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Pound/Euro rate - WHY???


Tony Jones

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We were told we needed a credible plan to clear the Labour deficit PDQ, to convince "the markets" that Britain was still a good risk.

So that's what we got - the "nation's credit card" is being paid off rapidly, at a dreadful cost in human suffering I might add.

 

Meanwhile, one Eurozone country after another is coming to the brink of default, needing bailouts etc. I'd expect that would make investors feel the Euro was a pretty poor risk.

 

So how come the Pound is still bumping along at the same miserable near-parity rate against the Euro? By now I'd have thought we'd be back to the "golden age" of €1.50 to the £ (even if both currencies were still down compared to (say) the US dollar).

 

Is the Govt quietly but deliberately keeping the rate like this, by selling pounds and buying euros, to keep exports cheap and imports dear, for the sake of the economy?

Or are the "meerkats" not as impressed with all this self-sacrifice as they were supposed to be?

 

Anyone know? Or am I missing something?

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The reason is that the ECB is keeping interest rates higher than UK rates because they fear inflation more than we do at the moment. This make the Euro more attractive and so increases its value.

 

In contrast the BoE base rate being 0.5% is not really attractive to anyone and so the £ in relative terms is poor value to the Euro. However, growth in the eurozone is falling overall but rocketing away in places like Germany. And we are not doing that bad growth wise either considering the monumental debt repayments we are saddled with.

 

I think it is true that with the likes of Germany being able to buy good solid product from the UK effectively at a discount due to the currency differential, then both us and Germany will benefit from this trade. Germans in particular are well and truly hacked of with the Euro in that it is their work ethic and financial strength that is bailing out all the lazy badly run countries in the eurozone.

 

So in time, when our economy is less reliant on the consumer in the UK having to have money in their pocket and happy to spend it rather than save it because savings rates are so low, and interest rates here go up and in the Eurozone they go down, then you will see the £ increase in value relative to the Euro.

 

But if that happens too soon then our export market will crash and so will our economy. All that is happening now is public spending cuts. The real pain to industry and commerce happened under New Labour. The jobs just are not there because they favoured non-jobs over real ones and reality has come home to roost.

 

It may be Tony that difficult times lay ahead for many but this problem has to be sorted or else we too will become an honoury member of the PIGS of Europe (Portugal, Italy, Greece Spain).

 

There is never anything like a free lunch and never will be - but the likes of Gordon Brown fiddled the figures such that some were able and willing to believe that there was.

 

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I quite agree that the problem needed to be sorted Clive, and if the cuts will do that so be it. I was just puzzled as to whether they were "doing what it said on the tin," ie restoring market confidence in the UK.

 

So you think once interest rates go back up, we'll start to see a better exchange rate?

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Tony - good stab, but not quite right.

 

Here comes the boring bit.....................................

 

 

 

 

 

 

 

 

 

What is actually happening is that the International markets, and Financial traders look at what the UK Government DOES rather than believing what is SAYS.

Because looking at what it actually does, in financial terms, is a bit complicated, most UK citizens believe the soundbites on the news etc about what it SAYS it is doing.

 

 

The Coalition Government SAYS that it is cutting the size of the UK deficit (what used to be called the PSBR). Jolly good thinks most citizens.

But it isn't actually doing that. At all.

 

I mean it isn't actually cutting the size of the deficit.

In fact it is borrowing even MORE, and at a faster rate, than the previous Government.

 

Thus, April 2011's "Red Book" figures (essentially, the monthly National Accounts of UK plc) showed net borrowing that month to be the highest ever monthly amount in the history of the UK.

 

 

 

 

Now, the Government spin on this is that they ARE taking "decisive actions" to reduce the built-up-over-decades amount of national debt (to be fair, almost all of it racked up by Blair and Brown, as they lived beyond their means basically every month for 13 solid years); but that their actions will take some time to show results........so stick with us, it's a long game.

