Archive for March, 2013

Lord Carey Is Wrong

Saturday, March 30th, 2013

Lord Carey, in an article in the Daily Mail today, makes  assertions about the public attitude to the Church of England, and about the role of the Prime Minister which are unfounded and unfortunate.

Yes, it is true that the Church is no longer held in the respect that it was and it does not deserve to be. Arguments about women priests,  gay and women bishops and some really nasty homophobia, disguised as doctrinal rectitude, have made it look bigoted, intolerant and unchristian. Nobody is to blame, least of all David Cameron, save for the Church itself and its obsession with gender, sex and its own self righteous demeanour. It is now bogged down in issues over which it has no proper authority nor any credible understanding, which bear any relationship whatever to the original simple and compassionate teachings of early Christianity.

That this former archbishop thought it appropriate of offer such a ridiculous Easter message underlines the way the Church has sidestepped from the advance of human generosity and understanding. It would have been better to go out and wash some deserving feet.

Cyprus: Good or Bad for the Euro?

Tuesday, March 26th, 2013

Brussels will argue and try to convince itself, that it is good. There has been firmness with flexibility, the complex governance structure sustaining the single currency functioned, Cyprus is a worthy member of the Euro family, the future of the Euro is still assured.

Many onlookers think differently. They see a shambolic presentation of a new dimension in post crash verities. When badly managed banks crash, depositors are in line to lose, just as they did in the past. This is why, when banks accept your money without asking if it is yours or where it has come from and pay a rate of interest significantly higher than their stuffy competitors, you need to be cautious and accept a high degree of risk.

This is the best piece to come out of the unhappy event and will do more than regulation to regulate the banks. They will all find that depositors, now reminded that banks can and do go bust, even when in a sector eight times bigger than the national economy on which most of it depends, will seek to assure themselves  that the banks they choose to put their money in are safe. To earn that trust the banks, all of them, will have to become safer. That will curb lunatic investment by the bankers in the likes of sub-prime mortgages and Greek bonds.

Yet the idea of a raid on bank deposits without the consent of depositors is repellent and likened by many  to theft. This is why the ineptitude in presentation by the various Presidencies and other paraphernalia which in the Eurozone passes for a form of federal government, is at the heart of this crisis, more than the actual crisis itself. The simple truth is this. The two biggest banks in Cyprus are bust, as is the Cyprus government. The smaller banks would likely go under in the panic of such a collapse. Depositors would lose every cent of their money. The kindly Germans, working with their many friends in  northern Europe have fixed a loan so that nobody with 100,000 euros or less will lose anything and those with big money will get 70% per cent of it. When the banks open. And in dribs and drabs. Thank you Auntie Angela. The problem is that  the Cyprus economy has been laid waste and confidence in its financial institutions destroyed. The country will have to find another way to earn a living. There is hope of gas.

There is now brewing a much bigger problem with the Euro and if something is not done about it worse will come. It is not to do with what markets think. It is to do with what people think. The people of Southern Europe; of Spain and Portugal and Italy and Greece and the shattered Cyprus. They feel bullied and bludgeoned into penury and hopelessness. They are beginning to say to themselves, to each other and to the world at large what is to them a simple fact. A currency which brings this kind of havoc in its wake is not worth having. When they start to listen to each other they will start to speak with one voice.

That is when the Euro’s troubles will really begin.

Tory Housing Madness

Friday, March 22nd, 2013

The Tories are obsessed with home ownership in the same way that the Catholic Church is obsessed with sex and the Church of England with gender. It is the ruination of the potential for something more valuable and worthy from all three.

Harold Macmillan presided over the great post war Tory triumph of building 300,000 new houses per year in the 1950s. Unfortunately the need to provide modern affordable homes to  rent in the public sector, which led to the biggest home building era since Victorian times and massive slum clearance, gave way to a notion that everyone should own a home; a cynical policy based on the premise that owner occupiers vote Tory.

