Skip to main content

The value of Mr. Micawber

"Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."

An awful lot of Americans have just worked out that they are at the wrong end of Mr. Micawber's recipe for happiness, in fact the number of Home repossessions has jumped 93% in the last year.

Despite the respite of the Fed's emergency rate cut on Friday, the markets are growing ever more nervous. The grouping of risk into complicated bundles like CDOs has made it a lot harder to identify where the potential credit losses might be. Although Banks had thought that they had sold their credit risk, hedge funds which they also own have bought these risks, with the consequence that first Bear Sterns and now Goldman Sachs and many others have been forced to take dramatic hits. In the giant game of pass the parcel in the credit markets, some unfortunate bankers have discovered that their parcels are ticking.


Until the market understands the scale of the losses that they face, they will not be able to price risk, and that level of uncertainty is dangerous. Already the Bank of England has announced that they have been supporting a UK credit institution that could no longer relay on their market counter parties for funding. If this goes on, then we could see a spate of emergency bank mergers.

The final analysis will have to wait, but it is hard to avoid the fact that the US consumer has been living on extended credit for many years now, and the distortion that this has created may require the US economy to- at best- tread water for a while. This is unlikely to be beneficial to the UK, which is one of the largest investors in the American economy.

Meanwhile the prodigality of the Labour government is putting much directly at risk in the UK. The lack of accountability for the spending of government money continues to reinforce dangerous distortions- in particular the failure to tackle the massive public sector pension deficit threatens to destroy British competitiveness within a pretty short run time frame.

Time is running out- a major overhaul of public sector finances is now urgent (and is also part of the Liberal Democrat proposals for government reform) but all that the Tories feel able to debate is gimmickry- turning right on red or extra bank holidays.

If the Tories can not address the dangerous road that Britain is being forced down by Labour, then is it too much to ask that they get out of the way?

Comments

Popular posts from this blog

Concert and Blues

Tallinn is full tonight... Big concerts on at the Song field The Weeknd and Bonnie Tyler (!). The place is buzzing and some sixty thousand concert goers have booked every bed for thirty miles around Tallinn. It should be a busy high summer, but it isn´t. Tourism is down sharply overall. Only 70 cruise ships calling this season, versus over 300 before Ukraine. Since no one goes to St Pete, demand has fallen, and of course people think that Estonia is not safe. We are tired. The economy is still under big pressure, and the fall of tourism is a significant part of that. The credit rating for Estonia has been downgraded as the government struggles with spending. The summer has been a little gloomy, and soon the long and slow autumn will drift into the dark of the year. Yesterday I met with more refugees: the usual horrible stories, the usual tears. I try to make myself immune, but I can´t. These people are wounded in spirit, carrying their grief in a terrible cradling. I try to project hop

Media misdirection

In the small print of the UK budget we find that the Chancellor of the Exchequer (the British Finance Minister) has allocated a further 15 billion Pounds to the funding for the UK track and trace system. This means that the cost of the UK´s track and trace system is now 37 billion Pounds.  That is approximately €43 billion or US$51 billion, which is to say that it is amount of money greater than the national GDP of over 110 countries, or if you prefer, it is roughly the same number as the combined GDP of the 34 smallest economies of the planet.  As at December 2020, 70% of the contracts for the track and trace system were awarded by the Conservative government without a competitive tender being made . The program is overseen by Dido Harding , who is not only a Conservative Life Peer, but the wife of a Conservative MP, John Penrose, and a contemporary of David Cameron and Boris Johnson at Oxford. Many of these untendered contracts have been given to companies that seem to have no notewo

Bournemouth absence

Although I had hoped to get down to the Liberal Democrat conference in Bournemouth this year, simple pressure of work has now made that impossible. I must admit to great disappointment. The last conference before the General Election was always likely to show a few fireworks, and indeed the conference has attracted more headlines than any other over the past three years. Some of these headlines show a significant change of course in terms of economic policy. Scepticism about the size of government expenditure has given way to concern and now it is clear that reducing government expenditure will need to be the most urgent priority of the next government. So far it has been the Liberal Democrats that have made the running, and although the Conservatives are now belatedly recognising that cuts will be required they continue to fail to provide even the slightest detail as to what they think should guide their decisions in this area. This political cowardice means that we are expected to ch