 

 

 

 

But what the markets, increasingly, are seeing, is tiny Public Sector spending cuts here and there, but yet more big increases in Public Sector spending in lots of other areas.....which along with falling tax receipts as Companies pay less Corporation tax as they make less profits, and individuals pay less direct and indirect taxes as they earn less and spend less........means that monthly borrowing is STILL going up and up, at an even faster rate of climb than before.

 

 

I'm not sure if many people outside the rivetingly boring world of macro-economics really have any concept of just how awesomely, indescribably big, the debt burden upon UK citizens now is....and it is THEY, the UK citizens, who must, via extra direct and indirect taxes, repay it all in the decades to come, as that's the only place that the UK Government gets an income with which to pay back the interest and capital on all those Bonds that they are issuing month after month to keep the Public Sector behemoth afloat.

 

Just to try to get the feel for it, if ALL, yes every single one, of the Conservative Governments pre-election Public Sector spending cuts had been implemented in FULL, totally, on schedule, then UK Public Sector spending would be reduced to the level of................2003/4.

ALL of those "draconian" cuts TOGETHER would only roll back the last 8 years of growth in the costs of running our Public Sector. That's all.

 

Now, the international markets can see from the size of UK accumulated Government debt that the country is on the ropes. In fact through the ropes and most of the way out of the door now.

They thought at the time that those "draconian" proposed cuts did not go far enough (they thought that the Labour alternative was an utter sick joke).

 

 

Yet now one year on, they are seeing that most of those proposed cuts have either not happened at all, or have been watered down due to Lib-Dem influence; or have not been implemented fast enough, or have saved far less than was projected.

 

So, in practice, despite what he might say about his condition, those around him can see that the sick man is getting even sicker, as he hasn't got the balls to take the really nasty medicine that could make him better again.

 

 

 

 

Thus, international confidence in the UK is getting weaker and weaker (both in absolute terms and, more importantly) in relative terms.

So now, the UK Government has to offer higher and higher rates of interest on the Bonds (essentially borrowing IOU's) that it has to sell to the international investment markets each month to cover the yawning gap between the tax revenues it gets in and the Public Sector spending that it pays out.

That's because fewer and fewer investors want to buy UK bonds when they can instead buy bonds from other countries at lower default risk, or invest in shares etc in Companies in many many other countries which yield better returns.

 

That weakening of confidence internationally in what is ACTUALLY happening in the UK economy (regardless of what Cameron SAYS is happening to keep his voters sweet) also means that investors don't want to buy GBP's as much, RELATIVE to all the other currencies that they can buy and have more hope of selling at a future profit.

 

 

 

 

I don't think people within the UK really perceive how economically sick the UK really is; people in the rest of the world regard it as VERY sick, relative to (say) India, Asia, Australasia, China....countries whose economies are enjoying double digit annual growth.

 

 

 

 

Bottom line?

There's no profit in GBP's. Because there's no profit in UK plc.

 

People don't wanna buy GBP's when they can buy Yen, Yuan etc and make more profit from countries whose economies are not mired in debt, and which don't spend each month nearly 70% of their entire GDP NOT on wealth-creating private sector investment, but upon Public Sector Spending and Debt interest payments.

 

 

 

That situation will continue until somebody actually start REALLY cutting back the size of Public Sector spending, and thus REALLY starts repaying the first swathes of UK Government debt.

I wouldn't hold your breath.

 

 

 

 

 

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Whilst the overall picture is VERY bleak and Bruce is (in my view) spot on with his analysis, there are various lights at the end of the tunnel.

 

In situations like this - if you take the longer term view you can make substantial gains. For example a retired lady client of mine was bemused that the £30K she holds on deposit has done nothing over the last year but the £23K she had this time last year as part of an investment bond where we selected M&G's recovery fund for that £23K is now worth £28.5K - it did 23.4% over the last year. Other funds have done better – some worse – but we are in the situation now where “value” matters. You always get this where inflation outstrips interest rates. This is great for a recovery economy, but lousy for the saver who knows nothing about investment and relies on deposit interest.

