this.'

No one forced Gordon Brown onto the podium to shake hands with the Chinese dictator in agreement to Britain's huge trade deficit with China and massive UK debt to China - while Chinese tanks were rolling into Tibet (2007/2008).

I suppose G Brown or some one else may think G Brown had a good deal for UK plc on this.

Let's also wait and see how much of this recent government banking bail out money has now got toxicated into China?

£'s Millions? £'s Billions?

glad to see that you've moved to a new topic and one which relates to the global side of this global downturn

as our economies are largely built on trust and confidence consumers in the west have taken on board the message and have tightened their belts hard; too late for Gordon to speak of banishing pessimism

individuals and companies in the west have cut down severely on what they will buy from anywhere; so it just happens that much of it is from China......... and it seems unlikely that the Chinese will consciously buy from us as we have few things they want or need that they can't already produce themselves

The economists are marking down their projections for global growth. Theres a surprise. Economists as a group are not doing too well with their forecasts are they.

Does anybody really believe China is the solution. China is part of the problem so far.

Robert, the days are gone when we can demand anything from another country to bail us out of the mess we're in. There's no way China's going to say: 'hey, lets buy more foreign goods just to help our 'friends'. Why should they? Think about it, they have their own 'hidden' internal problems to manage. We're going down the Tubes, hey, but lets look on the bright side, at least Gordonbennet is optimistic.

12 supercalmdown

Makes me think you are a public sector worker. Never mind you can look forward to a public purse shrinking by 10 percent in due course. Does that help you think.

it is now pretty clear that the BRIC (brazil, russia, india and china) nations are not going to be the bricks we hoped they would be during the slump

it turns out that China does share the same planet with the rest of us; seems to be a big surprise to both economists and climate-change deniers but I think the rest of us had worked it out already

I said a few weeks back that we seem to be on course for a 6% drop in GDP in a rolling 12 month period, as suggested by figures coming out of US, UK, Germany etc since last autumn; so about twice as bad as the current worst estimates; a Chinese drop from 12% to half that would appear to concur, though I know it's more complicated and their figures may be massaged (mind you so are UK and US official stats about all manner of economic indicators!)

The Chinese had none of the initial credit crunch problems but a severe drop in demand from us for their stuff has a real impact - doh; and with globalisation we have a world-wide JIT economy (just-in-time) and everything is interconnected, so the factories in China close almost immediately as they are capitalists red in tooth and claw

Let's say for the sake of argument we can get the Chinese to be enlightened and unselfish world citizens and voluntarily buy stuff from us.

WHAT DO WE HAVE THAT THEY WANT?

We already sell them lots of Scotch but that's hardly going to pull us out of the slump on its own.......

But we (or the US, Germany etc anyway) do have high-end technology and processes; some are presumably covered by US embargoes on technologies with potential military applications

But how about a deal with the Chinese to provide them with the Carbon Capture technology and equipment for their coal-powered electricity stations; a very big market and very important to the planet to cut CO2 emissions; so that could be a WIN-WIN; clearly they would copy the technology and start building their own so they would need to be locked into a binding 5 year trade deal on it

I agree that we need to hope there will be US-China co-operation but trends towards protectionism are equally possible on both sides and might be tempting to our friends the politicians, who always are on the look out for someone to blame.........

Robert.

A simple question but.

No one can answer me.

Where has all the money gone?

If the family savings had just disappeared we would ask where is it...... We would check outgoings and accounts, money boxes and under beds.

If the bankers and traders have taken it then presumably it is being held somewhere? If it is being held in dollars or other currencies why haven't the monies been traced?

We will never be pessimistic on these boards ,we shall spit in the face of adversity even if it flys back and hits us in the face, in the fool certainty that some tutt will start another ponzi and get it right next time .

Once Madoff finishes his comunity service cleaning grafiti off synagogs, he could show Gordon how the quantum world of finance works and reflate the economy without the need of trifles such as printing presses.

Until then we shall haave to render unto Gordon the things that are Gordons

Now that we've built up the Chinese economy, which in turn has helped them build up their military and space programme, just wait for them to start to flex their newly found muscles trying to get back the wealth they now find ebbing away from them due to the world depression wrought by Western extravagance.

Now, where did I put my Mandarin phrasebook ...

#12,supercalmdown:

"An idea that has been tried before, is to give the Public Sector a nice big Pay rise , say twenty percent."

Why not give it to private sector workers by changing the tax codes of everyone NOT in the public sector?

"This money would be spent in Private sector businesses helping to protect jobs, etc."

Or would it maybe go in foreign holidays or put in the bank? Why should the public sector get a bigger share of the cake? Surely the people actually producing something should get it (and I don't mean anyone at the top).

"Of course if Wages continue to fall, and unemployment continues to rise then the cost to the Taxpayer thro Nationalized Banks from loan defaulters will soar."

That's a possibility - though not really an argument for giving prizes to the wasters.

"SO a couple of hundred million spent on the Public Sector wage bill can help avert multi billion pound losses to the tax payer from loan defaulters."

Again - why channel it through on the Public Sector? Either give it to the real workers or directly to businesses by buying up and stockpiling useful things.

"Makes you think."
Makes ME think the lunatics are getting very close to taking over the asylum.

