Why did the markets crash?

 

              The Guardian has diverted me from the big story. Just as feared on this site, the bungling Euromantics have shaken the financial world with their clumsy scheme.

               They have rejected the least bad answer – asking the most heavily indebted countries who broke their sensible rules on debts and deficits to leave the currency. They have rejected the answer of Germany leaving to re-establish the DM with a handful of smaller stronger countries. Just as they did with the ERM, so they are doing with the single currency. Inflict maximum pain on as many as possible, until the markets make the whole thing impossible. Watch unemployment rise, incomes fall, and say it is all worth it.

                Instead they imply they are going for the answer of creating a country called Europe to back up the single currency. They are implying they are moving to a world where the rich underwrite the poor and the strong support the weak across the Euro area. Yet when it comes to passing landmarks on this journey, Germany refuses. There are to be no common Euro area bonds, allowing the weaker states to borrow on a  common credit rating. There is to be no increase in the stabilisation funds. There is uncertainty about the size and commitment behind the ECB intervention programme. It is always too little , too late.

              As a result the markets are spooked. Investors fear for the state of some EU banks. These banks  have been encouraged or made to buy large quantities of sovereign bonds. These bonds are now in question, leading to worries about the strength of the banks that own them. Greek and Portuguese bonds have fallen massively in price. How far could Italian and Spanish bonds fall? What would that do to continental banks?  As the sovereigns are financially overstretched already, who will bail out any bank in trouble in the weak countries?

                    German and French growth has already come to a grinding halt. Growth is needed to generate the extra tax revenues to pay for the large public sectors these countries like.  The glacial progress to a transfer union, where the debts of all are guaranteed  by all, and to a subsidy union where the rich recognise their obligation to the poor across frontiers, leaves the whole system very vulnerable to market fears.

                       At the same time Mr Obama spooked the US markets by his refusal to rule out the  US reneging on debt in the crisis talks over the debt ceiling, and then again by his failure to reach agreement with his political enemies over how quickly and how  to cut spending to control the deficit in the US. A few bad figures recently on US economic growth finished the markets off.

                             On both sides of the Atlantic governments are running out  of time to have plausible ways of cutting their deficits and controlling the debts. The EU version is gravely compounded by the failure to offer strong leadership to maintain the single currency, and refusal to split it up. We are heading for a prolonged period of slow growth at best, with continuing alarms on the credit worthiness of individual states, and over the consequential weakness of various banks. There is still scope for disaster, if the authorities do not grip the problem more strongly.The slower growth is, the worse the deficits will be. It is easy for the overborrowed states to get into a vicious circle from here, slower growth, rising deficits, more tax rises, slower growth.

                There was one bit of good news this week. The latest UK borrowing figures show that thanks to the banks tax revenues rose well last month.  It was also the first month of the Coalition when the rate of increase in spending fell below 4%. They now need to keep that up, to get somewhere near the promised lower borrowing this year – a mere £122 billion.

This entry was posted in Blog. Bookmark the permalink. Both comments and trackbacks are currently closed.

62 Comments

  1. Mike Stallard
    Posted August 21, 2011 at 7:12 am | Permalink

    Your last paragraph (at last!) brings some very good news. Well said!

    Europe has worked very well so far by outwitting elected governments. It seems to have done this in two ways. First of all, the clever idea of making their diktats start way into the future when the current governments will have faced an election. Secondly the idea of working through the national governments instead of directly on the people themselves.

    Now both those ideas are broken. We need, as you say, immediate action for the sake of the markets. If the Euro is to survive, we need a federal state with a common financial policy in the eurozone overruling national governments.

    That demands a revolution and, honestly, I do not think the second eleven in charge are up to that. What was that poem? – “….and what rough beast, its hour come round at last, slouches towards Bethlehem to be born”. Fascism came out of a failed world war, the collapse of a steady and effective government, but above all, from inflation.

  2. Charles Bell
    Posted August 21, 2011 at 7:34 am | Permalink

    How do we break the vicious cycle referred to and how to stimulate the growth required? On the subject of growth, is constant growth sustainable in a world of declining finite natural resources ?

    • GJ Wyatt
      Posted August 21, 2011 at 9:43 am | Permalink

      Growth, as the word is used by commentators, is not the long-run concept you refer to. It just means the short-run (e.g. quarterly or annual) fluctuation around a trend. There’s nothing they can say about the trend of long-run growth because that is mainly determined by technological changes, and its time scale is of human rather than mayfly generations. It is an open question whether this financial crisis/recession has affected the trend. It may have shifted both its level and rate of change downwards, so that there is now less spare capacity (“gdp gap”) than would normally be assumed for the given level of unemployment, and more susceptibility to inflation.

    • A different Simon
      Posted August 21, 2011 at 10:46 am | Permalink

      Good question .

      The notion that constant growth is required (or even possible over the long term) is a fallacy .

      The challenge for mankind is long term sustainably without growth and maybe even with negative growth in order to reach a sustainable level .

      The current debt-money system is unable to do this and is unable to survive in an equilibrium . It constantly requires more coal to be thrown on just like pyramid schemes , ponzi schemes .