 

http://www.trustnet.com/Tools/PDFViewer.aspx?url=%2FFactsheets%2FFundFactsheetPDF.aspx%3FfundCode%3DMGREC%26univ%3DU

 

Now this fund specifically invests in recovering companies and new companies on the up. So it is not all doom and gloom.

 

She is taking out £4K and buying herself a new car to replace (she is trading it in) her aging Honda Jazz.

 

Like a lot of people - the safety of money on deposit is attractive but with inflation at 4.4% - if you are only getting 2% after tax then you are losing 2.4% "safely". If we are to have low interest rates for some time - and in my opinion we are, then if you want to protect the value of your capital then deposit based investment is not going to achieve that.

 

A Chinese curse is "may you live in interesting times" - from a financial viewpoint we now have and will have a lot more experience of these interesting times.

 

 

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So hang on a minute Bruce & Clive, let me get this straight.

 

The "cuts" which are having such a devastating effect on real people (some of whom I know personally), are actually nothing like as deep as they need to be - in fact, they still represent in some cases an "increase" in public spending.

 

So what would REAL cuts look like - on the scale you both think is necessary to satisfy the markets? Can you give some examples of the sort of things which the Govt shouldn't be doing, or paying for? And why should satisfying the markets, rather than the welfare of our own people, be the top priority?

 

Seems to me that we're back in the old pre-crisis game, in which the financial sector dictates how (and if) the rest of us survive, while those who work in it seem to manage pretty well (no offence Clive, I ackowledge you're probably not one of the "big fish" in that pool).

 

It just seems as if a lot of VERY rich people all over the world expect to keep getting richer by switching their obscene amounts of money from place to place, without doing any good for humanity as a whole in the process. And whenever anything doesn't go the way they want it to (ie the way that makes them richer still) they threaten to take their money away, and tell us that will be a disaster for us all.

 

Strikes me the real disaster is that the people who do any real good in this world aren't the ones who get the rewards!

 

A few related questions:

Wasn't money once supposed to be a "medium of exchange," enabling a person with one ability to use it to obtain the product of another?

How did it become an end in itself?

Was my boss right to say "The love of money is the root of every evil?"

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Guest pelmetman
Tony Jones - 2011-05-25 8:01 PM

Was my boss right to say "The love of money is the root of every evil?"

 

As an atheist Tony, I agree with your boss :D

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I think you are right, Tony. Markets have no morals, they are concerned only with returns. Those who operate them are blind (generally) to their effects. He who worries over the impact of his trades will lose (or at least he fears he may) by comparison with he who has no such scruple.

 

It is at least honest, since there is little evidence that anyone pretends otherwise, but it is very difficult to see how a money market can be made to take account of the impact of its activities. To some extent, that is why we endlessly go from bubble to bust.

 

It might be preferable if certain essential commodities could be traded on a different basis but, if someone can buy, say wheat, in say Canada, in anticipation of this years harvest yields, and then sit on his yet to grow and ripen crop, simply as what he hopes will be an appreciating asset, how could he be stopped? After all, there are many genuine reasons why people want what, such as for milling, and they have good reasons for buying forward, generally so that they can gain a degree of price stability, which is also appreciated by large producers, allowing them to calculate their return and financially plan their business. How could one tell of which type is a single trade, among the thousands of trades conducted daily? How could one know why the buyer is really buying, or the seller really selling?

 

I don't think it is that the traders are necessarily uncaring, though some may be, just that their loyalty is to their employer, whose loyalty in turn is to shareholder returns (or possibly their own bonuses!), and money is a very simple, and instantly understood, measure of value. Insufficient returns for shareholders = BIG rows and new, more ruthless, MDs. It is a totally amoral system that works and flourishes in a world where decisions are made in minutes and the results transmitted in seconds. Considerations of the impact on the poor, or even the average man-in-the-street, are far too philosophical and time consuming to be taken into account. It is often said, but is not, I think, a complete truism, that the prevailing law is that of the jungle. For my part, I can't really see how it can be softened and made more moral.