I forgot to add, that it's worth looking at the Chinese version of a recession budget and its likely impacts, which are global

Looks like they are going for a huge internal investment plan; and they can do it quickly because they have a command economy and NIMBYs are simply bulldozed out of the way or worse; anyway their proposed internal investment programme makes sense for them domestically but militates against them spending on imports; and it also means they will be buying a lot less US debt through T bills etc

There was an interesting article in the NY Times a couple days back about Chinese plans for high-speed rail; $88 bn on this alone! seems they will be keeping their huge steel industry ticking over

https://www.nytimes.com/2009/01/23/business/worldbusiness/23yuan

if we could do a fraction of this then it would not only help Corus but improve our domestic infrastructure; and it would make sense to retain steel production as part of a
NATIONAL INDUSTRIAL STRATEGY

not much point bothering with infrastructure projects here in the UK though if it's going to take until 2015 to get them through the planning process; especially on things like airport expansion that wouldn't be built until 2020; by which time the chances are we won't be flying as much and in any case several seasons-worth of the GREEN SHOOTS OF RECOVERY will have come and gone

China's fiscal model was to keep their currency much much weaker than the dollar artificially. Now it's paying the price for not allowing market forces to dictate the real price of it's currency.

Robert

I think the elephant in the room is the unsustainable nature of economic growth in itself as a means of creating prosperity, and what is prosperity?

This crash is asking us this question.

What ever China does with exchange rates it will make no difference.

For arguments sake lets say we now only need to expend about 8% of human labour in feeding ourselves, lets say 15% to include energy needs and lets up that to a huge 50% to include clothes and general infrastructure ( water, sewage, transport, education, defense, justice, healthcare etc).

The remaining 50% (say) of human labour is largely involved with producing things we do not really need for our day to day survival and comfort, often at the expense of the environment.

On top of that, all the time we are producing the things we dont need and the stuff we do need ever more efficiently on a continual basis. Economics demands that in order to generate profits / plough some of it back into innovation /more efficiencies etc

Here is the rub.

The planet does not have enough resources to keep on producing 'non essential stuff' exponentially in order to keep everybody in work to balance the continued improvements and efficiencies the current economic model demands.

The job of the current economic model has been completed. It created innovation and efficiency by harnessing the power of human greed. The point has now been reached when human greed has taken over the system to keep it functioning and the system is breaking down because of it and has become horribly imbalanced.

We have, as human beings, become too efficient and automated for the existing economic model to ever work long term to keep everybody employed.

This is increasingly being expressed as an ever volatile underclass on subsistance benefits (the people who used to plough the fields) and an upper class who, for example, own a farm capable of producing enough food to feed 1,000 people but only employs 20.

It does not work.

It is not balanced.

For example.

The guy who owns the farm is incredibly rich.

His 20 employees are relatively wealthy.

The 979 people his farm feeds live a subsitence existence.

The efficiencies in production are ever more generating wealth for a 'super rich elite' but that does not generate work for grass roots people to do, sidelined to live a subsistence life on benefits with eyes fixed on the super rich, a position they can, by the very nature of an ever efficient system, never obtain.

In the future, increasingly, everybody will have to do less. In years gone by it took up almost all human labour just to feed ourselves, now it is a tiny proportion of our activities.

Providing some cross cultural and religious consensus is reached to control global population we should all be able to work less, enjoy our families and friends more and the things that really matter in a sustainable way..sounds quite nice.

The worlds is not built to function that way at the moment. There will have to be a global consensus accross nations and a desire to make the world a sustainable place for all to live.

That will need religious compromise (population control) and political and cultural compromise such that there is a general acceptance that we all need to find a way to be happy with less ' stuff' and in return we will all have more time with our friends and families.

The grand opportunity before us is to invest the last of the existing global economic models power to create that world.

That means huge investment in sustainable energy production, food and basic needs (sustainable transport, clean water, functioning sewage systems) and education ( particularly basic hygene and population control) on a global scale. Everybody needs to sign up to this.

The current economic model has created the efficiencies and the technology and the knowledge such that there is no longer any reason to fight for resources or see children starving to death or drinking filthy water or adults murdering each other.

That does not have to mean we will live in a bland world either, prosperity and recognition will be measured in terms of creativity resting on an understanding of what we are and how the world works, not money in itself.

The wealthy should be those who create something of real value. I have no problem with Bill Gates wealth, I have a big problem with Richard F Fuld jnrs wealth.

Money was created to oil the wheels of a mechanism to enable us to become more efficient and create a world where all our basic needs can be met. That job of work is done, now it only feeds that which has an unending appetite. Human greed.

This crash was ineviatable. You could even argue it is fortunate it has occured as soon as it has.

The sooner the world understands its root causes and starts to make decisions accordingly the better.

We need to preserve our core science and engineering skills at all levels through this turmoil to do it.

I am going to make a cup of tea now.


Jericoa

Society needs to think long and hard about its values.

A balanced, sustainable society built on trust and integrity.
Having enough, plus perhaps a little to share should be a good starting point.

Brown is "old-politiek" and is merely feeding the consumer beast like an addicted alcoholic.

I pray that he is removed before an even bigger bubble bursts.

Dear Speach-Impestonment (sorry...)

Would it help if we joined the Euro? That might prop up our exchange rate and thus reduce our global banking liabilities (?!)

Regards

QE

China is a great country who given its size and population has managed to take on allcomers.

Possibly under Queensbury rules they may be a case of suggesting China is not playing fair but we need to ask why should they?

What have we done save technically abuse their low paid structure for our own betterment.

In a free market economy basic laws of supply and demand apply to all sides. The West cannot continue to have the arrogance it has on negotiations when economic and indsutrial strength has shifted irretreivably to the East and Middle East.

We should congratulate China on what it has achieved against incredible odds and look at ourselves to see what we have lost because the going was too easy.

China owes us nothing and all commentary should appreciate that fact. Once the status quo is realised we can then have real time discussions on moving forward.

