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Showing posts from November, 2010

The $*%& hits the fan

Today has been extremely bloody in the markets.
In short the collapse in confidence is pushing the Euro towards meltdown. Either a de facto central Treasury is established in the Eurozone or there will be a series of Sovereign defaults, starting with Ireland, but including Greece, Portugal, Spain, and probably Belgium and Italy as well.
If the German constitutional court vetoes German participation in the Treasury, then the Euro will implode and the currency will fail with drastic but at this point unknowable consequences.
The spreading of contagion into the corporate credit market is now pulling emergency measures ever closer.
Estonia is scheduled to join the Euro on January 1st. After today I would say that there is only not much more than about a 60/40 chance that the currency will survive that long, and no more than evens that it survives the first quarter of 2011.
It is that serious.

The Democratic Abdication

The forecasts that were published for the British economy by the newly constituted Office of Budget Responsibility (OBR) yesterday were troubling for two reasons. The first is that the numbers show that the UK is a very long way from having a fiscal structure that can be sustained for the long term. The second, though, is more to do with the existence of the OBR itself.
The OBR was created because the Conservatives in opposition had lost trust in the official Treasury forecasts which seemed to pander to the political agenda of the then Labour government. What this represents is actually quite serious: what had been previously considered politically neutral is now considered politically compromised. As with the interest rate decisions, which have been transferred to the Bank of England, because the MLR decisions of the Treasury were deemed "too political", so budget forecasts have now fallen to an unelected Quango.
In part this transfer could be argued to be technocratic- as t…

Wikileaks

Not much surprising in the leaks of the US diplomatic cables: the fact that Obama doesn't much care for Europe has been obvious since he came into office, and it is also not much news that the Gulf Arabs hate the clerical regime in Iran.
Of course for Brits there is the news that Prince Andrew engaged in "inappropriate behaviour".
However anyone who has met him will know that he can be abrupt beyond the point of rudeness. He has most of his father's faults with none of his redeeming virtues. Mind you you don't need Wikileaks to tell you this, even the most fawning snob columns have asked questions in the past.
So is the Wikileaks expose nothing more than an embarrassment?
On current trends, it may not be. Unless you live in the Middle East, of course.

Why Ed Miliband should lose

The British Lefty commentariat became increasingly less keen on Labour while they were in office. The repeated failure of left wing policies in government (Brown) combined with outrageous hypocrisy (Blair) to reveal to many Labour supporters that their party was at best sanctimonious- at worst dishonest. So the left-sympathising, chattering classes began to look elsewhere. Some went Green, some went Liberal Democrat, most declined to vote.
Now the chattering classes feel a certain relief- they see the Coalition being forced into tough decisions, while Labour has the freedom to try to make itself popular. Indeed there is secret delight that they are back in the 1980s- with the Hated Tories leading cuts, while the Red Flag can be raised at student demos and protests grow with every cut that is announced.
Yet, despite the small lead that Ed Miliband has opened up in the opinion polls, the interview the Labour leader gave to BBC Radio's Today programme on Friday contained the seeds of L…

Waiting for the Euro default: Write down, Rescue and Restructuring

In the final analysis, why should citizens take the full burden of rescuing banks, while the bond holders take no punishment at all?
That, in essence is why I now expect to see the next step in the Euro crisis being a debt default- or as it will probably be termed, "debt restructuring". The rescue of the Irish banks was really only supposed to be about the depositors- who are generally businesses and individuals in Ireland, not the bond holders who are generally governments and financial institutions from overseas. The sovereign guarantee to the banks that was so thoughtlessly extended by the Irish government has turned into a black hole, and the price is beyond Irish means to pay it. The market understands this, and is increasingly sceptical of the ability even of the ECB and the IMF acting in tandem to secure the position. Since this assistance largely comes in the form of new loans, then essentially Ireland is solving the problem of too much indebtedness... by increasi…

