Thursday, 28 February 2013

Pushing string

So there’s fiscal policy and then there’s monetary policy, the other side of the economic policy coin. Ideally the two work together. Now? Less so.

Fiscal austerity is doing its damndest to undermine and generally crap on demand what with the massive reduction seen in government spending on capital goods, investment and what not to preserve the UK’s AAA status. Monetary policy by contrast is at best tinkering and tickling round the edge as follows:

-          Historically low interest rates to minimise the number of indebted bods and companies failing (hmmm, what about zombie companies being a bad thing then?)
-          Low interest rates also encourage a competitive i.e, a devalued pound (take that all you dumb fucks that whined about the credit rating downgrade undermining the phallic worth of the pound, that’s monetary policy bitches)
- Low rates also also (well negative real rates) provide a disincentive to save i.e. they encourage people to spend, spend, spend in ourt consumer driven economy
- Obviously, following on from the above, low interest rates and the associated tolerance of above target inflation cheekily chip away at the real value of debt in our deeply indebted nation (shame pay growth is also negative in real terms)
-         Then there's quantitative easing or QE to encourage well its not that clear really, investment in marginally more risky, but still comfortably investment grade assets? To prop up prime asset values that benefit bods with pensions? No got a scoob really
-          And latterly the invention of all sorts of ways of cutting credit costs to, to, well what exactly?

Am guessing, judging by what Bank of England bods say, this last one is about encouraging demand by making it cheaper to borrow except, well how’d you reconcile that with fiscal austerity and what that’s been doing to the willingness to invest for years now? The answer is you can’t, the reason being because you can't.

To give an example using the key economic example of pies; make a pie cheaper then yeah, sure I might buy one, mebbe even two extra, but that’s cos I like pies. If I didn’t like pies, then whether they cost 50 quid or a horsemeat-tastic 50p, I ain’t buying any more and you’re wasting your time.

Similarly, cutting the cost of credit don’t mean shit if I don’t want to borrow new money or to quote from the latest Bank of England creditconditions survey

there was “a reduction in credit demand from small companies … (and) … demand from large firms was expected to remain broadly unchanged” So there you are then, banks don't want to lend to small businesses, banks don't want to lend to small businesses ....

Really? The Bank of England's own research into the impact of its own policy indicates small businesses aren't that keen on borrowing right now, which makes sense. Like European exports aside if you were a business dependent on government contracts would you fancy investing in new stuff right now? Thought not. Refinance your existing debt makes sense obviously, but borrowing more? Nah, no thanks.

Hence, a key and innovative part of current monetary policy looks about as effective as pushing string.

Tuesday, 26 February 2013

Masochistic e.rection disguise

You know an economic policy has had its credibility chips when the more politicians try to justify it the more they sound like they’re describing a masochistic e.rection.

Hence, fiscal austerity is painful, but thankfully the ConDems are up to taking the kind of big, strong, firm and tough (and blue-veined) decisions we need if we’re to cum through these hard, oh so hard times together. Indeed.

The disguise part here stems from the reality, which is that for all any politician might claim we’re all in this together, the following are the people really feeling the pain - the working poor, the unemployed, the disabled and the infirm. That they are doing so due to policies that are actively undermining the growth they’re supposed to be promoting exacerbates this bloody awful reality.

Saturday, 23 February 2013

Snatching defeat from the jaws of victory

The politics of the UK credit rating are currently ghastly, all this he said, she said, nyah-nyah-nyah-nyah crap when there's barely a fag paper between the actual economic policies of the government and the opposition.

'sides its not as if George Osborne wasn't already as obviously useless as he is a shit. Rather, the downgrade is  a real opportunity for some sanity as long as all parties get the basics right of looking at what the downgrade actually does to British borrowing costs (here's a clue  - f' all), then work out how to spin the U-turn needed away from the following assumptions that have wrongly shaped economic policy:

- Cutting spending would have only limited impact on growth (see some IMF bod on how the impact of spending cuts was profoundly under-estimated in this chat on "multipliers")

- Spending needed cutting to save the credit rating because a downgrade would raise Britain's borrowing costs (more relevant than the US was the French example, now Britain is another of how this turns out not to be the case)

Then, they should start thinking in terms of (fiscal) expansionist policies that actually promote growth, a starter for ten being a government debt funded programme to build say £20 billion worth of social housing.