In short we are in no position any more to dictate any terms to anyone any more.

We are all answerable to our own returning boomerangs which penetrate all the self delusional thinking set up to keep them out and prevent empathy with oneself .

Therefore my advice to Gordon Boomerangue pi in the sky , is to duck as regularly as possible .

So what we are looking for is a sort of economic perpetual motion is it Robert?

We'd (the West) need to accept a reduced standard of living and a more realistic view of our position globally....

Ain’t happening........ welcome to Nationalism it’s going to be the new Black!!!!!

The world is about to change for the worst and we are very, very poorly prepared

Surely if the Banks are asking for insurance against dodgy loans, then we will get into the same mess as they have already got us into. In other words we will be paying their bonusses again!!

With China surely its who blinks first-Obama or the Chinese leaders?

Many good points Robert,

I'm glad we have moved to recognising this is a worldwide problem rather than focusing on singulary uk government initatives.

IMO if the chinese authorities did not use curreny as an unfair trading advantage they would be perfectly willing to use overt subsidization of their industry.

It dosen't seem to long ago to me the US were willing to hid behind speculation and market forces for the low value of the dollar.

Although i agree whole heartedly that wordwide trade needs to increase, frankly as a realist lending other countries will almost inevitably be used to buy within that country itself, there are also very many companies in the UK are desperate for bank leanding themselves.

For my last point, this is "economic pain" as a result of national and individual levels of dept, it is a correction. The western world is still a very nice place to be. A friend of mine over the weekend was telling me their child has been cured of lukemia. Maybe of the subject but lets keep the current economic "pain" in perspective

#27
Not so sure about buying British- would love to, but where do I do it?
Has anyone got any washing I can take in - British or otherwise? But we were and are a nation of shopkeepers, n'est ce pas? Well enough of the platitudes - no more boom or bust, I say! My little tin piggy is waiting for another little quiddy - and as they're smaller now in every way, I can fairly pack them in!

#20 T A Griffin (TAG) wrote:

"I detect a threat to the link of pensions to the Retail Prices index. The government will say that to link pensions to the RPI is now not relevant and the the link ought to be to the Consumer Prices index."


I think this points the origin of our problems.

Excessive index linked liabilities (public sector pensions etc) led to fiddling the RPI figures.

This distortion caused the BOE to set interest rates too low thus stimulating a property bubble.

Borrowing on the the strength of property prices led to the illusion of prosperity.

With low interest rates commissions are squeezed thus inducing financial service firms to look for ways of artificially boosting their offered rates (performance).

This lead to corruption and overcomplicated scams designed to hide their real risks.

The rest is obvious.

After the cold war with Russia, China was the next threat. They are much more cunning. Instead of bombing the West they bought it.

It seems pretty obvious to that trade barriers and protectionism are the next step with all that that will bring with it.
rampant nationalism, scapegoats, petty squabbles getting out of hand.
We should be looking at existing treaties to see who could drag us into conflict.
It is looking more and more like war is in the offing

No. 19. vegetable_grower

You and I do appear to be old fashioned.

However, I think economics is much more powerful than politics.

As others have pointed out above, the British economy needs to be restructured to find its long term competitive niche in the world.

The British government will have to raise taxation to pay for the cost of keeping our banks afloat, plus the cost of increased benefits to care for the 3 million unemployed.

Unfortunately, higher taxation will mean the private sector will have less cash available to invest in the development of those products needed to give Britain a competitive edge in the world economy.

Mrs Thatcher had the benefit of North Sea oil revenues, which allowed her to cut taxes. By contrast, we are faced with the prospect of higher taxes in the future.

Debt is a way of spending tomorrow's money today. If tomorrow's earnings turn out to be less than expected, a big problem will result - it will take much longer to pay the debt off. This is the situation being faced by the UK and the USA.

Britain will find it hard to bounce back quickly from this recession. I fear we are in for a long haul.

P.S. Japan tried to buy the West but their banks screwed up.

With the benefit of hind, it is obvious now that the head honchos at Barclays had to come out with something to reassure the market.

So, in my opinion, this letter does not mark the bottom but the beginning of the bottom.

(You can always paraphrase Churchill to good effect).

Nevertheless, I would'nt be surprised to see Barclays share price back in the dungeon within a while, as the 'real' bottom approaches.

Zero growth is exactly what the world needs!
Most of what is reported as "growth" turns out to be the generation of ever more irrelevant items which waste real resource for no useful benefit.
The underlying problem with business, commerce and politics generally is that they are not yet adapted to the concept of simply operating in a stable (rather than growing) environment.

From the BBC site: "The economic crisis should be treated as "the difficult birth-pangs of a new global order", Prime Minister Gordon Brown has said"

At last, he is beginning to see the light! What we are seeing is the end of Western hegemony and the beginning of a huge shift in financial dominance to the East. Throwing all this money at the "problem with lending" is frankly peeing into the wind and missing the point.

The point is that the party is over for the West. The bets now should be on when the West starts playing catchup with the East and becomes the new "developing world" with rotten living standards and social unrest.

The party century for the West is over.

21. At 10:55am on 26 Jan 2009, e2toe4 wrote:
I find the focussed economic analysis on this blog very illuminating.... I would feel I am moderately up on that side but my own interest is in History , and so here in Economics History...and what lessons it may have.



Pollytitians study the lessons of history......indeed...on how to rebrand and bottle snake oil.

