Month: February 2010

Dear Shareholder,

It’s going brilliantly. Everyone I asked said I was so good the other day when I spoke for your company on television. I told all our shareholders a bit more about me, which is what they all apparently wanted to hear. I had been so busy increasing the borrowings and spending that I had failed to explain just what a lovely family man I am as well. I have always been too self deprecating.

You may have seen that last month when we normally get paid by lots of customers we still managed to spend more than we got in. That’s another crucial milestone in our loan led expansion. I wasn’t sure we could pull that off, so I kept quiet about it in advance. You will also be pleased to see the value of our trading currency going down, which will make it easier to sell abroad, and will mean the sterling loans we have taken out from foreigners get cheaper to repay. If you don’t like the higher prices for all those Chinese goods we buy, just put in for better easy terms which we can organise through our special offers department or through our banking subsidiaries.There’s plenty of money around for eveyone. It just gets better and better.

I am promising a new service of free care for all the elderly, new railway lines to places that would like them, more quango heads, better equipment for our security department workers, and lots of subsidised windmills. I think it’s a great time to promise more and spend more. I love to see the looks on the faces of our killjoy competitors Conco everytime I lift our offer. They keep on asking how we can afford it. They just don’t get it. You borrow it or print it. That takes the waiting out of wanting. They will never get to take over if they remain so reluctant to spend, spend, spend. Now is not the time to damage it when it is all go so swimmingly.

I want to be remembered as the man who spent more than all the others, the one who achieved record spending and borrowing, the one who didn’t want any of you, the shareholders, to want for anything. Never has this company had so many employees on its books before, never has it had so many people receiving its free offers before, and never has it been so large before.

The wonder is that so many previous CEOs did not get on with providing all these goodies. How stupid they were. I can’t see how all those focus groups can be right which suggest we might lose the Board elections. I reckon we will romp home, with so many people for ever grateful that we have been never knowingly underborrowed.

Some board members with faint hearts say we could end up like Greece PLC. I met their CEO this week and I can assure you he can’t give a tv interview like the one I just gave. We are in a different league when it comes to the size of our borrowing and our media performances, so sit back and enjoy the ride.

Yours in the spotlight

CEO

When I wrote in support of the 20 economists who sent a letter to the Sunday Times urging quicker action to tackle the deficit, the one gnawing worry in my mind was the past foolishness of economists writing letters to papers. This morning more than 60 economists have put my mind at rest. A majority of those signing letters have decided to back the wrong side of the argument, restoring my faith in the way the world works!

Readers of this site will be tired of hearing of the build up of unsustainable public debt. This is indeed a very slow crash so far. Unfortunately the fact that to this point it is slow and happening in little steps rather than as a headlong rush does not make it any less real.

The government is now having to pay more for its borrowing than a year ago, despite the purchase of £198 billion of government debt by the Bank of England. The pound is inching lower, and has already devalued by around one fifth in this crisis. This morning the pound is at $1.54, comparing it to another heavily indebted country.

Interest rates for the private sector have been forced up to high levels, with people haivng to pay 18.5% for credit card borrowings and 4.5% for a mortgage. Businesses are paying well over 5% and some over 10%. This is the price of regulatory failure over the banks and the weak bank balance sheets which the government finances and the rash monetary policies have created. There is a price to pay for excess public spending, in short term higher rates for the private sector, and longer term higher taxes to squeeze enterprise more.

It is intruiging that only now have some of the newspapers really gone to town on the debt. Yesterday’s figures showing the state borrowed another £4 billion in January were not especially shocking. They were, as the Treasury points out, the kind of figures you would expect given the published forecasts for massive borrowing this year.

There are signs of hope in the reaction. The fact that January is usually a month when revenues exceed spending is just an excuse. I guess what is happening is that the British establishment is coming round to the view of the 20, not the 60 economists. Lots of “serious” people now agree that the deficit is too large. It is time for a new Dunning resolution – “The debt has increased, is increasing, and ought to be diminished”.

Mrs Villiers, Shadow Transport Secretary, has declined to give Labour a blank cheque for its proposal to build a high speed rail line from London to Birmingham. Far from being the end of the transport world as we know it, as presented by some, this is welcome news.

New high speed rail lines pose two serious problems. One is they are very costly to the hard pressed taxpayers, requiring substantial public subsidy. For that reason I understand that new high speed rail lines are being considered not for the next impecunious Parliament, but for the one after that, in the hope that by then there will be sounder and more ample finances. It means there is no need to rush this decision.

