Bubble blowing

  

            Several authorities around the world seem keen to blow bubbles again. The US Fed is busy with another programme of Quantitative easing, keeping bond yields very low. The Japanese authorities have embarked on their double the money supply policy, and are buying Real estate Investment trusts and other assets as well as bonds with the money they are creating. It is probably only a matter of time before the European authorities find a way round their ECB constitution and German objections, and inject  more cash into their banking and market systems.

         The usual objection to this type of easy money is that it causes inflation. Japan can say it has not done so in Japan over the past twenty years, when QE has been part of their response to slow growth and no growth in their economy. This year inflation fears proved wrong, as commodity prices have tumbled. The most recent inflation figures from the US are low, helped by  a large petrol price fall. World authorities are likely to draw comfort from the lack of  advanced country inflation so far, as they find new ways to ease money.

         The authorities should, however, consider  asset price inflation. In the long bull market that preceeded the 2007-8 crash there was plenty of asset price inflation. Central banks ignored it, and pointed out that shop price inflation was under better control, thanks to to cheap Asian products and downward wage pressures from rapid migrations around the world.

          In 2008 the advanced country authorities decided to call a halt to this asset price rise, and expose the loan book problems that followed for the banks as soon as you forced asset prices down. They brought on a slump. They then told us they would not allow this to happen again. They would order the banks to hold more cash and capital, to stop them lending too much to the private sector to bid up asset prices.

          Now they are deciding to bid up asset prices by other means, especially by direct purchases of assets by the authorities themelves. This in turn generates asset inflation again. Will they this time just let it run? It would seem perverse to blow up another bubble, only to puncture it again. Were they to do so, this time surely they would have to blame themselves, for both inflating the  bubble and puncturing it?

115 Comments

  1. Kevin R. Lohse
    May 18, 2013

    It would appear that Salvator Mundi’s world tour extolling the virtues of, “No more Boom and Bust”, has failed to convince world governments. Could it be that by asset price inflation the enormous tsunami of global debt can be somewhat reduced, i.e. inflating out of debt on a grand scale?

    1. Hope
      May 18, 2013

      While you and colleagues were trying to get a vote on an EU referendum the EU was voting to take another £1.2 billion from the UK this year. And Osborne who went there to resist achieved absolutely nothing. The influence was that he was out voted because the other 26 wanted our money. What a surprise! This is my taxes they are taking, I would rather throw it away than give it to the likes of Mandelson and Ashton in the form of an EU pension. I do not want to work so that money is taken from me for a soviet E U system of governance. Cameron can fight heart and soul to give my money away, but he will not get my vote- ever.

      1. Richard1
        May 18, 2013

        Do you imagine you would be better off with milliband?

        1. Hope
          May 19, 2013

          There is no difference between him and Cameron on Europe. Most laws and regulations are created by the EU. Next November QMV will make UK politicians no more than regional presenters of The EU. Wake up and get real.

          1. Denis Cooper
            May 20, 2013

            Next November the QMV rules will change, but the scope of QMV will not change. Where there is currently QMV then there will still be QMV, where unanimity is currently still required then unanimity will still be required. But the new rules may make it harder for the UK government to avoid being outvoted, especially if the eurozone countries “caucus”, ie they agree a common position and vote as a bloc.

      2. Leslie Singleton
        May 19, 2013

        Hope–You will be saying next that you don’t agree with the EU’s feeling the necessity to control olive oil in restaurants. If olive oil “must” be made tamper proof what about pepper and salt or bottles of sauce not to mention say jugs of cream etc. When one thinks of how many totally unnecessary publicly paid wallahs in the Commission there must be sitting on their bums dreaming up baloney like this one gets an inkling of why the world is going, or in their case has gone, mad.

      3. Denis Cooper
        May 19, 2013

        Heath accepted that under the 1957 Treaty of Rome the EEC annual budget would be decided by transnational majority voting, and by approving our accession (mainly Tory) MPs knowingly voted to deprive themselves of any control over that part of government spending and taxation, control which previous generations of MPs had won through centuries of bitter struggle, including a civil war.

        To that extent at least, the assurance given in the government’s official pamphlet urging a “yes” vote in the 1975 referendum:

        http://www.harvard-digital.co.uk/euro/pamphlet.htm

        “The Minister representing Britain can veto any proposal for a new law or a new tax if he considers it to be against British interests.”

        was already untrue.

        And some of those same MPs and others who were subsequently elected agreed to the abolition of national vetoes through later treaties, starting with the Single European Act, without ever coming back to us to ask whether we minded being governed by transnational majority voting.

        And because in 1972 Parliament told the government that in the future it must always obey whatever edicts came from Brussels, through Section 2 of its European Communities Act 1972, we now have the pathetic situation where transnational majority voting has been used to pass some new EU law regulating the provision of olive oil on restaurant tables, and the UK government says it opposed that new law but must enforce it.

        One wonders about the calibre of those MPs who voted to delegate so much of their power to the EU institutions, with no idea what rubbish laws they might generate through the system of transnational majority voting, and without even bothering to ask us whether we wanted the power we had lent to them to be lent on further to EU institutions, alienated; and one wonders if terms like “nutters” and “swivel-eyed loons” might apply more to those MPs than to opponents of this new anti-democratic and barmy system of government, internal government through external treaty.

  2. lifelogic
    May 18, 2013

    Indeed misguided governments yet again interfering just to damage the economy, inflate pointless bubbles and damage any recovery.

    I see in the Telegraph that Peter Mandelson has said that “David Cameron has to make the case for staying in the EU”. For once Peter Mandelson is right. Cameron clearly believes in the undemocratic socialist superstate and not becoming a greater Switzerland or Norway and yet he has not made a single sensible argument for this, but then Peter Mandelson make no sensible arguments either beyond the usual childish statements on trade and a seat at the table.

    The fact that he is not prepared even to make the pro EU argument makes Cameron look absurd, two faced, shifty and dishonest. His policy of negotiation and a referendum in 2017 simply will not wash. He cannot even tell us what powers he wants back. He will be dumped in May 2015 in John Major fashion, unless he does a deal with UKIP. Even then, he will now struggle to win.

    Cameron’s current barmy strategy simply cannot work.

    1. Nina Andreeva
      May 18, 2013

      Yes and who would take Mandelson’s advice, the poster boy for everything that is rotten with the EU? Remember he had to resign from the cabinet TWICE and was involved in an application for a mortgage, that (was questionable-ed)

      1. Lifelogic
        May 18, 2013

        Indeed, I have never agreed with Peter Mandelson on much else, he seems a career politician of the very worst type to me. But Cameron clearly has his heart and soul in the EU, the least we can expect is for him to say why, but he never does – one can only assume he has no arguments, or the ones he has he dare not say.