Robert,

Geithner's blaming of China for currency manipulation is disingenous- and might be a prelude to trade sanctions the US might instigate against China. The West, and the US in particular, were more than happy to recycle the cheap credit made available due to such a trade inbalance, and having seen the resultant housing bubble burst, is seeking to find someone else to blame rather than look to itself for explanation.

We have all been eager to hoover up the cheap imports from China, but now things have turned rotten, are anxious to blame anyone but ourselves. Bush squandered Billions of US dollars (from inheriting a budget surplus of over $2 Billion to a deficit in excess of $1 Trillion) and who financed this spending spree ? Now we seek to blame them for being over anxious to make cheap credit available. Sorry, no one forced us to take it- and now we are suffering the consequences, let's at least be honest about the true culpability here.

#21 Really interesting and thoughful comment. Have you ever read Toffler's book 'Future Shock'?

I have long subscribed to the view that globalisation was a giant con-trick, but that too many vested interests in the west benefited for this fact to become publicised.

Our markets are open without restriction to manufactured goods from China, India and other emerging economies. In all of these countries, unit wages (and hence unit costs) are far lower than is the case in the west. Yet these countries' markets are effectively closed to western exporters by huge tariff barriers, a subject on which western business (and political) leaders have been strangely silent.

If the situation is so one-sided, why did "we" in the west put up with it? The answer is that so many western vested interests were beneficiaries of one-sided globalisation. Western manufacturers could get goods made more cheaply in China (etc) than in their home countries. Service companies could out-source (call centres, etc). Retailers could get ever-cheaper consumer goods. Bankers could recycle, at a profit, the emerging countries' cash surpluses. Politicians could ride the wave of apparent prosperity.

Yet the underlying process was one of impoverishment. Huge swathes of our industries closed as business gravitated to the cheaper emerging economies. Wages here were held down by competition from lower-wage (and often exploitation-based) economies. And all along our economies were being hollowed out by the loss of manufacturing industries and, latterly, service industries as well.

Calls for a level playing field are both inevitable and welcome. Tariffs and access should be reciprocal, and deliberate currency manipulation should cease. If this process looks a lot like protectionism, too bad. It is high time that western workers, and domestic industries, got the fair deal that was manifestly denied to them for so long under con-globalisation.

robert,

Surely why the UK needs a 'global' solution in banking is simply because we can not cover our own needs.

The UK is a 'debt junkie' that is still trying to believe that balancing the books through 'prudence and saving' can be put off until 'sometime after next monday'.

The hour glass looks mighty empty to me unfortunately.

If we are to believe 'informed' media reports then surplus account countries have growing and pressing needs of their own (Herald Tribune states that it is likely that China has $1 Trillion of toxic assets on their banks books plus a mere 400 million citizenz earning less than $1 a day - surely a good reason to spend every yuan and probably more on allieviating their absolute requirement for upwards of 8% growth this and every year in the near term?)).

It will be hardly surprising that China is unlikely to be the banker to the world for very much longer.

In your strangely 'government spokesperson blog' you urge the BRIC countries to import more and export less.

Is it not more likely and sensible that they will import less as they export less?

As to the brewing US/China currency row surely the US needs China more than the other way round currently?

Do remember China has $1 Trillion of the $1.7 Trillion foreign held US debt and the US, as we all know the US is going to run a $1 Trillion fiscal deficit this year.

US needs all the friends with real money that it can find don't you think?

Far too many sentences you write start with "And". This stands out a mile in your book too.

BBC really should have higher standards - Unless the rules on starting sentences with a conjunction have been changed?

And another thing... Just joking!

At 11:25am on 26 Jan 2009, anewworld wrote:... 'Where has all the money gone?'.

The answer, as I understand it, is that the money only existed in a particular form. If I spend a million pounds on a house, it's reasonable to say I have a million pounds - but if the market then decides it's worth half that, I have £500,000. The other £500,000 has just evaporated.
Unfortunately, the credit crunch is more dramatic than that: quite a lot of things which could once have been sold for hundreds of millions are now worth just about nothing: you could have had the whole Wollworths chain for less than the price of a medium-sized pick-and-mix.

So you don't have to imagine there's someone, somewhere, with billions of pounds stuffed into a largeish mattress.

the link to the interesting China infrastructure story mentioned in post #41 was truncated and won't work on this blog for some reason

but you should be able to find it by googling:
NY times China's Route Forward

worth a quick read; the 21st-century definitely remains China's but as they get richer and we get poorer we can hope to sell them more stuff eventually

all the best to fellow Mullerites

Just a thought: how stable would China turn out to be in the event of a major economic down-turn? And how much (for good or ill) would an unstable China effect us?

Believe it or not, China's problems have nothing to do with, "I-take-all-the-credit-for-good-times,-but-side-step-any-responsibility-during-the-bad" Gordo!

China's problem is that it's people save too much and are too reliant on the subsidised exports which have led the boom in China.

When the Chinese finally start to save a little less (only a little because saving is a good thing) then we will see the Chinese economy start revving again.

#41 Mr Pirate - your point re regulation.

We have lived in an economy that has believed that there is no real cost to safety of employees, good consideration of the environmental factors and impacts, workers rights, minimum wage etc etc.

Unfortunately this never has been the case - it would be nice if it was but it isn't. Potentially now for every workers life saved with Health & Safety paper shuffling people are going to starve or commit suicide due to the costs of imported food, low self esteem of not having a job etc etc.

The level of regulation that protects also prevents and slows down change and reactivity - China will be able to react to what is happening far faster than us and people will die building their new railways that would not die in our country.

The only good point is that the air is probably going to get a lot fresher in the UK!