      It should not be neccessary to risk your money in order to avoid it being eroded by inflation but that is the way it is set up to be .

      Exponential growth of the aggregate is only mathmatically possible over the short term .

      The rate of growth has to decline as countries get more developed eg Germany and as you have pointed out natural resources , and particularly cheap energy , is finite .

      For the UK which is in the doldrums of course there is more scope for exponential growth but not indefinitely .

      Charles , you ask “How do we stimulate the growth required” and John saysa “Growth is needed to generate the extra tax revenues to pay for the large public sectors these countries like. ”

      If Germany is paying for it’s public sector now and it’s public sector is not growing why would it need to continue to grow in order do so ?

      • Conrad Jones (Cheam)
        Posted August 24, 2011 at 2:01 pm | Permalink

        @A different Simon

        Good comment.

        I think you probably know the answer to:
        “If Germany is paying for it’s public sector now and it’s public sector is not growing why would it need to continue to grow in order do so ?”

        As our money is “Debt-Money” – the interest to pay off the debt requires new “Debt-Money” to service old loans. Therefore, we can never reach a happy state of equilibrium in the current system. This was achieved in the United States prior to the creation of the Federal Reserve on December 23, 1913 (when many congressmen had gone home for Christmas). American Companies were able to use there own money as inflation was not as rampant as it is today. Banks were losing their importance as interest rates on real money were set by the Free Market. Savings were not eroded and Companies were not permanently in a state of Debt. If we could do it then, we can do it today. Banking Crisis in the 19th Century were exagerated and – often; engineered to provide the “credibility” of change and Banking “Reform”. The fact that the Bankers wrote the Federal Reserve Act themselves – secretly, should indicate how likely it was that it would reduce crisis after it’s creation. Within months we had the First World War, and a few years later we had the Great Depression.

        Central Banks reducing the lending rate provided cheap money which – combined with Fractional Reserve Banking practices, enticed people into a Debt bear trap. This is what has caused Financial Panics – Government’s overspending is just a Symptom.

        Even Mervyn King does not believe in Bail Outs and short term profits for Banks:
        http://www.telegraph.co.uk/finance/economics/8362951/Britain-at-risk-of-another-financial-crisis-Bank-of-England-chief-warns.html

        Goldman Sachs still on the hook for short term profiteering:
        http://www.guardian.co.uk/business/2011/aug/23/goldmansachs-banking

    • lifelogic
      Posted August 21, 2011 at 12:35 pm | Permalink

      “is constant growth sustainable in a world of declining finite natural resources ?”

      Yes – with technology improvements and sensible population levels. Just look at the huge efficiency improvements in electronic, computing and manufacturing systems in just 20 years or so.

      The trick is to stop governments wasting all this efficiency in parasitic activity or nonsense activities like Huhne’s green energy subsidy nonsense.

      • Bazman
        Posted August 21, 2011 at 7:27 pm | Permalink

        Sensible population levels? How do you propose to bring this about or enforce it. The majority of the worlds population have not used a telephone, so technological advancement seems to be a dead end?

        • Bazman
          Posted August 21, 2011 at 7:28 pm | Permalink

          Not the majority about a third.

        • lifelogic
          Posted August 23, 2011 at 9:14 am | Permalink

          Populations tend to control themselves well when they develop and they have access to basic medical care, birth control and sensible financial structures. If they do not they will inevitably alas be controlled by wars, famine, disease or similar.

  3. lifelogic
    Posted August 21, 2011 at 8:20 am | Permalink

    It is always easy to underestimate just how absurd, stupid and damaging politicians and bureaucrats can be, once they have a group think religion/idea. They are usually unable to change direction (even when all can see the cliff clearly) until they are finally forced to by falling of it (as with John Major’s ERM). Or by being voted out but we cannot really vote them out anymore with the non democratic EU.

    Perhaps the best course of action is to work out how best to personally profit from the situation so at least not everyone will suffer and you will have some money to help rebuild from the EU inspired ruins.

    • Tim
      Posted August 21, 2011 at 3:44 pm | Permalink

      Please take a look at the Governments e petition website and encourage all to sign the In/out call for our continued membership of the EU. It’s time we were out of this undemacratic, costly monster!!

  4. matthu
    Posted August 21, 2011 at 9:11 am | Permalink

    As Christopher Booker points out in the Daily Telegraph

    “In a sane world, no one would dream of building power sources whose cost is 22 times greater than that of vastly more efficient competitors. But the Government feels compelled to do just this because it sees it as the only way to meet our commitment to the EU that within nine years Britain must generate nearly a third of its electricity from “renewable” sources, six times more than we do at present. ”

    No wonder the recovery is taking so long to appear. But every single MP who fails to point this out at every opportunity is complicit in this madness.

    The EU has a stranglehold over our economic prospects. They divert billions to the support of questionable causes (which then end up lobbying the EU to support further insanity) and keeping EU commissioners in the level of comfort to which they have become accustomed. (Today we read about former EU commissioner, Lord Mandelson, eyeing up an £8m house barely a year after leaving government.)