        1. stred
          May 19, 2013

          Don’t forget Mr Mandelson introduced legislation to make bankrupcy easy in the UK. Today we are the bankrupcy centre for Europe. The short period before the wiping of responsibility for debt dumping allows Irish and German bankrupts to stay for 6 months or take an address before returning to carry on as before.

          1. stred
            May 19, 2013

            Oh speak of (Mr mandelson-ed) here he is on the BBC Observer telling us about the disaster of losing influence in the EU. And the pleasure of paying his huge untaxed salary and pension too.

      2. Jerry
        May 18, 2013

        @Nina Andreeva: Tories (or those on the right, who might inflame others) should be very careful when banding about phrases such as “Poster Boy”, many might suggest that what goes around comes around, I can still remember the nasty flax that our current PM got from those of the left when he first became leader, and many still think that way today.

      3. Bazman
        May 18, 2013

        MP speak for dodgy?

      4. APL
        May 18, 2013

        Nina & JR: “involved in an application for a mortgage, that (was questionable-ed)”

        The mortgage was perfectly fine, it was the application that was questionable.

        I wonder why one is being so tippity toed around this issue? Mandleson resigned over the issue, impliedly admitting wrong doing.

        1. Jerry
          May 19, 2013

          @APL: “impliedly admitting wrong doing.

          But there lies the problem, what you (or anyone else thinks and what has been proven in a court of law are two totally different things – just because a politician or director resigns doesn’t mean they have done anything wrong, just that they are (at risk of) damaging their party or business – nothing less and most certainly nothing more…

          1. APL
            May 20, 2013

            Jerry: “and what has been proven in a court of law are two totally different things”

            A fair point Jerry. But if every time the political class close ranks to protect themselves we turn our backs and say, not proven, that’s OK then. We’re just gonna get more of the same but worse!

          2. Jerry
            May 21, 2013

            @APL: Whilst all the time carry people suggest that the law should be “ignored” (because these people are politicains, as if they are a bread apart…) all they do is highlight their ignorance!

          3. APL
            May 21, 2013

            Jerry: “Whilst all the time carry people suggest that the law should be “ignored” .. ”

            1. No such suggestion here. That is your own cogitative dissonance at work.

          4. Jerry
            May 22, 2013

            @APL: So just what was your point in posting that comment about turning our backs, it does suggest that people, the press etc. should name and shame those they believe are guilty.

      5. Leslie Singleton
        May 19, 2013

        Nina–I believe Mandelson is an alumnus of mine and I am ashamed of the fact

    2. Roy Grainger
      May 18, 2013

      Mandelson is obliged under the terms of his large EU pension to support the aims of the EU, it can be withdrawn if he doesn’t – he should declare this personal financial interest every time he comments on the topic.

    3. Bob
      May 18, 2013

      @lifelogic
      “unless he does a deal with UKIP”

      UKIP will not do a deal with David Cameron.

    4. Vanessa
      May 18, 2013

      Cameron will NOT do a deal with UKIP – UKIP won’t have him. He is dishonest and shifty at the best of times and is incapable of telling the truth on anything.

      1. Leslie Singleton
        May 19, 2013

        Vanessa–Be fair , he would make a good snake oil salesman

        1. Jerry
          May 19, 2013

          @Leslie Singleton: I suspect the feeling is mutual….

    5. Bazman
      May 18, 2013

      You have never answered the high tax and spend together with absurd regulations of these countries. Norway is eye wateringly expensive due to the taxation system,A free market fantasy will not produce a greater Switzerland or a British Germany.

  3. Ralph Musgrave
    May 18, 2013

    We had a credit crunch followed by a severe recession all sparked off by excessive borrowing and the property bubble. And the solution adopted by the authorities: encourage more borrowing re-inflate the bubble.

    If Mervyn King, Bernanke, Osborne and Ed Miliband were all replaced by inmates of the nearest funny farm, we’d be so much better off.

  4. stred
    May 18, 2013

    The decision or perhaps proposal to offer a large subsidy to anyone wishing to buy a house costing up to £600k may be having an effect on the present housing market. Prospective buyers may decide to wait until the subsidy comes in and buy new houses only. The subsidy for existing houses may be available or not. At present it does not seem to be a firm committment. But perhaps potential buyers are waiting to see whether it will be available instead of buying now. Changes to mortgage allowances have affected markets before.

  5. Nina Andreeva
    May 18, 2013

    JR its strange that you do not mention the UK in your article too. Its not as though the BoE has been at it as well. Are you informing our 42 year old Chancellor, who has never had a proper job, of the likely outcomes of QE? Have you explained to him that this is probably why daddy’s wallpaper shop continues to post year in year out losses?

    In the meantime MPs obsess themselves with trivialities such as gay “marriage” and even the more competent ones go off on a wild goose chase over the UKs relationship with the EU. Perhaps they should be instead scratching their heads and contemplating what happens when the rest of the world says that they are not buying gilts anymore and the government cannot pay its bills?

    If you think there is nothing to worry about, look at how many IOUs from the government the BoE holds and how much Osborne is reliant on the “interest” from them being given back to him by the BoE. The EU has nothing to do with the precipice at which economy now stands and you cannot blame them when your state pension fails to get paid nor the private one either when the insurance company goes bust ( insurance company solvencies are built around “safe” holdings in gilts).

    1. Denis Cooper
      May 18, 2013

      I’ve said from time to time that MPs should assert their rights and insist on taking control over the creation of large sums of new money by the Bank of England, the inflationary effects of QE being akin to taxation; on Wednesday I saw at least one MP arguing that there should be more, but at present MPs are still allowing the Chancellor to take that decision and then merely inform them, rather than having to seek their consent before sending his letter to the Governor.

  6. Gary
    May 18, 2013

    We crashed in 2008 because as you implied the banks’ “assets” were tested in the market and found to be almost worthless. So what did they do? The authorities said the banks could value their assets at whatever they thought fit. Mark-to-fantasy, and a massive money printing operation was started to recapitalize the banks. Unfortunately , by the law that there is no interference in markets without unintended consequences, we now have the biggest asset bubble in history in the biggest market on earth, the govt bond market. Now they are snookered.

    If they stop printing the govt bond market collapses and rates rise, which in turn collapses the property market, which in turn collapses the banks. Money comes flooding out of the bond market and general prices rise and that collapses the private debt market as people cannot afford to service credit card debts.

    They are praying to be bailed out by growth, but in a debt sodden economy, constipated with zombie companies due to 30 years of mispriced rates and govt interference, growth will be anemic. So we limp on, maybe for decades, a slow tortured collapse. Our leaders don’t have a clue.

