Depression Ahead?

Last week - on Thursday - the world's stock markets went tumbling down again as rating agencies, the IMF and the US Federal Reserve each made statements about the state of the world economy, predicting negligible growth, high unemployment and astronomical debts. In the UK, last month the government had to borrow £15.9 billion - a record, in spite of the government's attempts to cut spending. In Greece, the government is trying to put the economy on sound foundations - or at least show itself able to collect its taxes - in order to get another lump of bale-out money from the EU. The FTSE 100 fell 4% in a morning - which I believe is not far off the record for financial disasters. But what is there to be optimistic about? The world is crippled by debts and no government or international body is actually doing anything about it. Every gathering of bureaucrats and ministers, internationally, produces much weeping, wailing and gnashing of teeth, but nothing changes.

How can Greece get out of its present mess? The government will lay off very large numbers of workers - who will, presumably get benefit payments - and send 30,000 home on half pay while they do nothing. The economy is contracting at the rate of 5%+ per annum, so government tax income will drop - even with extra property taxes, etc. Lending them more money will just put off the inevitable - even if strikes don't shut everything down anyway. Greece will default and the EU needs to tackle that now. More and more delay just puts off the evil day and makes things worse in Italy, Spain, Portugal, et al.

Now its is Tuesday morning 27th September and the latest reports suggest that the leaders of Europe are facing up to do something serious about Euro stability. The bail out fund of the European Financial Stability Facility has Eu 440 billion but it seems that the EU Central Bank is going to leverage this upwards by getting backing from all member states to pump this up to Eu 3.6 trillion. A quite staggering sum. As part of this new scheme Greece will be allowed to default on half its debts leaving the country owing a mere Eu 180 billion. This will still leave many banks in trouble as the scale of their lending is revealed. Will this work? I doubt it. The problems of Spain, Italy, Portugal and Ireland still exist and pressure on those will increase as we write off Greece.

This chaos is telling us daily what a ludicrous idea it was to set up the Euro zone in the first place. It will never work. Increase the financial integration and tighten up on financial controls but Greece and Italy will never become Germany.

The USA is criticizing the EU for allowing this disaster to rumble on but they are not much better. I think they have sorted out their banks but the country is still lumbered with huge debt problems and a collection of loony Republicans control the House of Representatives. So the boss of the Federal Reserve predicts doom and gloom and things get worse.

Interestingly, there was an article in The Observer at the weekend that suggests that the investment banks now serve little purpose and they have to spend their time indulging in the casino gambling just to justify the numbers of staff and in order to generate the huge amounts of money to which their staff think they are entitled. The argument is that there is now nowhere near enough business for investment banks to spend their time providing services and advise to multi-nationals. If this is anything like true why do we have to tolerate the potential hazards in having to bail them out? Lord Turner some time ago suggested that the London financial services industry was too big, too greedy and much of what it did was "socially useless." It seems that other people are coming to the same conclusions. It is nonsense to tolerate investment banks pumping money round and round the system in ever more complicated instruments that nobody understands in order to somehow guarantee that bankers get paid buckets of money.

Over here, I believe that we should increase interest rates. This goes against accepted belief but we have been chuntering along with a base rate of 0.5% for nearly 2 years without any great benefits and a lot of disadvantages. Our currency is kept at low value - thus, we are told, helping exporters - and this makes our imports expensive - thus keeping inflation high. Printing money makes matters worse by devaluing the currency even more. We import so much that low interest rates will always have a negative effect on the cost of living. Added to this, low interest rates keep house prices high. For anyone who can afford a substantial deposit interest rates on mortgages are low. Banks want high deposits on houses now because they believe that prices will, in the medium term, fall. This way they do not lose money if 20% comes off the price of houses. Jack up interest rates and houses prices will fall allowing poorer borrowers to persuade banks to accept a lower deposit and making it possible to buy a house. Demand will make it easier for more houses to be built and nothing stimulates the economy more than building work - because so much of their materials are obtained in the UK. Higher interest rates will improve income from savings and people will have more money to spend.

There are experts who are now starting to have doubts about very low interest rates that take away all possibility of the Bank of England controlling inflation rates, etc.

The state of the world's finances is awful and, as I have said before, the leaders in charge are not a very capable lot. A trader interviewed on a news bulletin said that total disaster was around the corner but he didn't care because he would make a lot of money out of it. "Governments don't control the world," he said, "Goldman Sachs does." We are now listening to the language of the Apocalypse. I hope he is wrong.