    The EU is simply a well-oiled machine for transferring wealth out of productive sectors of the economy and into unproductive sectors, out of well-functioning economies into stagnant economies.

    The markets no longer believe this is sustainable. Neither should we.

    • lifelogic
      Posted August 21, 2011 at 6:07 pm | Permalink

      “The EU is simply a well-oiled machine for transferring wealth out of productive sectors of the economy and into unproductive sectors, out of well-functioning economies into stagnant economies.

      The markets no longer believe this is sustainable. Neither should we.”

      There is clearly much truth in this statement.

    • lifelogic
      Posted August 21, 2011 at 7:41 pm | Permalink

      You say “In a sane world, no one would dream of building power sources whose cost is 22 times greater than that of vastly more efficient competitors.”

      Indeed how on earth do they get away with pushing such evil absurdities. How can they push these “solutions”? Are they mad, corrupt, evil, very stupid, driven mad by the green religion, have no sound scientific advice, just do what the mistakenly think wins votes, just read out what their briefing notes say regardless or are they are just on the make for themselves and their friends?

      What is the real explanation?

    • APL
      Posted August 21, 2011 at 11:53 pm | Permalink

      Matthu: “former EU commissioner, Lord Mandelson .. ”

      Ahh! that old grafter.

      ‘Lord’ my [self censored]. Isn’t it odd how all those egalitarian socialists are up for a peerage at the first opportunity.

  5. matthu
    Posted August 21, 2011 at 9:40 am | Permalink

    And as Prof. Alexander has so eloquently put it:

    “The developed nations are now in serious difficulty of their own making. They will soon face the anger of their own citizens when it becomes known that the costly emissions control measures and taxes are based on deliberately manipulated science, and that the rest of the world is unlikely to follow their suicidal example.”

    Prof. Alexander’s view is refreshing coming as it does from an eminent scientist in SA in the lead-up to the UNFCCC conference to be held in Durban starting at the end of November.

    He suggests that the manipulation of science (that was later to become common practice) was initiated by the activities of the Stern Review and provides evidence of the deliberate suppression of conclusive evidence that natural climate change far outweighs any human-related activities.

    In his view scientists could still play an important role by demonstrating the false basis of climate change theory but I would argue that MPs (who were overly complacent and complicit in allowing the Climate Act onto our statute book) are not doing enough to remove it from the international agenda.

    http://climaterealists.com/attachments/ftp/Manipulationofscience.pdf

    • sjb
      Posted August 21, 2011 at 9:14 pm | Permalink

      Professor Alexander seems to be a civil engineer rather than “an eminent scientist”, matthu.

      His ‘report’ does not appear to have been subject to peer-review.

      The Stern Review claims: “ Climate change is the greatest market failure the world has ever seen.” The professor’s response? “Absolute rubbish” – emboldened and in capitals. Well, there is scientific reasoning of the highest order 🙂

      • APL
        Posted August 22, 2011 at 7:56 am | Permalink

        sjb: Professor Alexander seems to be a civil engineer rather than .. ”

        Rajendra Pachauri is a qualified Civil engineer, that didn’t stop him heading up the IPCC nor waffling at length about Climate change.

      • lifelogic
        Posted August 23, 2011 at 9:27 am | Permalink

        Nothing wrong with civil engineers to judge this matter. No sensible engineer or scientist could read the Stern report and regard it as anything other than a religious/political document. It is not even written in a scientific, or even a numerate economic style. It is full of silly, side reference, appeals to doom and gloom, irrational fears, and childish emotions (just as most religious texts are in fact). It is clearly aimed at, the rather too many people, who still think with their emotional gut feelings rather than their brains.

  6. Alan
    Posted August 21, 2011 at 9:50 am | Permalink

    It seems to me that Mrs Merkel has no intention of allowing a Eurozone financial government that might result in Germany funding other nations. Nor is she excessively worried that the banks who made unwise loans are finding things difficult, provided that things don’t get so bad that the German taxpayers have to bail them out again. I doubt that she thinks it likely that other countries will abandon the euro, and if they did it would not get rid of the banks’ problems anyway. She won’t be troubled by falls in the stock market.

    She will be worried about falling growth in Germany, but I don’t suppose she expects growth in the rest of Europe to help her out. She will almost certainly be hoping for better growth in the rest of the world to provide a market for German exports, and she will do what she can to encourage that, although there is probably not much that she can do.

    So I don’t think you should expect her to resolve this crisis; she will just let it run. Resolving the euro crisis won’t be her main concern. Managing it is all she is trying to do. Many commentators seem to imply that the crisis must be resolved quickly, but I suspect that is not essential. The unpredictability of financial markets makes it impossible to be sure that the crisis can just be managed until it eventually dies away but that seems to me to be quite possible, although it will lack the drama of the Eurozone breaking up or of the creation of an integrated financial government of the Eurozone.

    It will damage our troubled banks here in the UK if countries leave the euro since that will lessen the likelihood of the bad loans being repaid; it will help our banks if all Eurozone countries stay in the euro and Germany guarantees their bad debts, so I can see why Mr Osborne argues for greater Eurozone financial integration, even though I doubt it is in our long term interest. Our exporters should be doing well because of our devaluation but we don’t seem to see the ‘benefits’ of that yet. Like Germany we need growth in other parts of the world to provide a market for our exports.