    What should have happened was free markets should have been allowed to work in 1998 and earlier, during the Asian, Russian, and Ltcm crisis,and earlier the Mexican Peso crisis, then many banks would have failed before they got to big to fail. But no, the banks must be saved so they sacrificed the economy and our future to save themselves. They are looting the countries to save themselves. Now we are all stuffed, probably for at least a generation.

    1. Kenneth
      May 18, 2013

      Gary, I agree with every word of your (very well written) post.

  7. alan jutson
    May 18, 2013

    It amazes me that Governments of all kinds still think they are the rulers of the economy, and can simply pour borrowed/manufactured/fake money into projects of their choice and expect success.

    Let us face facts, Governments only want the economy to grow so that their tax income goes up, so they can spend more, or to try and cover the cost of what they have already spent.
    The problem is, Governments are the worst spenders of money there is, with their complicated, inefficient, grossly overmanned, overpaid, poorly manged staff who seem to work under vague directives.

    How about the Government doing less, lowering taxes and then simply let those who have imagination, drive and spirit, loose to do their own thing free of Government interference.
    At the same time it be made law that the Government cannot borrow in the peoples name, and should only spend 80% of the known tax take of the previous year until we are absolutely DEBT FREE.

    In other words manage what you have got, and not guess at future pie in the sky, possible income.

    1. Bob
      May 18, 2013

      @AJ
      ” only spend 80% of the known tax take of the previous year until we are absolutely DEBT FREE.”

      That would mean we have to lay off all of our doctors, nurses, teachers, policemen and lollipop ladies.

      1. alan jutson
        May 19, 2013

        Bob

        Why do you choose front line services as an example ?

        We all know £billions are wasted every year, just with inefficient purchasing, then we have overmanning, ever increasing regulation being enforced, the list of excessive spending is almost endless.

        1. Bob
          May 20, 2013

          @AJ
          “Why do you choose front line services as an example ?
          We all know £billions are wasted every year, just with inefficient purchasing, then we have overmanning, ever increasing regulation being enforced, the list of excessive spending is almost endless.”

          Good point Alan, I hadn’t thought of that.

    2. Lifelogic
      May 18, 2013

      Indeed governments can do little but get out of the way less tax and stop wasting money. Yet BBC reporting and government spin always implies that the government can create jobs with their magic money tree. The green jobs nonsense for example.

    3. uanime5
      May 18, 2013

      How about the Government doing less, lowering taxes and then simply let those who have imagination, drive and spirit, loose to do their own thing free of Government interference.

      They tried this in the past and the results were abusive workplaces where the staff were poorly paid, had no rights, and had poor working conditions. It also resulted in healthcare and education than only the wealthy could afford.

      There’s a reason why the Government has to do as much as it does.

      1. alan jutson
        May 19, 2013

        unamime5

        When has it been tried before ?

    4. margaret brandreth-j
      May 18, 2013

      Completely agree ..projections are an optimistic waste of time.

  8. A.Sedgwick
    May 18, 2013

    I would say that Osborne’s housing finance wheeze in the last budget falls into the bubble blowing category.

  9. oldtimer
    May 18, 2013

    I suspect that your prediction about the EU will have to wait on the conclusion of the forthcoming German election. Until that is over Chancellor Merkel will want to keep a firm lid on things – and she will.

    Of course the country with the biggest and most significant inflationary bubble is China. The Chinese market continues to boost those countries and industries with the wit and ability to take advantage of the conditions there – Germany and its engineering industries spring to mind. If or when the China bubble bursts then the world economy will take quite a severe knock. My assumption is that the Chinese authorities will not want to see the bubble burst, and will quietly accept a continuing appreciation of the Renminbi against the US$, the Yen and the Euro. And that is, I suggest, is exactly what the West want to happen.

    1. Gary
      May 18, 2013

      Yes, the USA(and many others) are exporting the effects of money printing, usually seen in general price rises, to China. China maintains the inflationary peg to the dollar to maintain a trade surplus with these countries. It suits one and all. For now. The risk is that the inflation in China is creating structural problems and asset bubbles there. Inflation never comes without cost. Some say , that the way the Chinese are attempting to offset this is to take advantage of their vast dollar reserves to buy gold, so that when the peg breaks, as it will inevitably happen, then the dollar will have a hyperinflationary crash and the Yuan will have sufficient gold backing to be a reserve currency in itself.

      The gold paper price suppression is itself having some interesting unintended consequences. As a result of this we now have backwardation in the gold futures market, ie where the nearest future paper price o gold is less than the cash physical price of gold. So, if people buy the cheaper future and then immediately exercise delivery of the physical, then they are getting physical gold for the cheaper paper price. Like getting $1 for $0.90c. Countries, including China, would be mad not to take advantage of this give away, and they are taking advantage. The risk is that the COMEX market will run out of physical gold for delivery, and be impelled to default by declaring force majeure. When , not if , that happens, we will probably get a physical gold run with the price of gold becoming priceless in dollars. Backwardation in any other market draws out new supply sooner than later, but with gold the opposite happens and supply dries up(due to fear) and the markets tighten until they break.

      The manipulators are walking a tightrope in a dangerous game that will surely end in chaos.

      1. uanime5
        May 19, 2013

        Given that the price of gold is measured in dollars and Fort Knox is full of gold the US won’t crash even if the dollar undergoes hyperinflation.

        1. Dan H.
          May 20, 2013

          Fort Knox full of gold? How come the US Government will not allow anyone to inspect this supposedly full-to-bursting warehouse, then?

    2. Denis Cooper
      May 18, 2013

      Apparently the German constitutional court is due to give a significant judgement long before then, on June 12th.

      http://www.telegraph.co.uk/finance/financialcrisis/10021894/Bundesbank-declares-war-on-Mario-Draghi-bond-bail-out-at-Germanys-top-court.html

      “Germany’s constitutional court will rule on the legality of the bond rescue plan on June 12. It gave a provisional go-ahead last September for other parts of the EMU rescue machinery, but limited Germany’s bail-out share to €190bn (£160bn). Crucially, it warned that the Bundestag may not alienate its tax and spending powers to any supra-national body or be exposed to “unlimited” liabilities.”

      However, as always in these cases, the judges may be influenced by economic and political considerations more than strict legal arguments:

      “If the court rules against OMT, it means the end of the euro. The stakes are so high that I don’t see how they could just pull the trigger,” said Mats Persson from Open Europe.”

      But even though it is very unlikely that they will “just pull the trigger”, there could be significant political fallout from their decision whatever may be.