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The Road To Depression

This morning the stock markets of the world tumbled yet again because of "worries about the debt crisis". This worry goes on and on because many meetings of political leaders never resolve anything. Last Friday there was a meeting in Poland of European finance ministers along with Tim Geithner, the US treasury secretary. The only conclusions reached was that they should put off a decision on bailing out Greece until ................. sometime in the future - as the old tin can went rattling down the road and into the long grass. Geithner suggested that this was not good enough but the Europeans were inclined to suggest that he get back to America and sort out the problems there. The whole world is drowning in debt and it seems that the only people oblivious to the fact that we are tottering on the edge of the abyss are the politicians and the bankers, the people primarily responsible for getting us into this mess. The bankers continue to pay themselves awesome amounts of money as banks rake in more and more from charges levied on everyone who uses their services from small current account holders to big companies arranging cooperate A&Ms. The problems are serious. Last week it was revealed that UBS, the Swiss banking group, had lost $2 billion as a result of uncontrolled activities of a "rogue trader". This "rogue trader", Kweku Adoboli, a derivatives trader seems to have been playing around with what are called virtual ETFs [exchange traded funds], an area of fog-bound betting that serves no real purpose, except to allow the betting of large sums of money on [usually] currency movements. Every time there is a disaster like this - and today the estimated loss has been boosted to $2.3 billion - it is a "rogue trader". No it is not; it is a trader who was very greedy who cocked it up. There will be lots of others at it and everyone just hopes nothing goes wrong. Mr Adoboli is 31 years old and just a trader sitting at a computer desk, who last year was paid £200,000 in salary and £400,000 in bonuses. But clearly this bonkers level of remuneration was not enough, he wanted more and the bank has caught the hit. Should we be sympathetic? To whom? The UBS bank has been in deep water before and has been telling the world that it has cleaned up its systems to prevent this unregulated gambling from occurring. Clearly this was untrue. It is, perhaps, a good thing that this disaster happened when the Vickers Report had just been published and that this was recommending that the big banks - too big to fail - should have the investment arms separated from the high street operations so that we did not have to bail out the investment banks if they hit the rocks. The government has accepted the recommendations but is prepared to allow the banks 8 years to complete the changes. This should give them enough time to wriggle off the hook and ensure that we continue to be the long stop for every bit of manoeuvring and gambling that goes wrong.

Coming back to the international political scene, we have to ask when will our leaders act? Never in the recent times have we had such a collection, worldwide, of inept, uncharismatic, second-rate leaders. They don't know what to do and every single one of them is worried only by the next by-election that may be a bad result for their various political parties. There is no leadership from this collection of never men and women. They swan around the world from one conference to the next and talk a lot but do nothing. Some of the gatherings are so immense that the possibility of a result must be zero from day one. Fundamentally, they do not seem to see that the whole of the capitalist system is collapsing. Greece will default; that is certain. But how many other countries will go down the drain? The Euro Zone relies on Germany for bail outs and the German public does not want to carry on chucking money at incompetent, corrupt and terminally basket case economies. Euro politicians do not want to admit that the Euro cannot carry on unless there is massive restructuring - and a massive bail out fund. The USA is bedevilled by a weak president and a Republican Party dominated by naive, self-confident, fundamentalist religious loonies, whom I would not trust to fry an egg. America has immense private debt and a public debt of $14.4 trillion and still rising. Whole towns and cities are collapsing - look at Detroit - unemployment is 10% and 40 million Americans live below the poverty line and have no health insurance. Much government money was spent on bailing out the financial system but vast amounts have been spent on pointless wars.

The situation is desperate and serious and I just hope that our politicians and bureaucrats realise it before it is too late and we disappear into a new dark age of depression that will make the 1930s look like a little local difficulty.

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Olympian Shopping Centre

As we slowly approach the day of the start of the London Olympics, hardly a day goes by without the leaking of some new piece of Olympian folly. Now it is revealed that Transport for London is to pay tube drivers an extra £1800 to try to ensure that they do not go on strike during the actual time the Olympic Games are taking place. This is being given without any guarantees at all, so, I assume there is nothing to stop the tube drivers demanding more as the day approaches. If we can pay extra money to tube drivers why not bus drivers, railway engine drivers, ticket collectors, baggage handlers, etc, etc. Name your job, Can we all join in?

Some people in the London area are renting out their flats and houses at high rents for the duration of the games, while they go off and stay with relatives or go on holiday. How many extra people are coming to London for the Olympics, I know not, but apparently bookings in general are down significantly for the period of the games. It is not helped by the increase in hotel prices.

As part of the Olympic legacy, I suppose we must include the new vast Westfield Shopping Centre which opened yesterday "in the shadow of the Olympic Stadium." Already my cynicism is showing because, apparently according to the Daily Mail, we must not call this monster temple to Mammon a shopping centre but, rather Westfield Stratford City is a "retail environment." There are 7 miles of corridors and shops — 300 of them — 70 restaurants, a 17 screen cinema, a bowling alley and a casino. Do people still go to bowling alleys? And is there money still to be made in casinos? Yes! But not by the punters. The shops were packed out with masses of people on the opening day. People anxious to spend their money and who, presumably were living on benefits or had taken a day off work in order to enjoy this absurd place. Why do we need this "gateway to the Olympic stadium and athletes village"? There are already monster shopping centres at Lakeside, Thurrock and underground at Canary Wharf. There is a limit, surely, to the number of virtually identical shopping environments, packed with the same shops, selling the same products at the same prices. There are suggestions that the new centre will have an adverse effect on the town centres of Romford, Ilford and even Stratford, the borough that is hosting the games. We have a world recession, shops and pubs are closing as never before, the high streets of Britain have 15% of all their shops closed and boarded over. Is this the time to open the biggest shopping mall in Europe within a few miles of two other shopping malls? It shows that once something is allied to the Olympic Games all logic flies out of the window and up the Thames Estuary.

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