 

To all intents and purposes it is a raw natural phenomenon, like flood, fire, or tempest, and its impacts are similarly unpredictable and unstoppable. If you get in its way, you get flattened, if you're lucky it passes you by. No one man, nor body of men, can claim to control it, so we just have to accept it for what it is, do whatever we can to defend ourselves and/or sidestep its foreseeable impacts on us individually, and hope to come out the other side still afloat, and still able to help those affected to rebuild after the storm.

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Tony Jones - 2011-05-25 8:01 PM

 

So hang on a minute Bruce & Clive, let me get this straight.

 

The "cuts" which are having such a devastating effect on real people (some of whom I know personally), are actually nothing like as deep as they need to be - in fact, they still represent in some cases an "increase" in public spending.

 

Are they really having an effect on real people? – for sure – those in the public sector are “real people – the same as the rest of us – but are the jobs they had – paid for out of taxes – real jobs?

 

Tony Jones - 2011-05-25 8:01 PM

 

So what would REAL cuts look like - on the scale you both think is necessary to satisfy the markets? Can you give some examples of the sort of things which the Govt shouldn't be doing, or paying for? And why should satisfying the markets, rather than the welfare of our own people, be the top priority?

 

The cuts should be were government waste is. And that to most people is clear. The MOD procurement dept could save millions. Management of the NHS leaves a hell of a lot to be desired and the NGO hand out budget is totally obscene given our current state of economic health.

 

Tony Jones - 2011-05-25 8:01 PM

Seems to me that we're back in the old pre-crisis game, in which the financial sector dictates how (and if) the rest of us survive, while those who work in it seem to manage pretty well (no offence Clive, I ackowledge you're probably not one of the "big fish" in that pool).

 

Never had any requirement to be more than what I am today Tony – and that give me the luxury of being able to tell the situation as I see it. The financial sector IS NOT THE BANKS – sorry to shout but it really is about time people woke up to that fact. We have an odd financial situation in the West at the moment whereby the banks have more “clout” than they should. This is (in my view) due to the last government not knowing its elbow from its arse such that we allowed the Banks to effectively take over the regulator in the UK – the FSA and from that position of power dictate to all and sundry what the Banks could get away with. I defy anyone to prove to me that the situation that happened and is a matter or record could possibly be explained in any other way!

 

Tony Jones - 2011-05-25 8:01 PM

It just seems as if a lot of VERY rich people all over the world expect to keep getting richer by switching their obscene amounts of money from place to place, without doing any good for humanity as a whole in the process. And whenever anything doesn't go the way they want it to (ie the way that makes them richer still) they threaten to take their money away, and tell us that will be a disaster for us all.

 

To most of the Third World what YOU have is an OBSCENE amount of money Tony! - PLEASE do not try to imagine that you because you have less than someone else are somehow more worthy of the person in China or India who makes the trousers you wear or the widget you use on your £30K motorhome. It is YOU that has the power over the worker in China or India by working here to make a profit such that you can have the cash to buy the trousers or the widget.

 

Tony Jones - 2011-05-25 8:01 PM

 

Strikes me the real disaster is that the people who do any real good in this world aren't the ones who get the rewards!

 

Probably true! – but do you include yourself in that glib statement? Because regardless of your liking it or not – you are a consumer and so you are part of the global economy.

 

Tony Jones - 2011-05-25 8:01 PM

A few related questions:

Wasn't money once supposed to be a "medium of exchange," enabling a person with one ability to use it to obtain the product of another?

 

No – money was always a way of exchanging wealth – you grow a crop for X – sell it for Y and so buy A at a cost of B.

 

 

Tony Jones - 2011-05-25 8:01 PM

 

How did it become an end in itself?

 

It never did. You are just p*ssed because what you expected your position as a western european to always give you an advantage over others no longer does – hence your dismay and anger at not having the “value” you used to have.