The second problem is they can be very damaging to the environment. Labour’s proposal may entail driving an intrusive swathe of concrete sleepers and steel overheads through an Area of Outstanding Natural Beauty in the Chiltern hills. Successful high speed lines need to be as straight and as flat as possbile, requriing substantial earth moving. Anyone living near the proposed route will want to be able to object and to discuss the level of compensation that will be appropriate for loss of amenity, increased noise and vibration should they lose their case.

Lord Adonis may fancy his role as the man who drew a line on a map for the future. Just drawing a line is the easy part. It is raising the money and selling the idea to all who will be affected by it that is the difficult part. New roads can be paid for from private money and tolls, and new roads can be more flexibly designed as they can take more hills and bends than railway tracks. Perhaps that’s why they are not so popular with fans of big government. Both main parties did co-operate successfully on the M6 tollway.

Today we learn that Councils are refusing to publish the salaries of their senior officers. How can they get away with witholding this important and interesting public information?

We the taxpayers pay their salaries. We have just seen how expense bills for MPs can be cut once the details are published and the public allowed to see and comment on the claims being made. If it works for public officials on £64,000 a year, surely it could work as well for public officials on six figure salaries? Why should they be immune to the cleansing winds of transparency?
Highly paid people on boards of private sector companies have to reveal all their remuneraiton in the accounts once a year. Why can’t we know what the Education Officer or the Planning Officer earns and claims?

One of David Cameron’s best and most radical policies for curbing the deficit and reducing needless and wasteful spending is his pledge to publish on line every item over £25,000 spent by central government, should he become Prime Minister. You should expect officials to become much more circumspect about what they spend if such a regime comes to pass. Why can’t we have it now from our local Councils?

We know that Councils can vary enormously in how much they charge for what they deliver. In my local area we have Parish Councils under both Lib dem and Conservative control. The Lib dem one charges £114.65 a year for a Band D household, twice the level of any Conservative one. The lowest cost Conservative Council charges just £17.50. Some of this is the range of things the Council thinks it needs to do, but some of it is efficiency and cost control. If we the public knew more of what they spend, we and our Councillors could be better watchdogs of the public purse. We might decide we want fewer things as well as seeing obvious ways to do more for less.

Argentina discovered that the Falkland islanders are British and wish to remain British. Many countries aorund the world have islands close to their shores that are not under their control. Truly democratic countries accept the right of peoples to self determination. If the offshore islanders wish to remain independent, they should be allowed to do so in peace.

Yesterday we learned that Argentina wishes to claim the seas around the Falklands, pressurising the Falkland islanders yet again over sovereignty. The international community with one voice should say “No”. The UK government should make clear its resolve to look after the Falkland islanders, who are united in wishing to remain under British protection.

This website is being considered for a list of the top green blogs – results of the Konector review on Thursday!

I am grateful to City AM for reminding us that yesterday Barclays revealed a 55% tumble in its UK banking profits. Meanwhile its liquidity and capital surged to meet new regulatory requirements. It is now 20 times leveraged – the level banks averaged in the 1990s before Labour’s crazy experiment with more borrowing – down from 28 times.

Barclays has more than met the new need to hold more cash and to have more capital. It holds £650 million extra liquidity and has cut the size of its balance sheet. As the weaker state owned banks try to go the same way we should expect more trouble for people and businesses trying to borrow money, less economic growth, and higher prices for banks’ services.

All this is the direct result of disastrously lax regulation in the noughties, followed by much tougher regulation now we are in a financial hole. Boom and bust regulation is reinforcing boom and bust money policies.

Some things are as easy to forecast as the conventient truth that night follows day.

When they were setting up the Euro some of us said if they allowed in countries whose economies had not converged there would stresses and strains. If they let in countries that were borrowing too much and had too much inherited debt, they would first free ride then struggle to stay the course.

The people setting up the Euro said they knew that. That is why they set strict criteria for membership. They said every state joining had to have total debt below 60% of GDP, and no state should borrow more than an extra 3% of National Income in any given year. That was all very sensible.