I have started digging over the back garden at the weekend - its not really big enough to live off but its a start - apparently I really need a full year of potatoes everywhere to sort out the weeds etc so I'll be more ready for 2011 when the real famine starts.

To those who think that China is running into problems. Well that is true up to a point. It is difficult to industrialise over a billion people in a generation.

However -

China is managed on an autocratic model. This speeds up the process as workers rights are not in place. Legislation is not debated it is put in place. Planning is okayed. Towns are allocated product sector production eg a town is decreed to be a motorcycle production unit and it happens. Economies of scale. Population well over a billion heading towards 2 billion.

The slowing of export from China has to hit manufacture. Domestically they have plenty of opportunity. Just producing the potential number of fridges to be consumed domestically and the power to run them in due course is quite an activity.

The size of the US domestic market, 300 million population, is seen as one of its greatest assests. It is portentially dwarfed by Chinas domestic market, given time. The EU does not work as a true single market, it fractures into national interests. Population 500 million.

The first phase of industrialisation is simply copying goods, very simple, very slow, saves on importing. The objective is not to import. 1960s capital plant

The second phase is to manufacture and export. Quality intially low, efficency initially low. This leads to an export market and domestic market. It requires low labour cost. 1970 onwards, ramped up towards the 1980s, in full flow 1990 onwards. (First UK satellite manufacturing plants in India from late 1960s).

The third phase is the development of homegrown technology. That has already started - China is now one of the leaders on rechargeable battery technology for example. Technology is assisted by low labour costs but is not dependent on them. 1980s to date, growing.

Chinas low labour cost exports have destablised the world. It is not a level playing field. You cannot compete against manufacture where there is no H and S, no workers rights, minimal social welfare overheads. The process is not finished yet.

More problems are due soon with China developing high tech products less dependent on low labour costs. you aint seen nothin' yet. The West trains graduates that cannot be trained in China.

And the rationale is that somehow China is a nice cuddly entity that will favour the world. I think not. They are winning economically a war they could not win idealogically. And bizarrely they are treated as a developing country, and until very recently I believe they recieved international food aid, they might even still be getting it.

No, they need to be treated with consideranble respect. As does India with another billion population. China save the West, you got to be laffin me old China.

The economic growth in the last 10 years was mostly driven by speculation, cheap money, huge debt and massive spending in the public sector.

Here are some facts:

Net household wealth:

1997 – 2006 – increased by 36%

1992 – 1997 – increased by 6%

Financial wealth (excluding housing wealth):

1997 – 2006 - fell by 2%

1992 – 1997 – increased by 25%



The total debt (consumer, corporate and government) in the UK is over £4,000 billion or about 300% of the GDP. It is ludicrous to try to lend more while the debt is at this unsustainable level. What is required is debt reduction, not debt increase. It is important to realize that “debt is wealth” is an illusion!

Almost all major decisions by the government are made with an eye to the next election rather than for the long-term benefit of the country. Most of the problems have been caused by the Government policies and/or inaction, not by the global economy. I do not think that UK government has power to influence policies of any of the major economies. Therefore, the govt should focus on cleaning up the mess it has created instead of trying to divert attention away by saying that it is a global problem.

I'm a simple fella with not much knowledge of the financial aspects of the world but...

...I can't understand why economies always have to grow. Why can't they get to a stage where they flatten out? If we are always looking to grow our economy, then something will have to give at some point.

Is this why we have (seemingly) regular recessions?

Wouldn't it be better if everyone (including the government) had enough to pay it's bills and have a bit of fun?

Or,c an this not happen?

or, is this communism?

Who read 'Soviet Britain' in yesterdays ST?

It was not so much the fact that 'the usual suspects' i.e. Wales, Scotland, NI and the North East of England had huge percentages of people working in 'public sector' jobs, that is over 70% in those areas; but more that even the old Communist States of Eastern Europe did not have a public sector bigger than 60% of the workforce.

I found that to be a truly shocking comparision and surely is a key factor in our apparent inability to 'pay our way' in the world.

Or is it that I have a naive and out-of-date idea that only the private sector generates wealth?

You tell me.

Captain Brown issued a new statement on the continuing situation on the Titanic:

"Unfortunately all our efforts have been in vain and I can confirm that the ship is in fact sinking. The estimates from the Chief Engineer suggest that we are heading down at about 1.5 degrees angle by the bow.

On advice from a number of informed sources (many private salvage firms and the private yachts surrounding the vessel)that running the engines at full steam whilst going down by the head is perfectly OK and not making things worse.
This does in fact keep the fuel on/off loading points above water for as long as possible. Currently they are helping by offloading significant amounts of fuel.

This tradegy is however in no way similar to the 1920s sinking of the USS Wall Street. Since then we have installed a number of safety devices to prevent a recurrence of that disaster. It is unfair to suggest that my ordering these to be switched off was the cause of the current crisis. Many other vessels have struck the same iceberg and not all of these had followed my advice to switch them off.

A number of other ships in the area have also struck the same iceberg and it appears that many of the rescue vessels coming to our aid have also suffered collateral damage.

The SS Shanghai has stopped dead in the water after hitting some of the debris from The Titanics shopping deck and some containers lost overboad from the USS America. The Nippon Star and Seoul Trader seem to have suffered similar problems.

The USS America has a new captain and will shortly resume steaming towards the disaster area. I have assurances from Captain Obama that they can help , I quote "yes we can! (whispered) what do you mean I can;t just change stuff like in Sim Civilisation it worked great on my PC everything was fixed in 12 months, and no I don't want fries with that...."

The officers have not been idle however and have decided that what is required is a new ship. We have some preliminary designs but these are on the drawing board and as yet we cannot say when the replacement vessel will be ready to sail or precisely what it will look like.