 

 

 

Tony Jones - 2011-05-25 8:01 PM

 

Was my boss right to say "The love of money is the root of every evil?"

 

He was probably young or very naive when he said that – more than likely both. Because you speak to most people who are retiring and they will tell you that security is having a few bob in the bank.

 

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Tony - could I try to answer this central part of your post:

 

"And why should satisfying the markets, rather than the welfare of our own people, be the top priority?"

 

This is, I suspect, the core argument for you.

 

 

 

 

My suggested answer would be that..........the two objectives are really complimentary, NOT contradictory.

By satisfying markets you DO, in the end, satisfy the welfare of people.

Satisfying markets generates wealth, which creates jobs and incomes and profits, and return-on-capital,; all of which can then be taxed (either as "Direct" taxes when it is earned, or as "Indirect" taxes when it spent).

It is those taxes, and ONLY those taxes, which constitute total Public Sector income, and which can then be spent/squandered/invested (delete words that don't apply in your personal philosophy), by Good Politicians who we have collectively decided should be the people who set our moral compass....as we are apparently not able to do that as family units or individuals.

 

So, it is profits from Companies and individuals working to best satisfy markets, that pays for pensions, investment and savings returns, that provides all the State Pensions, every piece of National Health Care, that provides Housing Benefit and Jobseekers Allowance; and Social Workers, and roads, and Streetlights, and "Universal" education, and residential care for the elderly and infirm.

 

Yet those markets, that collective demand for goods and services, is itself made up of all of us, as potential consumers.

 

 

The thing that buggers Good-Old-UK plc in this otherwise cosy arrangement, is that the markets created and supplied are no longer simply internal.

An annoyance known as Global competition has happened.

 

increasingly it is NOT our internal suppliers who are able to best satisfy the demand from our citizens/consumers, but, (dash it all!) those wogs and chinks and Pakis and other Johnny Foreigners!

Their labour and material costs are far far lower than ours.....(that's what we like to say, but from their side, they see their efficiency as being much better than our over-paid bloated lazy approach).

We in the UK got rich 300 years ago by advantage of force of arms (and lower morals) by invading and occupying their countries, raping their raw materials and citizens, to feed our desire for greater wealth....that as a by-product funded our burgeoning Public Sector.

 

Now the pendulum has swung against us.

Those "Third World" countries have used and multiplied the few societal tools that the Protestant Priests etc amongst the Occupyers inadvertently gave them: education; infrastructure, services, communications, knowledge, skills........and are now using them to their advantage over the tired and (relatively) very very lazy UK/Western European workforces.

For their citizens, this is providing enormous increases in their standards of living, and the profit that they are making is being taxed to provide them with the beginnings of a welfare sector too.

 

At the moment, we are buying what they make/do because: a) we have FAR more accumulated wealth to spend; and b) we don't want to buy the same good-service at a far higher prices from indigenous UK supplier. We are simply greedy and self serving.

We pontificate otherwise, but as a species behave thus. Time after time. With utter consistency.

 

 

 

 

 

 

 

However, a VERY interesting thing is going to result in the longer term, a few generations downstream:-

 

The old West will run out of its accumulated wealth (many economists are arguing that that is exactly what is happening to the UK now, when it has to borrow more and more month after month, year after year, as its Public Sector has grown so fast and so big, that the wealth generated from its domestic Private Sector can no longer support its tottering financial weight and relative inefficiently.

 

Our expectations of being looked after by "the State" (read: taxes taken from others profit generation) have risen far faster and much further than than our collective profit-generations capacity to fund........

 

 

 

 

 

Then a Global change will ensue.....the Eastern, Asian countries, led by China, will become economically dominant. The old West will return to agrarian, peasant-like existence, with no Public Sector at all, as the unit of society returns here to be the family.

 

 

The global economic wheel turns full circle................all assuming that no-one blows us all to smithereens, or that oil does not run out (which would throw ALL human back into agrarian, peasant style society again), first.