Then they started fiddling the figures. Everyone knew they were fiddling the figures. They could not help themselves, as they put the poltics of it ahead of the economics. That meant putting the interests of the poltical elite determined to do it over the interests of the electors who stood to lose their jobs or suffer lower living standards from the governments fiddling it. Today the elites are blaming the banks who did the deals for the governments who did the fiddles!

In “Our currency, our country”, the Penguin I wrote to urge the UK to stay out, I wrote in 1997

“At present only Luxembourg could properly qualify for the single currency as designed in the Treaty of Maastricht….five countries (including Greece) are so far beyond all the requirements they have no chance of joining on any sensible interpretation….It is confidently expected that when the decision comes to be taken in the first half of 1998 a more tolerant view will be taken of the requirements…” (and how! – all were allowed to accept the poisoned chalice)

In the run up to monetary union Greece was borrowing 8- 14% of her National Income each year and had a stock of debt more than 100% of National Income. Her inflation rate was 8% and her long term interest rate a massive 15%. Why did anyone think she was ready?

In 2001 I wrote “Just Say No” to provide the 100 best arguments against the UK joining the Euro, in case Labour carried out its threat and held a referendum on this proposal. I saw the scheme as the ultimate rigged exchange rate system and said

” History shows that rigged exchange rates do not work. The Gold Standard…bankrupted many businesses and created mass unemployment.The snake in the 1970s failed to keep the pound at a constant value against the Continental currencies. The Exchange Rate Mechanism caused a bad recession, and then collapsed.”

I went on to explain how you needed a single economic policy, a single budget and a single country to make any success of a single currency.

“There isn’t one exchange rate that is right for London and Lisbon. (or for Athens and Aachen).There isn’t one interest rate that is right for Manchester and Marseilles. (or for Lisbon and Lubeck) You cannot have a single economic policy without a single budget. The poorer and richer regions are too different The poorer ones are likely to lose out. There isn’t a single labour market because there isn’t a single language. There will be areas of high unemployment as a result.”

Nothing has changed. The political elites drive on against the interests of their electors. It isn’t the bankers who sold the swaps or the bond traders who sold the bonds that created this mess. It is the politicians and senior officials who wanted a new currency for Christmas, whatever the price.

This morning for anyone up bright and early the BBC broadcast the answer to the climate forecasters who told us to expect an early spring. A daffodil grower from Cornwall told us his crop will be one month late this year. I was relieved to hear it is not just my daffodils taking it easy before springing into life. His crop is still dwarves without flowers so far.

Apparently it is another case of too much weather and too little climate. We just have to be patient and fight our way through the rain and the wrong kind of “wintry showers”, as snow is now called by a Met office that finds it all so difficult to call.

So it’s another inflation letter. That’s no suprise for readers of this site. What is so sad about the MPC is their failings are so predictable. They lurch from boom to bust to attempted boom, and the inflation figures career all over the place as you might expect. Today they had to report that during the worst downturn in the economy since the 1930s inflation has soared to 3.5% on the CPI, 3.7% on the RPI and well above 4% on RPIX. Now the savage cuts in living standards that Labour’s economic policy was always going to deliver are upon us, as wages are not going up by anything like the current rate of inflation.

In 2008 I explained that rates were too high and this was going to cause a worse downturn. In 2009 I warned rates were too low and too much money was being printed. That was bound to cause an inflationary surge. The MPC is meant to concentrate on controlling prices, and keeping them to around 2% a year. Why do they find it so difficult?

They are not asked to avoid slump or control booms, to consider output or the levels of the currency. Sometimes they seem to be acting as if they were, but they do this also by reacting too severely too late. We have lurched from overheating to severe downturn despite- or more properly owing to – their energetically destructive monetary policy.

Today they tell us we have very low interest rates and they are going to keep them that way despite the high inflation. They have no sense of irony – or apparent knowledge of the real world. On this very day we learn credit card rates are above 18%, or 37 times the base rate! The other day a local bank told me a small business could borrow at 8.5% or 17 times the base rate. Mortgages if you can get one are on offer at around 9 times the base rate.

Who is the MPC kidding? I fear, just themselves. Their rates are too low and their money printing has been too energetic. No-one in the private sector can do any business at anything like so called base rate. Markets largely ignore the MPC. All they seem to want to do is to help the government overspend, borrowing more cheaply, whilst the rest of the economy pays totally different rates. Meanwhile the regulators force the banks to lend less and raise more capital at the bottom of the slump, making it more difficult to finance a recovery. No wonder we are in mess.