All we can say is that the new design will be somewhat smaller than the current ship and therefore there is insufficient space on the ship for all the current facilities.

The PAC committes design has been rejected as it appears to be too similar to the current design. We have however adopted a number of the features in our current workings.

The casino and shopping area will certainly be significantly reduced as will many of the ships workspace areas to ensure there is room for as many passengers as possible.
Cabin space and living conditions will undoubtedly be a little smaller and less comfortable than on the Titanic.

Some less well off passengers may well have to join the crew replacing some overseas staff who have gone home.

Unfortunately it appears that in the intervening period we have insufficient lifeboats for all the passengers.
So whilst a number of people will undoubtedly drown as we sink this is no reason for pessimism.
Not everyone is going to die, a positive thought to hold onto if ever there was one.


Some other ships messages:

The motor launch Barclay really doesn;t have a hole in the bottom despite the rumours circulating in the casino last week.

The purser is looking for a Mr Clarke from Nottinghamshire who appears to have stowed away last week. He is a known troublemaker and First Officer Mandelson is upset that PAC appear to have invited him on board.

I am becoming more and more convinced that Peston is relishing all this bad news. Perhaps the BBC should have a reshuffle and move messrs Peston and Pym to report on the Afgahan conflict and let us get on with working through this recession.

From everyone who actually has to work for a living there is a genuine resolve to work through this problem. Yes things are tough, but they will get better and it is only through hard work and commercial flair that we can stave off financial disaster

I dont agree with Gordon Browns policy but we agree on one thing pessamistic approach will drag this thing out. The BBC report on the downturn with Glee, even having their very own little logo for it. God at least I know where my licence fee is going

Robert

Goodluck in your MP grilling

from post 9

"Robert,

"if they don't buy a bit more of what we produce . . . "

You've lost me there. If China (or the East in general) can ship stuff to us cheaper than the UK can make it itself then why on earth wouldn't they make it locally?"




"Capitalism will eat itself"

The only solution never proposed by GB is to increase tax allowances to allow people to keep more of the money that they earn. This freedom - to allow people to make their own choices about where they spend - is totally against everything GB believes in.

GB and the rest of the elite have a clear plan about what is best for us, and freedom has nothing to do with it.

On another note the brilliant economic commentator Max Keiser has an excellent programme on BBC World called "the oracle". great analysis - light years away from the government shills on Newsnight etc (hutton, Evan D, etc).

Catch it on youtube, for when you search his name on bbc.co.uk it does not come up.

Strange for a BBC programme don't you think? What do they have to hide?

# 43 jericoa

you are undoubtedly correct about our modern hyper-efficient globalised economy leaving the majority of the population redundant except as consumers of stuff

here in the UK, having had our industrial revolution first, we are now post-post-industrial

we can't all put ourselves under house arrest in our luxury apartments Madoff-style so need some way to make a living and something to do aside from blogging Peston

that's where accepting a lower standard of living and more sustainable economy comes in to play; some of the slow-food and local economy ideas, community coops etc really appeal, to me at least; but a lot of people won't like it at all unfortunately and politicians will be scared witless and never willingly agree

and the Chinese are still pushing forward on huge economic expansion; the 21st-century belongs to them after all so how can anyone seriously expect them to not?

can't see our population of 60m all becoming sustainable living types; it remains largely a middle-class lifestyle choice for now anyway and we would have to move over to something that looks more like a chilly version of Cuba........ it works for them so isn't impossible, but I just can't see it happening, and certainly not voluntarily

it is hard to get away from the Gaia theory bottom line that there are probably about 4 billion too many people on this poor old planet for it to support long-term

oops I forgot that we're not allowed to be pessimistic today! sorry Gordy

If the Chinese find that they have to spend their savings because things are getting tough then this will cause problems for the Chinese banks. It could arguably cause the Chinese to call in some of their loans to foreign governments?

dont worry, gordon had the problem sussed ten years ago...

"The Prime Minister said that it was a decade ago in Harvard that he first called for an international early warning system to alert countries to developing crises in any part of the world, because the huge global growth and reach of financial systems meant that all markets, all economies and all banks were now interdependent.

Mr Brown said that he had recognised the need for a stronger regulatory framework ever since the crisis in Asian markets in the 1990s. ...." todays Times..... https://tinyurl.com/d9zvnq

Robert when you meet for your daily briefing...can you ask Gordon why, if he recognised the problem, he then did nothing about it?....

not sure about your choice of "expert" economic analyst Robert. UBS's George Magnus thinks that there are still pound notes in circulation! not the most credible chap in the world...

# 43
Wow. I would love to be sharing a cup of tea with you.

TB+GB+co have been quit happy to see C02
producing industry move to China etc as it make the C02 TARGETS look good for UK, BUT
all they have done is move the source of the production of C02 into far more dirty place thus actually adding to the world C02 problem (if you think there is one ?) but it looked good on the TARGETS.

The only industrial policy we have had over the last 12 years is one of targets for political correctness reason's there has been no industrial policy of any note.

until there is an INDUSTRAIL POLICY this time nothing is going to improve.

Expecially as some of the basis building blocks for many engineering industies has ALL move aboard thus our industrial baseline has been total erroded.
Take hornby as a prime example they are just a warhouse for chineese made goods.

that kind of policy will eventually smelling of the stinky stuff and leave us in tatters. Its going to take decade to regrow our our industrial capacity , so we have to start know ( it used to take 4 years to get a good degree) need to repair education straight away.