 

 

 

 

 

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There is a lot of global 'levelling up' and 'levelling down' going on at the moment, but I don't think we will end up as peasants.

 

(Might invest some money in more garden tools though - just in case).

 

 

;-)

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Goodness me, haven't I set the cat among the pigeons?

But thanks, Brian, Bruce and Clive, for taking the issue seriously and responding so fully.

 

Just to be clear - I'm personally not suffering at all (yet!) from what's been happening, and I'm very much aware that the prosperity we in the West have come to expect as of right, is actually an abnormal state (and therefore probably temporary!). For almost all of human history, and even now for the vast majority of the world, "normal" has meant a daily struggle for survival!

 

However, in my line of work I DO see plenty of people who are feeling the effects of what certainly seem like real cuts to real jobs. One example for now: our local primary school is having to lay off several assistants. As well as the effect this has on them personally, this is likely to lead to a pattern of one teacher with a large class and no assistant, so no 1:1 or small group work. Now some of us grew up in that situation, and might well say "So what?" or even "Good thing too!" But that was in the days before teachers were expected to do so much paperwork, before during and after each lesson, and so much detailed assessment - not to mention Ofsted box-ticking! And I see no sign of any of that being "cut!"

 

Now I don't for one moment believe that those assistants - or the home carers who aren't making as many visits to the elderly, or many other kinds of workers who are being laid off or cut back - were ALL "non-jobs."

 

Trouble is, when cuts are to be made, those who make the decisions never consider cutting at their OWN level, only those below them. So every attempt to cut out waste and bureacracy ends up with the same number of pen-pushers but less "PBI." (Poor bl***y infantry).

 

And surely the ultimate "non-job" is someone who sits at a computer screen buying stuff that doesn't yet exist and selling stuff they don't yet own, making no improvement to anything except their own (and sometimes their customers') bank balances! However, as Brian says I don't see any way of "cutting" them - short of a full-blown Socialist revolution, followed by a controlled economy. And that didn't work either!

 

I suppose the real problem is what we call in my trade "original sin," so all we can do is be realistic about that, and ensure that there are enough checks and balances so that none of us selfish sinners gets it all our own way!

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Tony

 

I'm sure there are a lot of " non-jobs " in the private sector, but I'm not so sure that we should cut them.

 

If they are making a lot of money, and paying their taxes, surely they benefit society.

 

 

 

 

 

 

 

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There is a simple reason for "Non Jobs"

 

A person with high aspirations becomes the manager of some local government office. with this promotion his aspirations get even higher, the guy in the next office, manager of another small department empolys more people than him and so has more responsibility.

The newly promoted guy cannot get more staff because he has all the staff he needs to do the work of his department so he dreams up a new "Non Job" so that he can employ more people and make his department bigger but alas the manager in the next office further down the corridor has more staff than he now has so he dreams up a new "Non Job" so that he can make his department even bigger and so on and on it goes.

 

A serious question.

 

Where will we stand when we sell all of the bank shares that we are now holding and just how many billions are they expected to be worth over and above what we paid for them

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What I think we are seeing is the unfolding of an inevitable process, largely as set out by Clive and Bruce. Our present problem is that the economic crash has accelerated the rate of change in a very uncomfortable way and we, among others, were poorly prepared for the shock. We had accumulated too much debt, largely, under our political system, as a result of having had the same party in power for too long. That belief in their omnipotence that politicians seem to develop when they are too long in power. It happened to be Blair/Brown, but I doubt whether other combinations would have been better overall, just different. Hubris for all? :-)

 

Globalisation is allowing some of the rest of the world to grow economically much faster than us. That is not so surprising as, once they have the means of production, and access to the markets, their inherent cost advantages give them an enormous edge. They started from a much lower base, so the rapid growth, based on our wealth, is somewhat inevitable. However, their growing wealth means their expectations (and their internal consumption) rise, and they too, begin to want to benefit from their wealth just as much as the rest of us. It is true, but no more surprising, that we westerners are comparatively complacent. We mostly have what we want, so are less inclined to graft for more. I caught a neat quote from a Greek politician the other day. She said that our problem was, largely, that too many people, had borrowed money they didn't have, in order to buy things they didn't need, in order to impress people they didn't know. That seems to me to be about where we are.