      I’ve had exchanges with Germans who won’t accept that the ECB is governed by EU law, not German law; and that the final arbiter of EU law is the EU’s so-called Court of Justice, the ECJ, not the German constitutional court; and that it could even end up with the ECJ requiring the German government to get the German constitution changed so that ECB actions which were legal under EU law would also be legal under Germam law.

      I’m sure that the judges on the German constitutional court are well aware of this potential conflict and that Germany would then be faced with a choice between knuckling under to the EU’s supreme court, as established by the EU treaties to which Germany has willingly, in fact enthusiastically, become a party, and which it has encouraged and persuaded and in effect even forced other countries to also accept, or otherwise committing another major breach of those treaties but this time leading to the breakup of the eurozone rather than its preservation, and I expect that the German judges will once again very work hard to find a convoluted form of words to avoid that open conflict materialising.

      1. Leslie Singleton
        May 19, 2013

        Denis–Unfortunately there is not the slightest chance that the second half of your last sentence won’t happen

        1. Denis Cooper
          May 19, 2013

          Yes, they usually come out with stern words about the risk of going further with EU integration than the hallowed Basic Law will stand, but luckily that has not quite happened so far. It’s like making a show of firing warning shots across the bows of a ship, but taking great care to constantly adjust the aim so that none of the shots will ever strike and possibly sink it. Not this one, or the next one, or the one after …

  10. Ben Kelly
    May 18, 2013

    Authorities realise that to get the banks lending within the capital constraints they have imposed they must allow them to stock up the capital in devious ways (QE asset inflation). The depression since 2008 has been prolonged as there has not been a reset and too many institutions and vested interests have been protected.

    The man in the street wants this over and to do that we need a complete reset of aset prices to real values, not balance sheet values. This would reduce inflation and get the real money supply moving. Most wage earners (who kept their jobs) would be unaffected by this. Those who use homes to live in would continue to live in them but those who took a safe gamble may lose out although they would still have the bricks and mortar.

    Investment is a risk, paying taxes and surviving from day to day is not. Time to rebalance the risk profile and realise losses.

    I do not wish to bash bankers but if all banks need to shore up their balance sheets then surely none of them should be paying any bonuses from potential capital until the capital is guaranteed. That is what happens in the less stratospheric world of commerce and if they are all in the same boat there is no competitive recruitment need to pay large bonuses. This would go some way to alleviating the need for QE as the bonus pot would be recycled into capital.

    1. Nina Andreeva
      May 18, 2013

      I hope the “man in the street” is aware of what will happen when this corrects. The welfare lifers will be back on the streets, not looting for iPads this time, but for food as the handouts have dried up. They will probably also be joined by all those who were “under water” on their mortgages and have had their houses repossessed. In the meantime “hug a hoody” has gotten a rid of 6000 coppers so we can only hope for a series of long wet Summers to keep the mob of the street.

  11. Acorn
    May 18, 2013

    “Workers and businesses want to hold more safe assets as a way to self-insure against this enhanced macroeconomic risk. At the same time, the supply of the assets perceived to be safe has shrunk over the past six years. Americans—and many others around the world—thought in 2007 that it was highly unlikely that American residential land, and assets backed by land, could ever fall in value by 30 percent. They no longer think that. Similarly, investors around the world viewed all forms of European sovereign debt as a safe investment. They no longer think that either.” Japan would love some inflation of any kind, to bump start households into spending. (unchecked link removede ed)Low real interest rates are a source of financial instability, with asset prices very volatile to the smallest of shocks.

    If you need a little bit of reading this week-end then absorb this next link. Try and understand that our country is being driven into an ideological dead end. Then start thinking about how you are going to protect you and yours from stupid, western, neo-liberal politicians, who have no idea how the economy works.

  12. Jerry
    May 18, 2013

    John, when you talk about assets and bubbles, do you include property bubbles? If not why not, after all much of the 2007/8 ‘crash’ was rooted on sub-prime mortgages and 100%+ mortgages.

    1. Nina Andreeva
      May 18, 2013

      He should because the bubble has not been pricked yet especially around here. Houses are still way over valued in relation to earnings. A freshly minted NHS consultant on say 70k pa could not afford a two bed flat here in Clifton, Bristol assuming they could get a 100% mortgage and were not already servicing any student debt.

      1. A different Simon
        May 19, 2013

        An NHS consultant on £70k gross salary is actually on around £90k total package when pensions benefits are considered .

        Personally I think most of them are worth all that and more . There needs to be a financial incentive to anyone investing so much of their time and these days money in education .

        However , what we are saying is that someone on £90,000 who had to make their own provision for old age would not be able to afford a 2 bed flat in a nice part of Bristol .

      2. Bazman
        May 19, 2013

        £70k or £1046 a week more than a person living on less than 15 k a year. What does that tell you Nina about how many live in Clifton. Oh! they all live better because they can get a council flat? Not in the real world are we Dear?

  13. Mike Wilson
    May 18, 2013

    Funny article. Not a single word on the affect this would have on the next generation. Already priced out of home ownership – another asset bubble would mean mortgages of 500k to buy a modest home. Still, maybe mortgage rates need to come down to 1% and savings rates down to 0.25%.

    We are, surely, not far from some sort of crisis.

  14. Kenneth
    May 18, 2013

    The problem is that QE is creating a widening gap between real life and the rigged markets cooked up by governments and large asset traders.

    Bullion trading is an example of this. If those holding paper assets of gold were to ask for the real stuff to be delivered (a ‘run’ if you like), they would not be able to deliver it as not enough of real bullion exists to cover the paper.

    What would they use instead? Well, they would substitute with US dollars, of course.

    When that happens, the game will be up as paper comes full circle, forming a perfect, empty bubble (to mix metaphors).

    1. A different Simon
      May 19, 2013

      Kenneth ,

      Why should banks lend to real businesses and take risks when they can mine the taxpayer for free QE money ?

      We are never going to pull out of recession unless money is directed to businesses which want to expand and new ventures rather than misallocated ?

      Look at the rush to shares in the same old blue chips .

      Their P/E ratios are now astronomical and even if there is any room for growth at the company level , in most cases there is no room for growth at the aggregate level across the sectors they service .

    2. Denis Cooper
      May 19, 2013

      I’ve always thought that if you really believe in gold as a store of value then you should possess the metal itself and keep it in a safe place, not rely on a piece of paper saying that you own some gold and could take possession of it if you ever wanted to. Of course when it came down to it many of those reassuring pieces of paper would prove completely worthless; and far more so than banknotes issued by the Bank of England, which will still be accepted for everyday purchases even though they can no longer be exchanged for gold.