The Bond Market speaks

James Carville, President Clinton's political strategist once famously said "I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody."
The European Union is now not only intimidated, it is actively terrified.
The Irish bail-out is breaking down.
The fact is that the blanket guarantee which the Fianna Fail government offered the banking system has bankrupted the country. Even despite a slash-and-burn budget, there is just not enough money to avoid a Sovereign default. The costs of the bail-out are now approaching €100 billion, which is now nearly three quarters of the total Irish GDP. The Irish deficit next year will be over 30%.
Meanwhile Portugal is facing a general strike.
CDS spreads for Ireland, Portugal, Spain and now Belgium are hitting new record highs.
A Sovereign default is now odds-on in the next three month…

Kremlinology

Amidst the unfolding disaster of North Korea, and the market confusion as the ECB contemplates how to cope with sovereign guarantees of Banking black holes, it is easy to overlook the developing crisis in Russia.
Two stories caught my eye over the last twenty four hours. One is in the FT, showing that Russian capital flight is now touching $3 billion a week.
The other story is in the London Evening Standard and is an update on the terrifying story of how the Russian State stole Hermitage Capital from its rightful owners, and then brutally murdered the lawyer who tried to stop it.
What is particularly significant is the owner of the Evening standard is Alexander Lebedev.
As the next Presidential handover in 2012 draws near it is clear that much is happening in Russia.
The country is becoming ever more unstable. Russia remains on the brink, and may be about to take a big step forward.

Property, the Banking system and the end game for the Euro

The fundamental problem of Europe is not the Euro.
The fundamental problem is the economic structure of most of the European economies. The standard model of these economies has been to pay for today's bills with cheques drawn against the future. Instead of saving up for things today and acquiring them later, we have chosen to acquire them today and pay for them in the future. To a degree, it has worked: the levels of average prosperity in the present day would stagger most of our forefathers. Yet, there has always been a critical piece of small print: growth needed to continue, and not just economic growth, but population growth too, so that the costs were painless enough for the next generation to carry.
Yet about 40 years ago, the oil shocks created inflation that was not the result of economic collapse or war, but for several years was a normal part of business. In the face of this, real assets, especially property, held their value in real terms, but looked like they were appr…

The Mail, Dan Hannan and never having to say you're sorry

Blogging has been even thinner than usual: despite much to write about, I have found so little time. Fittingly, perhaps, I choose to break my silence by focussing on time, or rather time zones.
Since daylight saving was first adopted in the UK in 1917 (interestingly, one year after Germany had already done so), there have been various attempts to get the best use out of daylight. During the Second World War there was even "Double Summer time", while in the late 1960s I can remember that clocks stayed on GMT+1 all year for several years. In short there is nothing ordained about the time zone in the UK. In recent years however, the UK has settled on GMT in the winter and "British Summer Time (BST)", i.e. GMT+1 in the summer.
There are pros and cons about reverting to GMT for the winter- it does allow more daylight in the morning hours, but of course this is at the cost of an earlier dusk. For school sports, such an arrangement is not ideal, and in any event in the far …

Henryk Mikolaj Gorecki

Krakow.
A May morning, before the dawn of a Golden day of clear sunshine.
It is the early 1990s. I have walked from the Krakow Glowny station to the Main Square in the dark. The Square- Rynek- is empty and I am alone. It will be many hours before I can go and find a place to stay.
I sit on a stone bench, resting my rucksack by my side. The Rynek then was uncluttered, so the full sweep of the magnificent cloth hall was unhidden. To my left the KosciolMariacki loomed, smoky, with a single gleam of bright light behind a shutter of a room high up on one of the towers.
The sky was growing lighter by the minute. across the City the bells of churches, monasteries and Wawel Cathedral began to ring for 5 o'clock. A chorus glorying in the new day. High up in the tower, the shutter opens, and a man holding a silver trumpet can be seen.
It is him and me in the whole square.
Then he begins to play. The HejnalMariacki - the warning to close the gates against the Tatars, the Mongols, the Austrians…