 

We have grown until we are sated, yet are continually exhorted to consume more. We are becoming bored of the endless consumption, and the clutter it brings (which incidentally raises one of the pleasures of getting out in one's van, the van is a luxury, but the living is again simple :-)), and want a simpler, cleaner, existence. We are becoming wise to the ploys of the behavioural psychologists who try to influence our expectations to acquire this or that, and to change our workplace behaviour just so. It causes stress, which also has its price.

 

The undeveloped world has, at present, all these pleasures to anticipate, while the developing world is beginning to experience them. For those with no money, money is all. But, as they accumulate wealth, I suspect most reach a level of satisfaction with their lot, and that the appeal of money will dwindle, just as when one is hungry, and eats, one is eventually satisfied. Man is inherently lazy, and is generally inclined to do only what is necessary to survive in relative comfort.

 

So, we have reached a plateau of comfort, to which the rest presently aspire. The question is whether they will be as us when they get there, and lose their hunger, or whether they will allow themselves to be driven ever further and faster. But in search of what? How many cars or homes, and how much food, equates to satisfaction? I think they will turn out just like the rest of us, and reach their level of satisfaction somewhere around where we are at present.

 

Whether that will be achieved will depend on many things, on population growth, on food production, on availability of energy and raw materials, and on good governments. On these, I'm less optimistic, but if it is to happen, we will definitely need to change our models to be able to accommodate others at the top table. If it is not to happen, then I think the outlook is truly bleak.

 

Big debts need not present insurmountable barriers. Of course they must be brought under control, but we should not beggar ourselves in the process. Our way out is through growth, so that the cost of the interest payments, as a percentage of GDP, diminishes over time. The scale is orders of magnitude greater, but the process is no different in principle to paying off one's mortgage.

 

Our challenge, as an individual country, is to become a bit more like (for example) Germany, with more, and better, productive, wealth generating, export oriented, industry, and rather less high-street based consumer oriented, home market focused, commerce.

 

We have to get, or get back, a reputation for high quality products at fair prices, in markets we can serve. For too long, it seems to me, we have pursued price rather than quality as our USP, and then tried to defend the product by saying, in terms, "but what do you expect for that price". On this basis, one by one, our industries have floundered, being given the coup de grace by Thatcher's extreme remedies in her attempt to counter union power. From that, with the "big bang", we diverted our economy to "services", meaning, generally, financial services. The consequences of that change, we can now see too. Easy money is its own lure, especially for politicians, and while the good times roll, no-one will call time on the party. Just like a stock exchange bull market, it goes on too far, and for too long, and then implodes. Which, in essence, is where we are today.

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Guest pelmetman
Brian Kirby - 2011-05-27 3:59 PM

Pelmet Man is inherently lazy, and is generally inclined to do only what is necessary to survive in relative comfort.

 

 

You have sussed me out Brian :D

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Reading the above comments have been both interesting and constructive. Without trying to suggest any of them are incorrect, may I offer my own opinion/asides on the situation outlined, and a few comments on some of those made.