  15. Julian
    May 18, 2013

    True inflation in the UK is much higher than official figures. If you compare things like rail prices, petrol, gas, electricity, coffee, smartphones , restaurant prices, air fares, cars etc they are much higher than a few years ago – much more than official inflation figures. There are things where prices are controlled by low production costs and innovation such as cheap clothes and new electronic goods such as TVs but they do not offset the other items.

    1. stred
      May 19, 2013

      An American professor has pointed out that inflation is measured by comparing pricesof similar goods, before and after a period. However the quality of the new goods is often inferior and the need to replace an item or repair it may make for greater expense. He cited a blender. The old one lasted 20 years and the new one 2. I recently fitted a new condensing boiler in a flat where the old boiler by the a British manufacturer had lasted 30 years. The new one, now made by this manufacturer, now Anglo/German, broke down after a year and a bit and the part cost more than the old boiler.

      On the other hand, inflation in house prices also measures similar houses but takes no account of the expensive improvements within them that are common. It is often difficult to obtain taxllowances for CGT, despite having refurbished properties that were slums and turning them into high quality accommodation.

  16. NickW
    May 18, 2013

    It is wrong to measure the value of any asset or commodity in purely monetary terms.

    What Politicians in the developed world are doing is to change the value of money.

  17. Richard1
    May 18, 2013

    Another govt-induced bubble is the green bubble. As evidence for dangerous global warming and the forecast catastrophic events continue to be elusive, the tax-paying public will lose patience with the huge diversion of funds into the green bubble. The reaction, unfortunately, of Big Green and its supporters in the media is to refuse to debate this issue. They have adopted the traditional left-wing ‘no platform’ policy of hoping that if you refuse to engage in debate and demonise anyone holding an opposing view, all dissent can be shut down. But as we saw from the collapse of communism / socialism, in the end the facts get in the way and the public don’t stand for it.

    1. uanime5
      May 19, 2013

      A review of 12,000 scientific papers showed overwhelming evidence that global warming is man made. The fact that you don’t think global warming is real doesn’t mean there’s no evidence for it.

      This review also showed that less than 2% of scientists feel that global warming isn’t man made. So the reason that this isn’t debated is that there’s so few people to debate with.

      http://www.telegraph.co.uk/earth/environment/climatechange/10061285/Scientific-consensus-that-humans-to-blame-for-climate-change.html

      1. Denis Cooper
        May 20, 2013

        “The survey – the largest peer-reviewed study of its kind – found that a third of papers expressed a view on the causes of global warming – and 97.1 per cent of these said it was mainly man-made.”

        Doesn’t that mean that two thirds of the papers expressed no view on why (allegedly) “Global average surface temperatures have risen by 1.4F (0.8C) since the industrial revolution”?

        (It is necessary to insert the word “allegedly” in view of the discovery that past temperature records have been systematically “adjusted” to enhance the claimed temperature rises, ie that not only is the climatological theory highly dubious but the experimental evidence is fraudulent.)

      2. Edward2
        May 20, 2013

        Uni, Its fascinating how altering just a few words can change the actual meaning of an article.
        You say “12,000 scientific papers showed overwhelming evidence that…”

        What all these papers actually say is that they agree with the hypothesis that increased CO2 output has driven a 0.8 degree centigrade increase in global surface temperature during the twentieth century.
        They suggest that man’s increased output of CO2 is probably the main cause of that small temperature rise.
        That say the accuracy of causation/ correlation is in the region of 30% to 70%.

        Have you gone back and read the first IPPC report or looked again at the Al Gore film yet and noticed that most of the dire predictions made at that time have already not come true?

      3. Dan H.
        May 20, 2013

        Uanime: you’ve not heard of “Me Too!” research, then?

        Take the field of biological sciences research, especially applied agricultural sciences. If a scientist in this field senses that grant money is available for people researching in whatever the new thing is, then he’ll be writing applications phrased in that manner. In the 1970s, we feared a new Ice Age, so the grant applications were for cold-hardy plants, reduced impact pesticides and so on.

        Now we’re supposed to fear global warming, despite the fact that human civilisation seems to flower when times get warmer (Roman empire, Medieval Warm Period). So, all the research now gets written in terms of “Assuming it gets warmer, then blah blah blah give me money to find a solution to this one”.

        This is why you have so many papers like this. This is also why not a single man jack of ’em comes out and states the assumptions of the Great Global Warming Scare: “Assuming that solar output either hasn’t changed, or doesn’t affect global temperature…”.

        This is the assumption all the researchers make. The reason they all make this assumption is simple: if global warming is driven by the sun, then short of geo-engineering on a massive scale that only maybe NASA could hope to affect, nobody can do anything about it. If nobody can do anything about it, then all the Green schemes are an utter waste of time and money. If the assumption isn’t true, then the gravy train hits the buffers.

        And nobody wants the gravy train to end; they’d have to work for a living then!

      4. Richard1
        May 20, 2013

        A non-point. I have never heard of anyone suggesting that ‘global warming isn’t real’ or that some global warming at least is man-made. The question is whether the forecasts of dangerous global warming and catastrophic events, upon which all global warming legislation is based (taxes, subsidies, regulations etc) have been exaggerated. Given the actual out-turn of events doesn’t match the forecasts in the models, you would have thought a degree of humility and openness to debate would be appropriate.

  18. Bob
    May 18, 2013

    @Jerry
    If the government were to admit that we have a property bubble they would have some explaining to do viz artificially low interest rates and George Osborne’s genious plan to to launch a British version of the sub-prime mortgage.

    1. Leslie Singleton
      May 19, 2013

      Bob–And remember that sub-prime mortgages were not, as is often implied, the fault of banking markets having gone mad but the result of Clinton forcing American banks to make such loans available irrespective of creditworthiness. It boiled down to the dreaded “equality” meaning if the rich can have mortgages so should the poor. This is one reason why I cringe at any hint of pressure on the banks to lend when they clearly do not want to (never mind that Government, with its left hand, is piling up difficulties in the way of banks’ lending more. Almost childish really.

      1. Jerry
        May 19, 2013

        @Leslie Singleton: Sorry but you are wrong, sub-prime might have been the catalyst, banks created their own versions of a “ponzi” scheme, it was those that went bad – Clinton did not create CDS’s etc.

        Had there not been for those “Ponzi” like schemes, both Freddie Mac & Fannie Mae could have toppled without bringing down the entire house of cards. You don’t blame Henry Ford just because someone drive dangerously crashes…

      2. uanime5
        May 19, 2013

        The sub-prime mortgage crisis occurred because banks using financial alchemy to turn risky mortgages as triple A asset backed securities. When this failed it left a large number of banks with worthless assets. Had the banks not tried to make as much money as possible from these risky mortgages then the sub-prime crisis won’t have occurred.