The first housing bubble occurred in 1963/64, the next in 1972/73, the next in the late eighties and the last through most of the naughties. All but the last were in periods of Tory rule. All led to recessions. The last was under New Labour when the cat fighting Blair and Brown thought it would win votes if they wore Tory clothes. All these home ownership binges have sucked resources from the wealth creating economy, from industry and business and have led to over inflated property assets and borrowing beyond reasonable means.

Economies like France and Germany where property ownership is less of a priority and the rental sector better organised have sustained better industrial growth and are now significantly less burdened by total debt. The Tory obsession led to the sale of council houses at a huge discount of their market value, though near to their true value, which gained Thatcher lots of previous Labour votes. Had she ploughed the sale proceeds into more housing stock, things might have worked out. Instead all this money was taken from local authorities who had built the housing and blown by central government. We now have a chronic housing shortage and the lowest level of new house building since the great depression.

The half-witted response of the Tory led Coalition, flying in the face of all the data and accumulated wisdom from disasters past, is to provide public guarantees for mortgages which the re-organised financial services industry, regard as unwise and beyond the prudent levels of both ability to repay and value security of the asset. This new plan will help all the wrong people to do things they will regret and risks, as was repeated again and again on TV yesterday by commentators of every persuasion, another housing bubble. This is utter madness.

What is required is a massive house building programme of affordable homes to rent on the scale of Macmillan’s effort. A million homes over five years. This would boost the construction industry and should be set alongside infrastructure renewal. The cost of housing would come down rather than go up and the economic revival would help boost the wealth creating economy to broaden its base and resilience for the prosperity of future generations. To do this, without fresh borrowing, would require a more focused and creative approach to quantitative easing. This is where the thinking should be directed, so as to create a sounder base for economic revival. Instead we have a cheap off-balance sheet trick to gain votes. It will fail in every direction, but not until it has done much damage.

This nation deserves better.

The Budget: An Astonishing Howler

Thursday, March 21st, 2013

Osborne  has delivered a budget for 2013,  the centre piece of which is little short of financially ridiculous. The great economic disaster of ranking property as the mainstay of the economy, fuelled by excess credit providing mortgages which require little to no equity stake from the buyer, only correctable through house price inflation, was the wick which sustained the borrowing fuelled fire which burned down the whole economy. To come forward now with a plan to set off down the same route hoping for house industry led recovery is grossly irresponsible, economically insane and politically dishonest.

Osborne’s reputation as a coherent chancellor who is master of his brief, is entirely and forever, shot. The banks and building societies with the urging of the FSA have been getting their lending house in order and have returned to matching loans to risk and ability to pay. They know that houses remain substantially over-valued and that sustained economic recovery can never be secured if the average price of a home is more than two and a half times the average income. Anything over that and mortgages or rents begin to take an ever higher percentage of income leaving none over for other spending. This fuels more borrowing. It is a vicious cycle which knows no borders. The countries in the world with the highest proportion of home ownership through mortgages have had the biggest financial bust  in the global crash. The United Kingdom has the biggest volume of external debt of any country in the world except the US.

To fling twelve and a half billion of taxpayer risk to cover one hundred and fifty billion of sub-prime mortgages and encourage another bout of profligate lending will either fail, because even now it is already a policy mired in confusion and double speak from a  befuddled Treasury,  or succeed in starting a new wave of house price inflation. This cannot be right. No economist in their right mind would propose it.

That tells you all you need to know about this government and more than you ever feared about the Tory party’s financial acumen.

Cyprus: Euro Lehman?

Wednesday, March 20th, 2013

When Lehman Brothers went bust in 2008, it was the signal that the financial system was gripped by problems it could not resolve. Some commentators at the time suggested that had it been saved all would have been well and the global crisis would not have happened. It may not have happened at that moment, but the idea that everything was okay really is patently absurd. With Cyprus two firsts have occurred. The one is a demand from the Euro bailout authorities that there should be a dawn raid on every bank account in the country, a proposition in a capitalist economic structure which beggars belief. The second is that the Cyprus parliament has thrown the idea out with a unanimous vote of every single deputy.