    In short it looks as though both the UK and Germany wait for growth in countries we can export to. Encouraging that, and making our exporting businesses as efficient as possible so that they can seize any opportunities that are offered, is where I think our attention has to be.

    Reply: One of the issues is how Greece etc pay the bills if they continue to lack access to normal lending markets. There is also the nagging issue of refinancing the weaker banks. Both these problems are also Germany’s.

  7. Bill
    Posted August 21, 2011 at 10:10 am | Permalink

    The markets, for years, have assumed that the credit risk on Greek (and the Med club) debt was the same as on German debt.

    Little wonder these countries had a Beano, government jobs, retire at 50…new schools, new hospitals, lots of nice German cars.

    Either the Med Club achieve big growth, or cut back to living from olive oil exports again or Paris and Berlin grant them massive aid, and call the shots politically – or some countries have to leave the euro and default.

    Messrs Sarkozy and Merkel have mooted a financial transaction tax as a solution and Mr Redwood was quick to point out that this would be totally unacceptable to the UK, but the concern is that such a tax may be a popular solution – bank bashing – here and in the USA, it couldn’t work without the USA I assume.

    It may be viewed as the abolition of tax credits by Mr Brown, (looks a bit complex, doesn’t hit my pocket) but would hit the city and pensions and savings.

  8. oldtimer
    Posted August 21, 2011 at 10:19 am | Permalink

    As ever, a very clear analysis of the present predicament of the West. A key question is what event will trigger an ERM style collapse. Will it be a country which runs out of money? Or a bank which runs out of cash? And which bank or which country? And just when can we expect this to occur? Presumably this autumn is a strong favourite.

  9. Gary
    Posted August 21, 2011 at 10:21 am | Permalink

    The sovereigns are broke because they attempted to repeatedly bail out the Too Big to Fail banks. Not the other way around. The European banks took on truckloads of Alt-A mortgage securities and wrote mountains of derivatives against them. In a falling property market this has further damaged the banks and the sovereigns who unloaded this toxic waste from the banks during the bailouts. The treasury would have been taking far more tax from other sound productive companies if the banks had not created this deleveraging depression , by making a credit bubble in the first place. So, it is a pyhrric victory to say that we are getting increasing tax receipts from the banks.

  10. Acorn
    Posted August 21, 2011 at 10:26 am | Permalink

    As a follow up to APL’s post yesterday:-

    “Here’s a scary figure for you, courtesy of Reuters: Combined value of the 32 euro zone banks: $340 billion. Value of Apple [Inc]: $340 billion Wow. The euro zone banks are down three-quarters of their value since the highs of 2007.” (businessinsider.com)

  11. Mark
    Posted August 21, 2011 at 10:35 am | Permalink

    Thanks to the banks tax revenues?

    Not much sign of that here:

    http://www.hmrc.gov.uk/stats/tax_receipts/tax-nic-receipts-info-analysis.pdf

    VAT and NI are providing the extra revenue, while income tax receipts were lower (almost for sure because there are fewer high earners, since numbers in employment have increased – perhaps lower bank bonuses, or perhaps more likely simply high earners emigrating).

    • norman
      Posted August 21, 2011 at 10:50 pm | Permalink

      With VAT and NI being the workhorses (as under Brown) of bigger government at least it does lend some truth to the ‘we’re all in this together line’ as no one can avoid VAT and no one who works can avoid NI.

      I’d rather that the government didn’t try and squeeze every last penny out of every last citizen but the leviathan has to be fed somehow!

  12. alan jutson
    Posted August 21, 2011 at 11:06 am | Permalink

    Politicians have been blind to the reality

    Why do anything today, when you can put off the bad news until tomorrow (when someone else may be in power)

    For decades Politicians have lived in the dream world where endless money, created by endless growth Endless spending was constantly being fueled by greater tax take. Citizens also built up endless debt encourged by slack banking rules on risk, and high rewards on bank employees to gamble.

    So. Who needed real money !

    Just a few key strokes on a computer, and hey presto, problem solved.

    Now we have to start to get real, no one can guarantee continuing growth, spending cannot continue to grow, tax take growth should not be taken for granted (indeed it may even go down for a period, as you cannot keep on inreasing taxes for ever)

    So politicians are now faced with having to live within their means, its a foreign place for them, a new age, with new methods are required.

    nteresting times are ahead.

    • alan jutson
      Posted August 21, 2011 at 2:14 pm | Permalink

      Interesting times are ahead.

      They now will actually have to manage, those with experience of commercial management will probably manage best, those without may flounder.

      Now lets see, how many commercial managers have we in the cabinet ?

  13. matthu
    Posted August 21, 2011 at 11:08 am | Permalink

    Funny moment on BBC 1:

    They have just announced the result of the poll into
    “Should we get rid of the Human Rights Act”
    89% voted NO
    11 % voted YES

    Of course there was an accompanying graphic to display the disparity.