        1. Leslie Singleton
          May 19, 2013

          unanime–Kindly learn the difference between sub-prime and securitisation. Made an exception and read your effort given you responded to something I wrote but I see you are still well down to standard

          1. Jerry
            May 20, 2013

            @Leslie Singleton: Rather than playing the man perhaps you might care to ‘educate’ him as to where he has it all wrong. It seems to me that one or the other side of this argument is being revisionist…

          2. Denis Cooper
            May 20, 2013

            Securitisation is dangerous when it can be used to disguise the truth about the reliability of the income streams, and lenders are more likely to be careless when they know that they’ll have sold the pups on before reality hits. Then the inability of a borrower to service his mortgage becomes a problem for somebody else, not the original lender. Back in the old days if I took out a mortgage with a bank or building society then it would have stayed with that lender, and if I started to fail in the repayments then that original lender would have been on to me and asking me to come into a local branch for an interview. I know this from experience because at one point our bank mucked up our Standing Order and we started to get letters saying that we’d failed to make several monthly payments, and in the end it had to be sorted out by a visit to the local branch. Now, as I understand, if you take out a mortgage with one lender it may be sold on and can end up being owned by some investment company on the other side of the world, maybe in China as the Chinese have been raking in money from the rest of the world, and popping across to China for a discussion about why you’ve missed some of your monthly repayments is somewhat inconvenient.

  19. Normandee
    May 18, 2013

    You may have to tone down your articles somewhat John, now it has been revealed that your audience is made up either of “swivel eyed loonies” or “Fascist closet racists”, we might not understand you.

    1. Jerry
      May 19, 2013

      @Normondee: The least said about people getting a little to hot under their collars the better, after all Mr UKIP made a bit of a fool of himself the other day, first attempting to describe a bunch of (protesters-ed) as “Fascists” and then getting annoyed that the radio interviewer wasn’t being sycophantic enough towards his party and thus hang the phone up…

      1. Jerry
        May 20, 2013

        John, why did you edit out what there “protesters” are, they are openly far-left in their views (the big “S” word), after all there is video and audio evidence of their banners and shouts. When posting the comment I actually thought you might object to the other “s” word, not a long standing political description…

        Nor do I understand what happened with the formatting of that (and other comments), the html formatting that appeared is not that which got sent…

        Reply I did n ot see them or hear their shouts myself so I thought it safer not to characterise them too specifially. Yours was a sweeping generalisation.

        1. Denis Cooper
          May 20, 2013

          Two of those “protesters” have been charged, one with breach of the peace and the other with assault. People who don’t like Nigel Farage should think twice before celebrating what happened in Edinburgh, unless they are happy about having mobs on the streets screaming abuse and not only threatening violence but carrying it out. I recall a rather similar incident in Reading in 2000 when Michael Portillo was beset by a mob and had to retreat into a shop, so it would be unwise for Conservatives to condone that sort of behaviour.

          Reply Conservatives do not condone breaches of the peace or violent behaviour, but we do think all are entitled to a fair trial before we can assert this occurred, if some are found guilty.

          1. Jerry
            May 20, 2013

            @JR reply: Indeed, and if charges have been laid then all the more need for all of use to watch our language when discussing such matters.

          2. Denis Cooper
            May 21, 2013

            Of course the two men are still innocent until proven guilty, and they may be acquitted. However it was very clear from TV footage that this was not a peaceful protest, whether or not a court eventually finds that some of the protesters had crossed the line into criminality.

      2. Jerry
        May 20, 2013

        @re JR edit and my follow-up comment: Apologies, I now recall using adjectives as well, whilst I stand by the accuracy of my comment I fully respect your need to edit it.

      3. Bob
        May 20, 2013

        @Jerry
        “attempting to describe a bunch of (protesters-ed) as “Fascists” and then getting annoyed that the radio interviewer wasn’t being sycophantic enough towards his party and thus hang the phone up…”

        I found the radio interviewers statements rather tendentious, so I don’t blame Nigel for ending the call.

        As for the protesters, why are they so reluctant to allow Nigel Farage to state the Ukip case. Looks like a classic example of young airheads being used as useful idiots by the SNP. (etc)

        1. Jerry
          May 21, 2013

          @Bob: The last thing on earth any politician should do is hang up, fake not being able to hear the interviewers questions, fake the loss of the line, but do not tell the interviewer that you are p*ssed off with him/her and then hang-up – only one person is made to look silly and it isn’t the interviewer.

          If Mr Farage was to ever get anywhere near power and Downing Street he will face far worse, best he gets used to it if he really thinks that he stands a chance of walking the walk…

          You may or may not remember this incident Bob but Mrs Thatchers then defence secretary had recovered much of his standing during the course of the Falklands war but then blew it all away by storming out of the BBC studios whilst live on-air, having taken objection to Mr Day pointing out that politicains are by nature ‘here today, gone tomorrow’ – yes Mr Day was being gratuitously rude but the only person hurt was the politician by his actions, he should have simply just pointed out that it was a career characteristic and that it is shared somewhat with television personalities and interviewers, then got on with the programme!

  20. Pleb
    May 18, 2013

    Won’t there have to be givaways in preparation for the election. That will put every other consideration on hold, vote buying time is nearly here.

    1. Bob
      May 19, 2013

      Well he can’t buy my vote because I’ve already sold it in return for a pledge to restore our nation’s independence, a return to the grammar school system and restoration of border controls.

      If David Cameron thinks that this makes me a swivel eyed closet fruitcake it speaks volumes about him and his coterie of Common Purpose (people-ed)

  21. Denis Cooper
    May 18, 2013

    In view of the new rules I shall refrain from suggesting where the “swivel-eyed loons” in the Tory grassroots might find an alternative home with like company; I will just follow Douglas Carswell by thinking that if a Tory leader elected by the Tory membership sees that membership as a problem then he could end up with a membership of one.

    1. Leslie Singleton
      May 19, 2013

      Denis–I loved the Number 10 denial. Can’t you just picture it, someone going round asking “Did you say this?” and, would you believe it, everybody denying it? Somebody ought to tell somebody else that you cannot prove a negative. I haven’t read the Sunday papers yet but there must be a good chance that whoever said it (and does anybody really doubt that it was said?) is named therein whereupon once again Cameron and his crew are going to look totally out of it. Never mind, just so long as he is able to force through the homosexual so-called “marriage” highly important stuff.

      1. stred
        May 19, 2013

        Leslie. The European Council has given him until June? to get us all equal. And even the French have just forced it through against far more vocal opposition. Lets be fair, he has to follow instructions if he is to have a chance of a tax free job after the next election.