Looking in the Media Mirror

I am on a very quick trip to the UK, and wandering around Central London yesterday, I espied the gathering demonstration "against the cuts" by some students.
As demonstrations go it was not a particularly big one. There have been far bigger demonstrations which have not been reported at all in the national media. This relatively small demo has attracted media attention pretty much because a bunch of fringe nutters- Socialists, Anarchists etc.- decided that it would be fun to have a bit of a barney at the Milbank tower. Unfortunately the Police were not prepared, and there were not enough of them, so the nutters managed to hurt people and cause damage. The fact that the TV pictures were so good has meant that these criminal acts of petty violence are being reported as some kind of apocalypse.
Some of the Media have gone so far as to hint that the Coalition in some way "provoked the students". Leaving aside the fact that it was not students who led the riot, the fact …

Woolas: Liar and New Labour Minister... and?

Phil Woolas loathes Liberal Democrats, and the feeling is completely mutual. He has always been extremely hostile and combative towards us. It is not therefore a surprise that he overstepped the line and became the first MP in over a century to be chucked out of the House of Commons for the disgraceful way he conducted his campaign.
Except that Mr. Speaker Bercow has decided that his ejection from the House must await the outcome of his appeal. I won't speculate on why the Speaker has made such a strange decision- it seems to second guess the appeal- it shows a slight contempt for the lower court, but then Mr Speaker Bercow is not too big on legal niceties.
In any event the decision of the lower court is pretty damning- it will be exceptionally difficult for the Court of Appeal, or even the House of Lords/Supreme Court- if it comes to it- to set aside the judgement.
But then the issue is removed for the legal and returns to the political: a by-election may need to be held. Given the…

Science as a candle in the dark

OK so the State of Delaware may not have elected a Witch ("I'm not a Witch, I'm not a Witch..." WHATEVER).
However the United States has elected an awful lot of people whose opinions do not vary a whole lot from such simple superstition. Evidence gathered from peer reviewed papers is not the way that the US Congress conducts its business. Over 95% of the members of Congress- both new and old- have no Scientific background whatsoever.
There are more people in American politics who say that they believe in the "literal truth" of the Bible than those who acknowledge the demonstrable truth of the theory of evolution by natural selection.

If you can not base your political ideas on the Scientific method of sceptical empiricism then you might as well believe in witchcraft and spells to put things right. It is through such methods that we have been able to start to catch the merest glimpse of the spectacular wonders of the Universe, and our place within it. It is n…

The Mistakes of Margaret Thatcher

As Lady Thatcher emerges from hospital, she must have been somewhat buoyed by a poll that suggests that she remains the most influential woman in the World. However her influence rests with a period of office that came to an end nearly twenty years ago.
With the benefit of the hindsight given by those twenty years I think its is possible to begin to make a judgement on the eleven years that she served as Prime Minister. Certainly for all the adulation that the Conservatives offer her now, she was not generally popular either in the country at large or in her own party for large periods of her time in office. The confrontational way she addressed the challenges that the post war decline of the UK created for the country was never going to make her a healing figure- despite her quotation of St. Francis when she entered office.
There are two, sharply polarised, positions of conventional wisdom concerning the Thatcher government. The first is the adulation of the Conservatives- and not just…

What is to be done?

On the eve of the US Mid terms, it may be a bit perverse to turn away from the travails of America, but this is what I propose to do.
Regular readers will know that I am generally pretty critical of the regime in charge of Russia. In my view the gradual erosion of freedom and the spectacular accumulation of ill gotten wealth in the hands of a mere handful of individuals marks Russia out as an increasingly nasty place to live. I also believe that the aggressive use of military force to challenge democratic forces in any area that the regime considers within its "sphere of influence" is dangerous for the entire international system.
Yet the Putinistas are not having it all their own way.
There has been a steady increase in the visible opposition, with protests on subjects as diverse as car import duties, press freedom and freedom of assembly becoming routine. In honour of this last, every month that has a thirty-first day has become the occasion of regular demonstrations. The …