    The presenter carries on as if this leftist view completely underlines everything the BBC has been advocating … then 90 seconds later (just before the end of the program) they embarrassingly admit they’ve actually reported the result the WRONG WAY ROUND.

    89% voted YES
    11 % voted NO

    Why is David Cameron taking so long about this?

    • sjb
      Posted August 21, 2011 at 9:37 pm | Permalink

      Perhaps because it may be embarrassing to promote a measure that will result in British citizens having inferior rights to those enjoyed by the 40+ other countries that have signed up to the Convention.

    • norman
      Posted August 21, 2011 at 10:52 pm | Permalink

      I don’t know what’s most hilarious – the fact they got it the wrong way round or the fact that there are people working in the BBC who are credulous enough to think 89% of the population think the same way they do!

    • APL
      Posted August 21, 2011 at 11:55 pm | Permalink

      matthu: “Why is David Cameron taking so long about this?”

      The BBC gave him his job. Do you think he intends to ‘do’ something about them??

    • StevenL
      Posted August 22, 2011 at 1:12 am | Permalink

      I got the impression that there was no appetite amongst th Lib Dems to repeal it. You do understand that repealling the HRA doesn’t stop lobby groups and others with the cash taking expensive cases in the European courts based on the European Convention on Human Rights?

      We’d have to withdraw from the ECHR too. I’d argue with have to replace the HRA with a basic set of rights that apply to the common man in any court too. The regulators ‘Ways and Means Act’ and the judges ‘It’s My Court and I’ll Do What I Want Regulations’ are still a problem.

      • APL
        Posted August 22, 2011 at 8:00 am | Permalink

        StevenL: “I’d argue with have to replace the HRA with a basic set of rights that apply to the common man in any court too.”

        Funny how the UK largely set up the ECHR after the last world war, what with our dysfunctional ideas of justice, rights and obligations of the citizen and all that.

        Y’ all know, the UK did have a justice system before 1960, don’t you?

  14. Norman Dee
    Posted August 21, 2011 at 11:55 am | Permalink

    It’s about time we started to see some post disaster politicians in The Hague, or at least in their own supreme courts. You don’t have to kill people to destroy their lives, being responsible for the destruction of an economy is as damaging as a war but without the loss of life. In some ways it is worse, crudely put dead people are a reduced burden on the state, the survivors of an economic crash are still around expecting support.
    Yet we continually see failed politicians everywhere paying no price and indeed rewarded for failure, and no questions asked. I am sorry but I cannot let it pass but on this very subject, is nobody going to ask Mandelson to account for the money he has. 12 years ago he had to (resort to questionable tactics-ed) to get a £300k mortgage, he now lives in a £2m house and making offers on a £8m house, this is nothing less than taking the piss, if you will forgive the expression.

  15. Denis Cooper
    Posted August 21, 2011 at 12:08 pm | Permalink

    “They have rejected the least bad answer – asking the most heavily indebted countries who broke their sensible rules on debts and deficits to leave the currency. They have rejected the answer of Germany leaving to re-establish the DM with a handful of smaller stronger countries.”

    I don’t know which over-imaginative mind first came up with the daft notion that it would be better for Germany to leave the euro than for Greece to leave.

    For a start – when the Bundesbank became a non-euro area national central bank, would the German government be content for the ECB to treat it as still being a euro area national central bank, or would it insist on its capital subscription to the ECB being reduced by 96.25% and having the excess refunded, and Germany thenceforth being freed of any liabilities for losses incurred by the ECB on its holdings of junk sovereign bonds?

    http://www.ecb.int/ecb/orga/capital/html/index.en.html

    The ECB could almost certainly survive the consequences of the re-categorisation of Greece if it left the euro, but could it survive the same for Germany?

    However the supervening fact is that the EU treaties lay down the route for a country to join the euro but provide no mechanism for any country to ever leave the euro, whether the country is Greece or Germany.

    That is what was agreed in the Maastricht Treaty, which was approved by the UK Parliament after John Major forced it through the Commons on a confidence vote; and which was approved at the time by the other national parliaments within the EC (and in some cases also approved by a national referendum); and both the legal obligation to eventually join the euro and the irreversibility of that step was subsequently accepted by the national parliaments of all the new member states when they approved accession to the EU (and in some cases also approved by referendum).

    It’s perfectly obvious that the UK government should never have agreed to the EU starting to issue its own currency in the first place, notwithstanding the treaty “opt-outs” secured by the UK and also Denmark, seen by the eurocrats as no more than temporary exceptions to allow the euro norm to be established; and failing that it should never have agreed to the euro being set up without any treaty provision for a country to make an orderly withdrawal; and it should never have agreed to the legal requirement to eventually join the euro being imposed on all new EU member states, countries which it wanted to join the EU because supposedly “widening” would prevent further “deepening”.

    So when David Cameron agreed to this radical EU treaty amendment on March 25th:

    http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2011:091:0001:0002:EN:PDF

    “EUROPEAN COUNCIL DECISION

    of 25 March 2011

    amending Article 136 of the Treaty on the Functioning of the European Union with regard to a stability mechanism for Member States whose currency is the euro

    (2011/199/EU)”

    why did he not insist that it must be accompanied by other treaty changes to allow countries to leave the euro legally and in an orderly fashion, and to relieve the other eight EU member states which are not yet in the euro of their legal obligation to eventually join it?