        1. Leslie Singleton
          May 19, 2013

          stred–As I keep saying, we are past equality and on to identity now and for instance I judge it only a matter of time before it will be illegal to use the terms husband and wife for instance.

  22. Rods
    May 18, 2013

    A good reminder on what is exactly happening now with rapidly inflating stock market and bond bubbles. These markets are now totally decoupled from economic reality and like all bubble are feeding and inflating off their own rising values.

    Italy, Greece and Spain are good examples to illustrate this. All of their stock markets are significantly up along with their bonds, so pushing down yields. So what economic fundamentals have changed for the better to justify this? In a word nothing, where all three economies are in deep austerity led recessions / depressions with declining manufacturing bases, service sectors, retail sales and construction industries. They are all running deficits and have high debts which with shrinking GDPs are increasing as a percentage of GDP. Greece at around 160% and Italy at over 120% are both probably past the point of no return in terms of having to default (again in Greece’s case)! They all have banking problems with Spain probably needing about €300bn to cover property loan losses. The only possible justification for buying their bonds is the untested ECB promise of unlimited purchases in a bailout.

    All these bubbles are probably going to burst when Spain’s economic woes come to the fore again with more bank bailouts required with global stock market corrections and dropping bond prices.

    Governor Elizabeth Duke of the US Federal Reserve recently made a speech in which she pressed for the banks to aid their property recovery by loosening their mortgage lending criterion to less credit worthy members of US society. Sub-prime mortgage lending, what could possibly go wrong? Likewise with the latest UK Government housing schemes, what could possibly go wrong? When will those in charge ever learn?

  23. Leslie Singleton
    May 18, 2013

    I see the Conservatives continue to take the biscuit (in spades). Still do not know why Nadine doesn’t, shall we say, go elsewhere. Or a joint candidacy would be great. Cameron is daft enough to decide to try and block it and put up a separate candidate but of course that would suffer from the slight problem that no-one would vote for such an imposed candidate. The Conservatives deserve all they get and that’s what ‘s going to continue to happen till they get rid of him and every single one of the cohort of, I think “loons” is now the word, around him.

  24. Christopher White
    May 18, 2013

    Mr Wadwhani who was on MPC about 2001 said at the time that taking into account of asset price bubbles should be a concern. The consensus was that you couldn’t target 2 parameters. The rest is history. Even with encouraging Q1 figures we will not get back to 2008 peak until 2015 – 7 wasted years, bank bailouts & people on dole – fortunately in UK with wages not inflating employment has remained high, though this has caused worrying productivity figures.

  25. david englehart
    May 18, 2013

    given the problem seems to be the debt burden and the need for this to be repaid perhaps the creation by government of debt free money would eventually work its way through the system and balance out any short term distortion.
    the repayment of debt to banks merely perpeturates an increase in debt as it is reloaned.
    it is the banks we are in hoc to and their silly profit making games which initially caused the problem.
    inflation helps avoid a banking collapse if managed but if debt free money were created it need not push prices up disproportionately if as a result business eventually is able to lower its debt generally out of retained profits which would ensue by more buying power for the goods industry produces.
    there is no shortage of productivity merely of buying power.
    it worked in the USA and germany and also to a certain extent in japan until they over extended themselves.
    each country has its natural limits.
    the financial system just isnt working yet old methods are trotted out as the answer without any real attempt at innovation.
    when we have tried to reduce the money supply to reduce our proportion of borrowing all we did was give those three countries the ability to build a more efficient profitable business base then we were.
    one man one vote always sounds good until you stack a country full of people who havent a clue as to what is going on and then offer them bribes to get their votes.
    the bribes are always with other peoples money.

  26. uanime5
    May 18, 2013

    They would order the banks to hold more cash and capital, to stop them lending too much to the private sector to bid up asset prices.

    I’m fairly certain banks were required to hold more capital to reduce the risk of them going bankrupt. After all in 2008 many did have financial problems because they had too much bad debt compared to their levels of capital.

    In other news due to the Government’s bedroom on 660,000 people there’s been a 338% increase in the number of people applying for emergency handouts. So it seems that this scheme won’t actually save any money; mainly because it doesn’t help people move from a house with too many bedrooms to a house with a Government approved number of bedrooms.

    http://www.independent.co.uk/news/uk/politics/revealed-devastating-impact-of-bedroom-tax-sees-huge-leap-in-demand-for-emergency-hardship-handouts-for-tenants-8621666.html

    1. Denis Cooper
      May 19, 2013

      Don’t you mean:

      “move from a subsidised house with more bedrooms than the tenant needs to another subsidised house with a suitable number of bedrooms”?

      As always you assume that the taxpayer can just continue to pay up.

    2. Bazman
      May 19, 2013

      Notice the lack of replies? Had this been a tax raising cost more than it took the replies would be never ending. They are in effect saying they are for more and more expensive government as long as costs the poor for being poor and in the same way as apologists for this reap what they sow. The real envy being the rich thinking they are hard done by as they are not super rich.

  27. waramess
    May 18, 2013

    Swivel-eyed loons eh?
    Seems to me that it is the swivel-eyed loons that are currently running the government. and the Bank of England

  28. Denis Cooper
    May 18, 2013

    As practised in the UK so far QE will obviously support the market prices of gilts, bonds issued by the UK Treasury, because apart from a negligible fraction the Bank of England has used all of the £375 billion of new money that it has created for the single purpose of buying up previously issued gilts from normal gilts investors in order to make it easier for the Treasury to fund the massive government deficit by selling new gilts to much the same set of gilts investors, and at much the same rate when the QE programme is active.

    And because the Treasury has indirectly borrowed £375 billion from the Bank rather than from the normal gilts investors, those investors have had £375 billion of their funds still available to put into other assets, pushing up their prices as well.

    In general any asset price bubble is likely to feed through into general inflation some time later, on top of the extra consumer price inflation already caused by the creation of vast sums of new money which the government has spent into the economy when it paid its many bills, so presumably this is one reason why Mervyn King has warned that UK consumer price inflation is likely to remain above the Chancellor’s 2% target until maybe the end of 2015.

    1. stred
      May 19, 2013

      >Dennis.Presumably QE has not cause greater inflation so far because a similar amount of credit has been withdrawn from the private sector in the form of bank lending for investment and mortgages. Are the figures available? Also, growth is kept around the same level because goverment spending, even if wasteful or on imports, counts as growth, while private industry shrinks.