SWe need new Brunel's Stevenson , Frank Whittle's etc.

We need a new capitalist freedom based economy rather than the Command and Control that Brown wants and the corruption that will being with it.

Judging by the length of time it is taking to moderate the comments, I would hazard a guess that you are a little short staffed. I am currently looking for and can start immediately!

#51 "IMO if the chinese authorities did not use curreny as an unfair trading advantage they would be perfectly willing to use overt subsidization of their industry."

If I understand the mechanism correctly, the way the Chinese control their exchange rate is really an overt subsidy anyway. The Chinese exporter demands payment in Dollars, and is then obliged to pass these on to the Chinese central bank, who refunds them with around three times the value of those Dollars in Yuan (in terms of purchasing power parity).

So it's effectively a huge export subsidy, payed for by printing Yuan. They could get away with this while they were achieving the extra-ordinary growth rates of recent years, but continuing with this policy in present circumstances seems awfully likely to leave them with extremely high inflation. So maybe they can't continue with the current exchange rates anyway?

#21
Welcome aboard, e2toe4!
Another futurologist is much needed, Rahere's been feeling lonely - but be warned, Rahere is not an orthodox UK historian, he's a pan-European one with world pretensions.
For the rest of you, the purpose of history is that if we don't learn the hyperlessons from history, as e2toe4 says, then we're condemned to repeat them. This is why I've been hammering on about the sheer complacency shown in the City, so typified in RP's presentation, which says complacently "be confident" yet refuses outright to answer they question why. There will be reasons for confidence, but they are the flowering of trust, and unless there's radical reform there can be nothing to trust in, the things we're being asked to trust are the very bodies that betrayed us on multiple occasions and in this instance, it's not so much once bitten, twice shy, as Jaws.
Like he says, the first thing will be to rebuild a stable table, and for that we've got to wait until the legs have fallen off, the top's landed and we've picked up as many unbroken dominoes as possible to rebuild with. For me, this is closer to 1348 than 1928 - that time it took forty years to even restabilise the economy, and sixty before it started growing again. The comparisons with previous depressions don't hold water, in 1929-32 it was because there was no cut-out in the banking system, this time there cut-outs which are are stopping the first-order dominoing at National level, but are not addressing the underlying problems, which are:
1. The world economy, having hit the limits of growth (even the eskimoes now having freezers), has nowhere further to grow and so the criterion of performance, growth, has become invalidated, which is why RP's analysis is unacceptably superficial. We must replace our expectations of ever-increasing profitablility with performance and efficiency criteria in satisfying the existing markets.
2. The worship of price and not value. I'm with Oscar Wilde on that one, which is why everyone here's a cynic.
3. Competition in this new world will have a Darwinian role to kill the less well fitted. It should not be allowed to grow unfettered into a world monopoly which will in time become unfit for purpose itself, and in implosion destroy the system. Go read EM Forster's The Machine Stops to see what I mean.
4. NewSpeak where Regulation means Protectionism, Banking means promoting reckless spendthriftry, Government is Reactive, please continue to taste.
5. Patenting being used by the established players to lock out newcomers. It was originally intended as the opposite, to protect a start-up entrepreneur from the power of the guilds.

By comparison, at the same stage in 1930 they had already had the Black Tuesday bank crash of 29.10.29, credit was available, but people weren't buying. We've passed the same level of crash, but the problem's simply been deferred for anything up to thirty years, and the unaccountability of the banks' off-balance-sheet contingent losses means we're living under a second sword of Damocles, unlike then. True, there was a second Sword hanging then, Germany's war reparations, and they were hit by a drought in the mid-west at the very worst possible time. Customers are not buying now, but credit isn't available and there's no more reason to think Plan B will succeed in that respect when Plan A failed, for exactly the same reasons. The two cases are distinctly different, and so thinking that what cured 1932 will cure 2012. Another difference is that with the exception of Germany, inflation hadn't been a potential problem just before hand: this time, it's possible that killing the inflation which was rebalancing the money supply with asset values may well have caused this.

The risk at the next stage is that outright purblind protectionism will cause implosion - if RP wants to post a relevant clip, he should post Alastair Cook's epic on the Smoot-Hawley Tariff Act. I'm arguing for a degree of protectionism, but in an international context, that scarce items may be bought in.

#37
Go back and read the many, many times we've answered that one. Any possibility of an FAQ here, Mr Moderator? The basic answer is that at macroeconomic level, money's virtual, it is what the government says it is and can and does increase and decrease overnight. At the level of your question, it disappeared because it was never there. However, simply doing a conjouring trick to recreate it is likely to mean inflation again, what we really need is to let prices drop to a true asset value. The difficult question, posed by my daughter who's studying under a ULB Solvay lecturer, is how do we assess that? Perhaps the answer is to guarantee farm prices per unit of output, turn food distribution into a sellers' market controlled by the farmers themselves, not by a quango which sells out to the supermarkets, then let everything else flow from there.

#45
Go look at the accession criteria for joining the Euro and ask yourself how long it will be before the UK meets them.

#52
We're a nation of innovators and inventors. Time we started doing so again.

#54
I always thought that the renegociation of HongKong under Chris Patten wasn't worthy of the Great Mathieson.