This is the first time that the lack of final democratic accountability of the authorities, who struggle piecemeal to manage the euro, has finally snapped the patience of those affected by their draconian terms to prop up an economy, which their laxity of currency management allowed to  go to pot. It may be the first straw in the wind which finally tells of such a mismatch between the southern and northern euro economies, and such a lack of  unified democratic governance supporting the currency, that in the end the euro cannot survive in its present form after all.

We shall have to wait and see what happens next. Of one thing we can be sure. The respite from euro crises which led the optimistic to assume all would be well in the end, is over. Meanwhile in Moscow, President Putin and his government weigh up their options. They may decide that among them are opportunities. Cyprus could be a milestone in more ways then one.

Press Freedom and The Royal Charter

Tuesday, March 19th, 2013

The concept of Self-Regulation underpinned by statutory authority or supervision may seem like splitting hairs and it is. Unfortunately to preserve the freedom of the press on the one hand and to regulate it on the other, hairs have to be split. Choosing a Royal Charter as the means of doing it is a stroke of genius for the simple reason that under the British Unwritten Constitution the whole fabric of power is held together by a complex web of split hairs. This is because all power flows from the Monarch, since monarchic power is itself sovereign and absolute. The hair splitting occurs through the sovereign ceding control of the cash to parliament, one house of which is elected, allowing the country to call itself a democracy. The sovereign also agrees to sign into law measures passed by the majority in parliament.

The government remains the government of the sovereign, although by convention its members are drawn from parliament, mostly but not entirely, from the elected House of Commons. Each government minister carries in his portfolio a remarkable executive tool of absolute power. It is called the Royal Prerogative. This is because, as part of the balance of understanding within the nebulous constitution, the sovereign has ceded the operation of all power to the government, whilst still, in the final analysis retaining the exercise of it. Few realise how much of government is conducted outside the control of parliament. For example foreign policy is not subject to parliamentary approval, neither is the setting up of ministries or closing them down. Nor indeed is the setting up of Royal Charters.

Because Royal Charters are within the sovereign authority of the monarch, they are set up, by ministers, using the Royal Prerogative without parliamentary approval. The BBC functions under one and does so with robust independence as everybody acknowledges. From time to time ministers from both of the main parties have become agitated about what they assert is anti-government bias at the BBC, which has led them to meddle with its structure of governance making changes in form, if without much effect.

The anxiety of the Labour and Liberal Democrat parties was that in the event of an ogre coming to power in the future, he or maybe she, could change the proposed Royal Charter regulating the newspapers, at the simple stroke of a pen and place the entire press under the edict of the government. Conversely if a weak government could sustain power only with the backing of the press barons, they may persuade a tottering prime minister to shore up his or her support by amending the Royal Charter to give them freedom to do as they please.

By enacting a small piece of legislation requiring amendments to newly granted Royal Charters to be approved by a two thirds majority of both houses of parliament, the possibility of such mischievous changes are significantly reduced, but most important, brought under the control of the legislature and away from the executive. The newspaper proprietors would be wise to take note. They retain all their independence within a set of rules protecting the public from abuse. This is a good deal. They should support it.

The Tory Party: In Deep Trouble

Wednesday, March 13th, 2013

All governments tend to be unpopular mid-term. The better ones cope because by mid-term unpopular policies are beginning to show signs of delivering positive results which will be at their booming best around the four year plus mark, when successful prime ministers have called elections and won a second or even a third term.

The present arrangement is complicated by the fact that there are two parties in government. Contrary to every expectation it is the policies of the Tory majority which are not working or are subject to the fatal political indulgence of a U-turn. This can be explained by the recognition that if the Tories could carry through all their ideas, unmodified by their Lib Dem partners, they would be even more unpopular than they are now.