      1. Denis Cooper
        May 20, 2013

        Well, back in early 2009 the Bank’s publicly stated justification for QE was to avert deflation. That is what King said in his letters to Darling, that the Bank would undershoot the latter’s inflation target and there was a risk that we would enter into a deflationary spiral. The letters between the two were couched in those terms, King arguing that QE was needed so that the MPC could meet the CPI target and Darling agreeing. It took a few weeks for it to become apparent that the Bank was only buying gilts, no other assets in any significant quantity, and that the real purpose was to help the Treasury fund the government’s budget deficit. I remember asking what would happen when it became clear that there was no longer any risk of deflation but the Treasury still needed to borrow more money from the Bank, what pretext would be used then?

        1. stred
          May 20, 2013

          Perhaps requiring the banks to further restrict lending to the private sector, while leaving public untouched?

  29. Bazman
    May 18, 2013

    Non existent poverty in England? The demolished streets are where I once owned a house. It is actually two streets from the town centre. I only talk it cos’ I’ve lived it.

  30. rd
    May 18, 2013

    Not to mention the Governments mad attempt to support a property bubble with public money.

    1. Leslie Singleton
      May 19, 2013

      rd–And, naturally, just as the tide was naturally beginning to turn, also naturally

  31. Robert Christopher
    May 18, 2013

    Oops!

    Help to Buy puts mortgage market at risk, says King

    The Governor of the Bank of England has said there is no place for the Government’s flagship scheme to help people on to the first rung of the housing ladder in the “long run”.

    http://www.telegraph.co.uk/finance/economics/10066347/Help-to-Buy-puts-mortgage-market-at-risk-says-King.html

    1. Denis Cooper
      May 19, 2013

      The construction industry and related trades, and also landowners, have had and continue to have far too much influence over government policy.

      This “Help to Buy” scheme is one aspect of a more comprehensive “Help to Build” scheme, just as the previous government policy of allowing and encouraging mass immigration – as long suspected, Labour “sent out search parties for immigrants”, Mandelson has admitted – was in part driven by the narrow self-seeking desire of house builders and landowners to increase the demand for new homes.

      In the south east, this got to the point where house builders were demanding an annual build rate twice that needed by the established population.

      It would only have needed 19,000 new homes a year to satisfy the needs of the established population, on the basis of the existing trend towards lower occupancy on top of a low natural growth rate; that annual build rate had been exceeded for many years; the South East England Regional Assembly wanted with a maximum of 29,000 a year, of which 10,000 were only needed to cope with the effects of immigration from abroad; if the CBI and other groups had got their way then it would have been 36,000 plus each year, nearly half of which would have been to cope with the effects of immigration from abroad.

  32. ikh
    May 19, 2013

    John,

    Excellent article. I agree 100% that Q.E. is generating asset price inflation. NYSE and FT100 indices are back close to their all time highs will little or no economic growth since the collapse in 2008 anywhere in the western world.

    However, until you fix the banks. You can not expect the economy to work and grow. We desperately need a functioning banking system. 66 Trillion dollars is sat on bank balance sheets and is un-tradable. It is probably not even over valued any more. They can roughly value Asset Backed Securities by the quantity of the income stream. But it is still not tradable. This means that the banks still have a huge liquidity problem.

    In 2008/9 a band aid was applied to prop up the banks. Now you need to fix the structural issues. If you don’t, it will take another 20 odd years for the run off to work its way through the system. Plus what ever screw ups the politicians make.

    Japan is a much earlier example of an asset bubble. For years they had an average price/earnings ration for their public companies of 50:1 Their assets were totally over valued. Q.E. does not solve the problems, it just hides some of the symptoms.

    The one part of your article I disagree with is the authorities did not call a halt to asset price rises in 2008. The collapse of Lehman Brothers did.

    /ikh

    1. Denis Cooper
      May 19, 2013

      I wonder where those indices stand in real terms, ie adjusted for consumer price inflation. For the FTSE-100 you’d need to knock off 10 – 20%, so in real terms it’s still some way below its all time high.

      I vaguely recall that after the 1929 crash it took until the early 1950’s for share prices to recover in nominal terms, but after adjusting for the increased cost of living full recovery was much later, maybe as late as the 1980’s?

      Of course for equity investors the effect of inflation is partly offset by dividends, but then on the other hand the capital appreciation of shares is overstated by the indices because of the “survivorship bias”.

      I don’t know how many duff companies have been dropped from the FTSE-100 and replaced by more successful companies since 2008, but that process means that the performance of the indices significantly exaggerates the capital returns which are actually available to passive investors.

      If an investor had bought the shares of the 100 companies which originally made up the FTSE-100 back in 1984, in the correct proportions, and had then just left that portfolio untouched and done nothing beyond the minimum required by mergers and takeovers, he would now still own the worthless shares of several companies that have gone bust, plus a whole lot more where the poor performance of the companies has led to them being dropped from the index, so the capital appreciation of his share portfolio would be much less than that suggested by the rise in the FTSE-100 index.

  33. Roger Farmer
    May 19, 2013

    It strikes me that the subject of economics is a fantasy discipline and that those who practice it are looking for a form of holy grail that has so far been unobtainable. In the case of the UK they suffer to imagine that they can ignore how the UK works and drift instead into financial manipulation akin to building a house on a swamp.
    The UK developed on the premiss that you imported goods, enhanced their value and exported them at a profit. The politics evolved to decide who got what share of the profit. Socially we evolved through education, as a result of which there were an increasing number of people to effect the process of added value plus all the services that were required to support it.
    I now feel that many of these services be they the civil service, politics, the law, accountancy and education have been corrupted to selfish inward looking ends that only dilute added value and leave many people totally disillusioned to the point where they have disconnected. In effect saying a pox on all your houses.
    Until, as a nation we find a purpose in life and the will to drive for it, ignoring all the cosmetic social dross of recent years, we are doomed to a life of under achievement and disappointment. This may account for the growing interest in fruitcake.

  34. Lindsay McDougall
    May 19, 2013

    Blowing bubbles is best left to West Ham supporters.

  35. Gerry Dorrian
    May 20, 2013

    It’s hard to believe that people have forgotten their history. Both Mussolini and Hitler came to power on the back of bubble-blowing, as you call it.

    1. Jerry
      May 21, 2013

      @Gerry Dorrian: …and both were to the (far) right of political dogma, whilst appealing to the impressionable people of the centre/soft-left or the common man in the street wanting simplistic answers…

  36. Peter
    May 21, 2013

    Blowing bubbles indeed – you did not mention that the coalition is at it too – with the new scheme to guarantee mortgages. How can the conservative party kets this pass – another nail in the coffin of we elderly who saved as our capital and income goes down the plug hole. Shame on the party – I hope you voted against this outrageous scheme .

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