Dear Robert
Lets advertise for new Cief executive for Great Britain PLC, , we defiantley need a working replacement.
Much like "mechcano" really its been superceeded by Lego.as old and tired.
Latest photographs of "Ground Hog "Brown, ---, digging in the mire for something sustainable, really shows just how depressed one has become, but it brings a smile to my face and a cheer to realise he knows he thrown his last dice. probably found in a cracker from china.
"BUT where has all the MONEY GONE WHERE IS IT, WHERE HAS THE BRITISH POUND DISAPPEARED TO,
"WILL SOME ONE TELL US."?
How about to the rest of the world who own British Companies.
PROBABLY TO China and DYSAN WHO'VE VACUMNED IT ALL UP.
iT's THE WAY OF COMMERCIALISM, those that left the UK were very wise indeed, to much Credit, too high a wage, too high a way of living, and too high a number of people already on the dole BEFORE we started accepting Foreigners into the country, AND Brown did not see it coming ????
well what hope have the rest of us, time to make the Chief exec redundant on his golden civil service pension. He 's still laughing all the way to the Bank, the ones he gave billions of tax payers money to.
IT DONT MATTER WEITHER ITS CHINA OR ANY WHERE ELSE IN THE WORLD, KEN CLARKE IS ABSOLUTELY CORRECT
ITS GOING TO TAKE LITERALLY YEARS TO SORT OUT, AND LONGER IF LABOUR REMAIN INCHARGE OF GREAT BRITAIN PLC.

I am reminded of a BBC news piece a few years ago showing container ships full to the brim, heading down the Channel before the run up to Christmas in the UK.

Probably a vast amount of what they brought over is now in landfill somewhere in the UK (e.g. unwanted Xmas presents, junk products etc).

It is an absurd waste of global resources and a totally unsustainable way of living.

Hopefully China can encourage its own people to buy what it makes instead of sending it all our way, although globally this doesn't help the environment either.

Perversely, the credit crunch could be one of key drivers of a more sustainable lifestyle (e.g. less gas guzzlers, less unnecessary imports etc), however painful in the short-term for those impacted economically.

Blog #1

Blame Mr G Brown for World Recession...what ! all on his own ?

Don't be silly.

Mr G Brown et al and Mr G Bush et al are ONLY DIRECTLY responsible for the World Banking Crisis.

It's the World Banking crisis and flaws , promoted and overseen by UK/USA, which have hurt the real global economy.

Mr Gordon Brown is only INDIRECTLY responsible for the Global Slowdown.

Please Blogger No.1...don't blame Gordon for absolutely everything, even as a joke : that would be slightly unfair.

GLOBAL SLOWDOWN : It's anyone's guess as to the % of overall indirect culpability 'The Good and the Great of Britain' share....a figure perhaps of 40% for Our Blessed Realm. Then 55% USA...1.5% Eire...0.5% Iceland.....

Dear Robert
Brown ----
"The difficult birth pangs of new WORLD order" ---JUST HOW SINISTER IS THAT, "?
I WOULD HAVE GUESS, BUT THESE ARE NOT BROWNS WORDS, BUT A QUOTE----- SOME ONE ELSES, ]
"WHO"?

75. At 12:59pm on 26 Jan 2009, JohnConstable wrote:

It was not so much the fact that 'the usual suspects' i.e. Wales, Scotland, NI and the North East of England had huge percentages of people working in 'public sector' jobs, that is over 70% in those areas; but more that even the old Communist States of Eastern Europe did not have a public sector bigger than 60% of the workforce."

No 77
Spot on I entirely agree with you.

Off all the people in the UK in debt how many are in debt completely over their head? whilst avoid the very simplistic comparison is it not like branding all football fans animals for the sake of a few thugs? I am looking everywhere for a balanced view on all of this issue and it is impossible, it is like mass hysteria

Dear Robert

There are two pressures at work here. Thefirst is our wonderfully structured and policied financial institutions that have been allowed to get us into this mess.

It is unsuprpising, therefore, that they now don't want to stick their coporate heads above the parapet and risk further damage.

The second is falling demand that has been nicely spiced by the press - without any real fresh information, the recession was quoted and blamed for everything ad nauseam by news 24 team over the weekend just past. If the consumer was nervous before this, they are positively paralysed now!

This means that when credit frees up to businesses it'll do little to encourage the consumer who has been scared witless and ed to believe they should look over their shoulder ar every opportunity.

At the moment, of course, our foolhardy press are not affected directly by the crisis which they are stoking up. As and when the licence paying public default on them perhaps we'll see a few weeded out along with overpaid pap (sic) like Jonathan Ross

#72 glanafon:

spot on analysis.

The first duty of Chinas' leaders is China not the Chinnese.

It is something we have forgotten in the west where we seem to believe the first duty of our leaders is to make us richer personally now and forget the rest or tomorrow.

Reputation aside, I do sometimes despair at your observations Mr Preston.

When a couple of China's, India's et al's biggest trading partners have seen their spending power cut by 40% due to the desimation of their currencies how, could anyone really expect the worlds largest exporters not to suffer and show significantly slower growth.

Let's add to the scenario that well discussed lending, bankrolling, credit availability thing. Throw in a bit of instability in the markets and we have a situation that isn't that helpful to "emerging" (infact well established) economies as they can't shift their goods and services.

So it's not really a surprise that the forecast is muted. Nor would I thought you would be watching with bated breath to see how much these new comers had grown but rather to what extent their economies had also shrunk.

Oh the Barclays thing. The banks have been told to get on message which will be more upbeat, not signficantly, but enough. The next one will be something along the lines of "losses not as great as first thought... " well perhaps not.

We should all lift our eyes a bit from the steering wheel and see where the road is leading.
The phenomenal shift of wealth from the West over the last decade is the most important issue for us all and lies behind the credit crisis.
Securitisation was partly a sympton of a shortage of real relative wealth. The important word being relative. After all wealth is only a relative measure; without differentials we have to find new ways for money to flow.