  16. Demetrius
    Posted August 21, 2011 at 12:20 pm | Permalink

    The rich are unlikely to be subsidising or helping the poor much because they will not retain their wealth in Europe. It will go elsewhere as a great deal has been doing now for a couple of decades. There may be a few devices and schemes to modify the effect but they will not have a lot of impact. The result over time will be the continuing hollowing out of European financial systems and societies.

  17. Iain
    Posted August 21, 2011 at 1:09 pm | Permalink

    For years we were lectured to by the EU fanatics that their project would promote stability, yet when it comes to the test we find (not a surprise for some of us) their project is creating the biggest instability the world economy has seen for a centaury or more. Not surprisingly they are all keeping a low profile, but that shouldn’t deter the sceptics from reminding them and shoving their arrogant words back down their throats.

  18. Ross
    Posted August 21, 2011 at 1:23 pm | Permalink

    Everything is okay. Calm down to a panic.

    Our President of the European Council, Mr Van Rompuy has stated that jittery traders had reacted in a “fundamentally disproportionate manner” causing the markets to crash.

    “Markets aren’t always right” he said. He urged “Everyone to convey the same message”

    It’s good to know where you are in a crisis. It takes true genius to see the whole picture.

    Mr JR please take note and stop rocking the boat.

  19. MickC
    Posted August 21, 2011 at 1:59 pm | Permalink

    Who indeed will bail out the banks? (but not just in the weak countries).

    It quite simply cannot be done. The banks balance sheets are stuffed with “assets” which are, in fact, liabilities. Once these have been re-classified the insolvencies will become apparent.

    Bank shares have collapsed because nobody wants to hold this parcel when the music stops.

    Further taxes on the populace to raise the money to bail out the banks will kill growth (such as it is) inducing another recession (this has probably already started).

    Nobody wishes to work and incur risk when the return will be taken away to pay those who caused the problem by their negligent lending (and in the case of government by the excessive regulation).

    Growth can only come by cutting public spending and cutting taxes. This government is doing exactly the opposite.

  20. Neil Craig
    Posted August 21, 2011 at 2:33 pm | Permalink

    Most complex things have an immediate and a general cause. You have given the immediate cause of thje market collapse. However the deeper one is that the parasitic Luddism of our political class ensures unnecessary electricity anmanpower costs and prevents western economies competing successfully with the BRICK ones. So long as we are uncompetitive we are not going to be a sensible place for manufacturers to invest in.

  21. Bernard Otway
    Posted August 21, 2011 at 3:17 pm | Permalink

    Where is Javelin?,did he get annoyed at being Moderated,his comments of extreme erudition
    which come from watching the BEAST from a very good vantage point,are sorely missed.
    I have had about 20 emails from overseas asking where and why,and I have told them my viewpoint.Remember lots of us ARE ERUDITE in our own way.

    • StevenL
      Posted August 22, 2011 at 12:57 am | Permalink

      Didn’t he say he was on holiday last time he popped by? Calm down!

  22. waramess
    Posted August 21, 2011 at 3:49 pm | Permalink

    Almost certainly the monetary and fiscal system of Europe and USA is now out of control. Those in charge do not know what to do and to the extent they know what they should do they do not have the political will to proceed.

    When first countries decide on the convenience of inflating the money supply it is no more than the start of a slippery slope. They then look to the taxpayer to increase their revenues by means not attempted before and then money printing becomes an imperative rather than a convenience.

    That the Europeans now have such altruistic visions as you suggest is no more than a thin veil to hide the fact that they now have nowhere to go. The German people will not permit a bail-out and the Greek people and others will sensibly never agree to austerity in order to save their governments or the banks.

    Obama on the other hand is hopefully a dead man talking but, if not, we all have a lot to fear.

    And the UK? One swallow?

  23. uanime5
    Posted August 21, 2011 at 5:10 pm | Permalink

    Given that the richest nations approve these plans we know that they’re at least good for some countries. I recommend fostering more business links with these nations as they’re likely to be the European countries that have money in the future.

  24. REPay
    Posted August 21, 2011 at 5:55 pm | Permalink

    I am with the Lib Dems on raising the threshold. The bizarre idea that the really poor should be paying 25% and more of their income in taxes is ridiculous – but the people in the middle will have to pick up an increase which is why it won’t happen.

  25. Peter Campbell
    Posted August 21, 2011 at 6:36 pm | Permalink

    So the “good news” is that the rate of increase of deficit spending has slowed marginally? So the government is continuing to steal more from the future to pay for it’s inability to control it’s budget and that is the good news? I suppose compared to the prospect of being in a federal Europe with unelected imbeciles ruining us even more than now it is good news. However, compared to, for instance, news that the budget was balance and the UK had a credible plan to pay off it’s enormous debt thereby reducing taxation I’d say it was catastrophically bad news.