Moodys economic analysis should also be challenged in front of a parliamentary committee, but with the questions asked by people who know what they're talking about. The rationale for this second step is pretty straightforward - Moodys talk shit and need some hard, humiliating schooling. And it'd be fun.

The alternative is more of the same bollocks policies that are as self-defeating as they are cruel.

Sunday, 10 February 2013

Lies, damned lies and libor

The libor thing is pretty cool. There's the whole making money betting on an outcome you can influence shebang, but, mainly its cool because its so monumental - libor being used to price the cost of squillions of debt - and so obvious; the system worked on the basis people would make honest submissions despite them having a huge personal vested interest in gaming the system. It's also cool because of all the things it throws up about how finance actually works.

Once, is the difference between regulation here and in the US with he massive fines being meted out very much American-size. If it had been left to our FSA things would have been very different. There might have been an investigation, eventually, a few people would have got their jotters and mebbe, just mebbe, some banks would have been fined a total of say £2.5 million. Only mebbe mind, because Britain needs the City of London to stay competitive, we can’t antagonise/scare off potential inward investment, wealth creators need to be rewarded if they’re to create more wealth, punitive fines could threaten the financial stability of the system and/or key institutions, ya de ya de yada, all the self-justifying dogma bollocks we've heard for years now.

Another thing is the libor scandal challenges the rationale for massive trader pay and bonuses. Like this article here details how one of the traders involved received a $5m job offer in 2009 to lure him from UBS to Citigroup i.e. one of the biggest earners in banking made his money cheating the system better than his peers and was in demand as a result.

Yet another is that with cases now being lined up to go to trial, the secrecy/gagging clauses and career concerns that underpin the silence surrounding how banks actually work should be lifted, if only for a little bit. Over and above the juvenile trader emails we’ve already read, we’re due detailed, blow by blow accounts of how banks systematically encouraged staff to break rules.

Confronted by all these fundamental challenges, we’ve predictably had the usual it was a “handful” of bad apples bollocks with said apples presumably having been sacked and lessons learned etc.,. And I guess you could run with this approach if you compared/contrasted the dozens of bent traders that've been dismissed (and given the opportunity to resign) with the hundreds of thousands of people banking employed, except, (a) that there are dozens being investigated/fired at each of the banks (or over 100 at Barclays) getting fined constitutes more than a handful unless you’ve very big hands and (b) the numbers being talked about/being dismissed appear to constitute a chunky percentage of all those engaged in this activity i.e. an entire line of bank business was bent.

Time presents further problems for the few bad apples bollocks. A quick skeck at some of the Libor scandal timelines dates this back to 2005 since when lots and lots of those involved will have been promoted and/or moved on to more senior positions elsewhere. What this means is straightforward; lots of current senior people do know what went on in graphic, close up detail and have done so for years

Finally, as say PPI, bank collapses etc., make clear this isn’t an isolated example of bad behaviour, rather it points to more systemic issues affecting banking, the economy and society more broadly. This last point stems from the criminal nature of what went on; while the Serious Fraud Office and the FSA initially huffed and puffed about what to do, trying to sound tough by making clear anyone doing this in FUTURE was for the high jump, oh yes, comments on a legal blog neatly summed up what had actually occurred - If Tom asks Bob what rate Bob can borrow at, and Bob dishonestly tells Tom information that Bob knows to be false with the intention of causing gain to Bob, then Bob has committed fraud (s1 by s2 Fraud Act 2006). There. That's nice and straightforward.  And heck we've finally got the chance to dish out some real justice for the credit crunch in a people who suggested rioting on Facebook got 4 years type style. Except there's no way in hell that will happen.