Conversely the Lib Dems, who after tuition fees and the failed AV voting referendum, seemed down and out, are now enjoying a new lease of life as the party which keeps the Tory element of the government from following the worst of its ogre tendencies. Most of the time Lib Dem ministers promote policies of which Labour approves, but unlike Labour, the Lib Dems have the power to make a difference. This has led to surprisingly robust performance in local council bye-elections and the spectacular win at Eastleigh, in the face of various internal scandals involving misogyny, lies and sex.

Meanwhile the Tories are now splitting between right and left, pro and anti Europe and those who think Cameron should go now or later. Nobody expects the budget to be up the the challenge, the coverted and (over)lauded AAA rating has gone. Manufacturing is falling, growth has stalled, people are getting spooked.  Tory backbenchers, especially those from Tory marginals are the most spooked of all. This is hardly surprising when their erstwhile saviour and paymaster, Lord Ashcroft, who has now turned pollster, tells them they can expect to lose ninety, yes ninety, seats to Labour in 2015, unless they get a grip. The trouble is they have no unified comprehension whom, what or where to grip.

Now we come to the technicals. Every government which has run five years since 1935 has lost the general election which which then took place. Cameron and co wanted fixed term Parliaments, not of four years as favoured by the Lib Dems but five. Oh dear. Here comes the supreme irony. The Tories mounted a virulent campaign against AV because they thought they had the Lib Dems corralled, with the thinkers becoming Cameron style Tories and the protesters going back to their anoraks. AV votes might have saved them but without, all their southern seats would fall to the Tories and their northern fiefdoms to Labour. Well it has not quite turned out that way. UKIP votes will allow the Lib Dems to win all their own southern seats as well as gain all the Lib Dem/Con marginals.

Meanwhile up north the combination of Tory, UKIP and Lib Dem support splitting the anti-Labour vote three ways will guarantee a string of Labour victories, enough to cancel out their loss of seats if Scotland votes for independence. This is because, without AV, the winner does not have to have a majority of the votes cast, only just one more than the next in line. The Tory party is now not just looking at the strong prospect of defeat in 2015. It is looking at the increasing prospect of a massacre. AV voting would have saved them. What a funny end to the Tory revival, that like economic recovery, proved elusive in reality.

No wonder there is a growing feeling in the Tory ranks that something has to be done. To many of them that something is called Theresa May.

Lib Dems: Finding Their Feet

Sunday, March 10th, 2013

It may seem an odd reflection, but it is the view of this blog that in spite of Huhne/Price/Rennard and who did what and why and who knew what and when and all the subtexts of scandal washing over the Party,the Lib Dems are in a good place.

They had the guts to enter government, something of which for years most thought them incapable, and almost every aspect of coalition policy which is popular is there because of Lib Dem insistence. Their coalition partners, the Tories, are in terrible trouble. They are split over social values and Europe and their economic policy is stalled. Cameron’s great economic speech has gone the way of Osborne’s last budget, mired in mistakes and confusion. Both were a disaster. Now Vince Cable, who many regard as having the best grasp of economic reality, is openly opposing the Treasury’s position.

Then there is UKIP. Nigel Farrage is fast becoming a kind of English Alex Salmond. He has already made enough progress with his party to guarantee that the Tories cannot win a majority on their own in 2015, but his effect on the LibDems own supporters will be small, because  the Lib Dems are unashamedly pro EU and unlikely to vote for a party which wishes to leave. But UKIP’s appeal to those older backward looking Tories who do, will make it easier for Clegg’s party to hold onto their southern seats and maybe even gain some, to offset likely losses in the north.

There is more. It UKIP gets up enough steam to win seats there is an obvious possibility of a right wing Tory/UKIP coalition, but a Lib Dem/Labour government would be likely to have more seats and votes. There is one joker in the pack.

If the Scots vote for independence in 2014, everything changes.

Syria: From Crisis to Calamity

Sunday, March 10th, 2013

This week Sergey Lavrov, the Russian Foreign Minister, is travelling to London for talks with William Hague, the British Foreign Secretary. The two sides are close on almost every aspect of where they would like progress to be made but have between them an impasse. The Russians see the post cold war West as meddling and imperial, with a lust for regime change brought about by force, either directly or through proxies. Britain sees Russia as difficult on purpose and unprincipled in backing President Assad, once considered moderate and restrained, now condemned as a tyrant. Assad has become the sticking point preventing compromise over Syria.