  26. John Ward
    Posted August 21, 2011 at 7:04 pm | Permalink

    The EU’s leaders are delusional, and the markets are neurotic. When push comes to shove, there’s very little to choose between them.
    Today, Queen Angela went on German television to denounce the eurobonds idea as spawn of the Devil – aka, my death as German Chancellor. She wants to stay on the right side of Fritz in der Strasse, and Sarkozy wants to ensure none of his banks collapse. I fear it is too late for either of them.

  27. zorro
    Posted August 21, 2011 at 7:49 pm | Permalink

    As some on this blog have suspected for a long time, the outlook is looking more and more like prolonged stagflation with very little prospects for growth in Europe and, if current policies are continued, the UK.

    The position of Germany is interesting. When will it take the decision to either protect its national interest and which national interest will it choose to protect? What appears to be its present one or its historic one?

    I still think that Germany will eventually agree to backing Eurobonds but they will get the maximum political and economic benefit before doing so.

    zorro

  28. sm
    Posted August 21, 2011 at 9:55 pm | Permalink

    Maybe the debt problem wont go away easily and tomorrow is closer than realised.

    Leave the EU.
    Print and spend debt free money into existence on real public infrastructure in the UK employing residents. Roads/power stations/resovoirs/barrages etc.Push up the reserve requirements on banks and interest rates to deflate the debt and gradually remove their ability to create debt finance.

    Maybe when fiat-money is forced to be honest, speculation is a hard game and that’s a fearful thing.

  29. rose
    Posted August 21, 2011 at 10:26 pm | Permalink

    “The Guardian has diverted me from the big story. ” I trust you didn’t waste too much time looking at that horrifying thread you set off. It must be a relief to be back here with the devils you know.

  30. rose
    Posted August 21, 2011 at 10:39 pm | Permalink

    http://www.bbc.co.uk/iplayer/episode/b01391jt/A_Point_of_View_Greece_and_the_Meaning_of_Folly/
    I know you dislike links, but this is too extraordinary a development on the BBC to ignore. I think they have played it several times.

  31. Bernard Otway
    Posted August 22, 2011 at 1:16 am | Permalink

    Now I am allowed back,I would like to make the point again about CUTS from SAVINGS.
    EXAMPLE I am 66,ten days ago I got a letter from my local health trust asking me whether
    I wished to take part in a bowel cancer screening test programme ,which the letter said was
    for people over 75,note please my age,IF I replied they would send me the wherewithall
    to conduct the test.On thursday last I got in the post the test kit and paraphenalia having NOT replied, my point is TWO letters unnecessary firstly as I am 66 and they KNOW and
    secondly I DID NOT reply,the second letter included the apparatus for the sampling etc,AND
    GET THIS,I GOT THE SAME TWO LETTERS IN 2010 when I was 65, QUESTIONS
    how many times does this happen and at what stupid unnecessary cost,and secondly at how many trusts and with how many other conditions to be tested for,my guess is THOUSANDS of times,AND AND FINALLY in how many OTHER branches of the public service. I have a friend in a senior position in the police federation and what he tells me about WASTE is SHOCKING.

    • alan jutson
      Posted August 22, 2011 at 9:17 am | Permalink

      Bernard

      Aware that you got a few letters, and aware of the wast of money.

      Actually its my understanding that the tests are available for all over 60 years of age. Programme started I think three years ago, so its a reasonably new service provided by the NHS.

      I would urge you or anyone else to take part in these tests, as bowel cancer is a growing problem for thousands which does kill if not treated in time.

      We know personally of seven people who have been diagnosed with bowel cancer, one has already died having had treatment too late, two are terminally ill who had treatment too late, four have recovered, two after having a colostomy (although they still have 6 monthly/yearly check ups) and are surviving because they were diagnosed reasonably early.

      The tests take but a few minutes, are perhaps not everyones cup of tea, but they do give an indication of problems should such problems (blood in your stools, invisible to the naked eye) exist.

      Better to find out early of a possible problem, than too late.

  32. Javelin
    Posted August 22, 2011 at 12:15 pm | Permalink

    Can I give your readers insight into how traders come to the conclusion that the Euro will fail. Basically a trader knows the politics, GDP and debt of most Euro countries as part of their job. Then a growth figure pops up on their news terminal and after doing a quick bit of math in their head they say in a shocked high pitched voice “that’s ridiculous” – and there you have it, his faith has gone and nothing but a realistic plan is going to shake that guys opinion. There is no deep analysis – no pessimism or room for doubt. It’s a straight forward “that’s ridiculous” that switches him to a Eurosceptic. And this is where we are – there are lots of possible exit strategies and we have spoken about them and traders sit around discussing them over coffee. So if politicians want to stop the markets dragging the Euro down one trader at a time then they need to get real.

    Out of interest the general opinion amongst traders is that accountants will finally trigger the collapse by marking a portfolio of euro national bonds to Market and triggering a request to the ECB for funding. We almost saw it happen with a French or Belguim bank last week – but as I’ve been predicting it will be an Italian bank that triggers the full collapse.