Many of the posters have logically looked at the current situation as one where a debt has arisen, and therefore needs to be cleared. This is one that faces us all every day of our working, and otherwise lives. If we borrow a few hundred pounds from the Bank and do not repay it, then all Hell on earth is let loose against us. In a real world if I wish to borrow a pound from a citizen, then they reach into their pocket, take out a pound coin and give it to me. I then return the coin when due with a payment for the loan. However, a bank does not work that way. It lends you a pound which it does not have. No bank actually has any money. Any deposit money has been ‘invested’ elsewhere. It borrows the pound from another bank at a higher rate of interest, who in turn borrows from another bank similarly. The bank at the end of the ‘chain’ does not actually have the pound either but states it has some assets, of which it knows nothing, which it revalues on paper, therefore giving it a pound to lend. Each transaction allows the individual bank to declare itself a bonus for the ‘profitable’ transaction. Of course when those assets on which it is all based are found to be worth not the inflated valuation then things get a bit wobbly. Of course if you look at the bottom line then only 1 pound has actually been lost, but the fees, bonuses etc created along the way make the final debt huge. However, we are talking about a huge country here, not a single being and things therefore get a little bit screwy. Let us look at the situation in Greece for starters. There the economy is a basket case as no one has ever paid their full taxes for generations and on top have a system where everybody retires at age 52 and then gets another job. What the EU has done is lend them more money, at high rates of interest, just to allow them to pay the current interest due. Of course the faults in the system are not being addressed so it is a bit like getting a consolidation loan to pay your credit card off, and then keep using it. Anyone who actually believes that Greece will pay off its debts is living in cuckoo land, it will just not happen, so then what? What will happen is that the debt will be written off, either in terms of a ‘haircut’ or by being postponed for repayment for so long, it will cease to exist. So, who pays? The lenders of the original debt will not get their money back and that includes the Uk either through the Government or the Banks. Will the Greeks ever pay? No, of course not. They will riot first and nothing will be achieved. Of course as soon as they do this, the Portoguese and possibly the Irish will follow suit, possibly not with riots but certainly defaults. So, is this necessarily a bad thing? So, the Germans lose some money. Well, they should not have lent it in the first place. They knew there was a risk as with any loan, didn’t they? The banks will lose, again they knew there was a risk, or was that not why they pay bankers expensive salaries to look at the risk?

Looking at my first example of the pound in a bank, if you eliminated all the fees, bonuses and fake interest charges then the actual debt is quite small relatively. Similarly if a country were to eliminate all the fees created by various institutions and stated it would clear the capital debt in due course, then most would be able to achieve this. Therefore my hypothesis is why does the UK not do the same. Declare it will pay back its capital debt and all interest charges are to be written off. Our national debt would be reduced dramatically. OK, the banks would lose all the paper trail fees they have created for themselves, but would anybody actually care, except the overpaid bankers. The UK has written off 3rd world debts easily enough in the past, as they knew the interest would never be paid, so why not us doing the same? Some will argue that if we do so, no one will sell us anything. I disagree. With a market of 60 million people there will always be traders willing to trade with us. We do have money, it is just it is all being used to pay interest and fees for nothing. Our credit rating may fall, but so what? If we do not borrow, we cannot be in a position we are in now. Of course it would be very helpful if our Government would stop borrowing even more cash to give away to other countries. What mindset created that idea is beyond me, and I suspect most of the UK population. We do have a trading industry although reduced by various actions through the last few decades. Most of our dinosaur industries of the 70’s died because they produced things no one would actually buy, nothing to do with Thatcher. Who actually enjoyed buying a Leyland car or a UK tv set? No, they all rushed out to buy Japanese because. ‘the quality and reliability is better’ Says it all really. We do still produce good cars but under the badge of Nissan and Honda so one has to ask where did it all go so wrong back in the 70’s, or was it working practices and once these were modernised ‘a la Thatcher’ then yes, we can do it, just not by ourselves.

 

So, the bottom line is that if the Uk stopped trying to be all things to all people, and stopped trying to be a world power when actually everybody is just laughing at us (the Obama visit was just excruciating in how he used it just as an election propaganda exercise and our lot were s’’’’’’g themselves to fawn over him), then we may move forward. Would this affect the value of the pound? It certainly could not get any worse. But as we would actually have some assets again, then the value would rise. So, let us all be good Europeans and tell them to stuff the debts where the sun does not shine, and be happy. If it good enough for the Greeks, then why not us.

 

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Guest pelmetman
Have to say Dave has a point there :D ........What are they going to do to Greece or any of the PIGS if they refuse to pay (?) ..............Can you repossess a country :D
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