This blog makes no secret of its opposition to British foreign policy, which it regards as lacking in strategic focus for many years past and a complete failure since 9/11. In the regime change department Iraq was a disaster, Afghanistan is a mess and has been a complete waste of British lives and money and Libya is not fulfilling the initial promise at the fall of Gaddafi. Relations with Europe are confused and Cameron’s proposals for a new relationship with the organisation of which we are a member and transact half our trade, confusing.

Our refusal to allow talks to include the government in power, i.e. Assad, at the very beginning of the Syria crisis is the single biggest factor that drove the protest from peace to violence, then to armed groups, moving on to civil war leading to a collapsing state. The suffering of the innocent people of Syria, most of whom support neither one side or the other and just want peace and security gets worse week by week. There is now not just a humanitarian disaster but one spinning out of control.

It is one of the oldest tricks of statecraft to set pre-conditions to negotiations which knowingly cannot be met in order to avoid talking. Having refused to talk to Assad, Britain and its allies now find themselves supporting a mish -mash grouping of opposition fighters of obscure intention, many of whom will be at each others throats as soon as Assad falls, and among whom Al Qaeda, the West’s arch enemy, is a key player. It is small wonder that Mr. Lavrov sticks to his point of principle that outside powers cannot dictate the detail of internal governance.

Russia is Europe’s natural ally. An astute foreign policy would recognise that without Russia, Napoleon, the Kaiser and Hitler would have won their wars. It would also note that without Russian resources of coal, oil and gas, the lights of Europe would go out, people would freeze in their homes and few would be able to afford to run cars. Europe needs  the Russians more than it needs the US, which is ever more focused towards, and financially dependent on, Asia. Such thoughts might help William Hague to seek a compromise with Mr Lavrov. Nothing else will offer any hope of a swift end to the appalling events in Syria.

Cameron & Cable: Who is Right?

Friday, March 8th, 2013

The answer is both and neither, but of the two Vince cable has a much more coherent understanding of the problems facing the economy. Cameron is promoting a strategy which is in part succeeding, but also failing: Vince has analysed what might be going wrong and how best to deal with it.

This blog was trenchant at the start of the Coalition in promoting cutting government expenditure and shrinking the State. We scoffed at the proposition that you could borrow your way out of debt and we adhere to that view. But as Vince points out, if the cuts reduce the revenue flow and increase the demands on the welfare budget, the deficit grows and you end with the worst case; that of borrowing to pay salaries and bills. He says it is a matter of fine judgement as to when it is more harmful not to borrow for investment than actually to so so. Indeed there is a greater risk to low interest rates through market anxiety and further downgrades, if the economy fails to surge and instead totters forward always on the brink of recession.

Meanwhile there is a developing debate over quantitative easing. The Bank of England has decided against more for the moment, but for how long can that position be sustained? The current buoyancy of the share market  and the hints of an easing in consumer and small business credit stems directly from QE. It is this blog’s view that while Vince Cable’s analysis is right, his thoughts of borrowing are wrong. Instead we would advocate using QE directly to finance investment in infrastructure renewal, transport modernisation, and the biggest social house building programme ever. It  is not the case  in modern globalised economies, substantially geared to electronic money and plastic credit, that hyper inflation follows an expansion of the money supply, provided it is expanded to measure new wealth created by investment in job creating national renewal.

In other words if there is too little money in the economy to enable it to function, it is better for governments to create new than to borrow. It would have the added benefit of exerting downward pressure on sterling as the economy expands, making imports more expensive, while exports become more competitive and opportunities for home production of consumer products increase.

This is a complex subject over which debate and creative thinking are now needed. It must become the policy of all political parties to aim for full employment as the central national strategy and we must now start, not only talking about an objective absent from political thinking since the seventies, but we have to plan for it as well. QE will have to be in the mix.