    • sjb
      Posted August 22, 2011 at 2:41 pm | Permalink

      Well, don’t keep us in suspense. Why did it not happen last week?

      • APL
        Posted August 22, 2011 at 11:12 pm | Permalink

        sjb: “why did it not happen last week?”

        There was a disturbance in the ‘force’ last week., Ob-wan.

        “Last week an unidentified bank needed to tap the ECB for $500 million in emergency funds at a penalty rate … “

    • APL
      Posted August 22, 2011 at 5:30 pm | Permalink

      Javelin: “the general opinion amongst traders is that accountants will finally trigger the collapse by marking a portfolio of euro national bonds to Market”

      There you have the answer to John Redwoods question, ‘Why did the markets crash?’

      Assets marked to fantasy! That is all you need to know.

      Look at Bank of America. A company which now has a market capitalization of 1/3 its book value.

      Technically it is(regarded as financially stressed by market-ed) and the stock price is shouting as much as much.

      • APL
        Posted August 22, 2011 at 11:07 pm | Permalink

        JR: “Technically it is(regarded as financially stressed by market-ed) .. ”

        It’s not a technicality, the market is shouting, the stock performance confirms something is upt.

        Of course it might be a screaming buy, in which case some wealthy guy will be along right now because he would be in for a immediate 300% profit if he bought the company lock stock and barrel.

        Any moment somebody will be along … anytime now …

        • APL
          Posted August 25, 2011 at 4:21 pm | Permalink

          APL: “anytime now”

          Well whadyouknow!

          We’re about to see if Buffett is all he is cracked up to be. Even so, at 6% he is doing much better than the regular deposit holder at the Bank.

  33. Bernard Otway
    Posted August 22, 2011 at 4:27 pm | Permalink

    Thank you Javelin.
    Dear Alan thankyou for your advice and thoughts,however the letter DID say 75 and over,secondly in the last 2 years due to other medical problems I have had a complete range of tests for everything,luckily all clear including a complete lower abdominal area workover and scan,WHICH THEY KNOW ABOUT it is on my medical records for goodness sake,so I say again WHAT WASTE.ALSO what about the 5 different letters two years ago to my request for a pension forecast,with 5 DIFFERENT forecasts for ME with the same NI number who started work in sept 1963,necessitating a one hour long telephone call on the 0800 number to sort out each forecast came seperately accompanied by the SAME booklet showing retirement entitlements. Either I am an individual with a BULLSEYE on my chest
    with regard to this kind of thing [and there are others] OR as is much more likely I am symptomatic of a huge problem in the entire public service including local authorities and QUANGOS. Bye the bye apropos the recent ‘A’ level results,I was at a meeting with some
    students who just got theirs,I was talking about lots of things to do with Africa,and was asked about LIBYA three of them thought it was in Arabia not Africa,not one knew that South Africa where I was from 1980 till 2008, is one of if not THE largest gold producers in the world and that most of the planet’s Chrome and Platinum are in that country which are essential in many industries vital to the worlds future,God help us.At their age I got
    a proper “A” level with a distinction in Geography, my entire class got ‘O’ level geography
    and more than half got “A” level,we used to play a game where you had to name a Geographical feature any where in the world ie Capital,river,mountain range etc the next
    person had to use the last letter of the previous feature to name a new one,and each time the feature had to be different to its preceding one,these sometimes lasted the whole lesson
    Today with all the new countries in the world I still can name EVERY capital,if our education system became EFFICIENT and produced proper results even more savings from the GAINS in KNOWLEDGE.

    • alan jutson
      Posted August 23, 2011 at 9:32 am | Permalink

      Bernard

      Am in full agreement with your “waste an inefficient” comments, and to underline the probem and your points.

      I confirm that the scheme is for everyone over 60 not 75. (no. I do not work for the NHS, but some friends do) but every one we know who is over 60 has recieved this letter, and because of our interest with so many of our friends who are affected by bowel cancer, we knew of the testing scheme proposals before it was officially made public.

      With regard to your letter, I guess they simply went through their National Insurance and tax records for everyone (over 60 initially) to mailshot, you will get a reminder after 2 years for another test, as it is offered every 2 years, previouse test taken or not.

      Are you an individual, yes.
      Do your medical records come into it, no.
      Reason:
      They have not connected your medical records with the mailshot.
      Why:
      It is reported that the National NHS computer system is failing and has never worked or will work as originally intended, no matter how much money they spend on it. So I guess cross referencing is not possible or cost effective.

      Agree fully about government waste and inefficientcy, problem is not many Public workers and Politicians (exclude JR) have worked in the real world where they may then recognise that all costs are paid for out of company money, or from personal funds (self employed), which come directly off the bottom line.

      Company funds being taxpayers money in the case of public workers expenditure.

      Pleased you have been given a clean bill of health, keep on blogging.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

  • John’s Books

  • Email Alerts

    You can sign up to receive John's blog posts by e-mail by entering your e-mail address in the box below.

    Enter your email address:

    Delivered by FeedBurner

    The e-mail service is powered by Google's FeedBurner service. Your information is not shared.

  • Map of Visitors

    Locations of visitors to this page