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In the UK;

So far this year all the usual large net buyers of gilts (Insurance companies, pension funds, overseas investors etc.) were all net sellers of gilts, (source DMO) and the only large net buyer was the Bank of England (source DMO).

The Maastricht Treaty Article 104(1) forbids Governments borrowing directly from central banks, and the Bank of England has so far spent 99% on pre-issued gilts and only 1% commercial debt. (source BOE)

It is now crystal clear that Quantitative Easing is a method of funding Government without officially breaking the rules.

Robert Stheeman (The head Chief Executive of the Debt Management Office) gave evidence to the Treasury Select Committee in early this month and confirmed that they were cooperating with the Bank of England in the gilt market, but that when Q.E. stops, there could be a problem selling gilts.

If you pump £200 Billion into the economy, that by the way is £2,000,000,000.00 how come credit is so tight? Why are companies still complaining about the lack of credit?

Come on, are we still expected to believe that QE is about helping the economy?

In Japan they are saying "things may be bad here, but at least we are not Britain".

I have started to form the view that the UK actually has experienced a step change in capacity. I am convinced the economy adjusted to the freewheeling credit boom and established a structure that was dependent on easy credit heavily dependent on retail/financial services. As SF points out Japan at least has the export industry to pay off any external creditors by running a current account surplus. We in the UK have consistently run external deficits, and so doing the economy has become dependent on paying off external debt with financial services income and selling off ownership of businesses. We should expect financial services as a sector to shrink. The above interpretation is arguably an over simplification. However, nobody is spelling out the shape of the economy in the long term - have we got the businesses, capital and skillset that external customers want to pay for? - If not we have a massive overcapacity in working age population geared to skills which will not contribute to paying off the debts incurred in the last year. Potentially a wrongly skilled economy may prove to be a further debt drag by adding to safety net spending. In short, what are our working age population going to be productively doing 5 and 10 years hence, that will pay off the debts of the bank rescue?

To Ms Flanders

I would like you to prove to us bloggers that there in no problem funding fixed interest government debt, unless you use QE.

Now Mr Peston's article on RBS bonus's was guaranteed to get bloggers shouting. But it's really not the main issue. Come on Ms Flanders, your country needs you.


And as regards policy makers:

Adam Posen, a member of the Bank's Monetary Policy Committee, reckons that the Government should consider extra taxes on British homes, suggesting that in future homeowners should have to pay an extra tax if prices rise too fast.

So if the Bank of England increases the money supply by Quantitative Easing, we then have to pay more tax on the home we already own because it has increased its price by printing more money.

Policy makers, don't you just love 'em.

The fact is that in Britain and the rest of the developed world we are going to gradually have to come to terms with the fact that our living standards are going to level out with the rest of the world. We are no longer going to enjoy stratospherically greater material wealth than the majority of people on the planet.

Well, we've had it pretty good for what, the last 500 years or so - that's not a bad old run is it really?

Hi Stephanie

Thanks for this useful update. Events in Japan have been very concerning for some time now. I have been following the story in recent times in the FT and online on notayesmanseconomics.wordpress.com both of which have a lot to say on the subject.

I hope we do not follow Japans example.

3. At 5:10pm on 02 Dec 2009, tonyparksrun wrote:
As SF points out Japan at least has the export industry to pay off any external creditors by running a current account surplus. We in the UK have consistently run external deficits.......
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I remember that when I was a child in the Harold Wilson years the news was always mentioning Balance of Payments. When did we stop caring about this figure?

Hi Stephanie

Good blog and good to see we've caught up in actually recognising Japan's troubles (though as you rightly point out some economy aspects are more advantageous than here).

Of course, spin in the media has been that our debt is 'comparable' but then doesn't go on to cite the particularly suffocating downsides as can be seen.

At the risk of repeating myself ad nauseam the impact of Japan's quantitative easing is very very questionable over the last 20 years (see Kao's book on the subject). So what does the BoE know that we don't (apart from smoke and mirrors)?

Everybody likes to point out that this time we're being different about handling real estate and lending toxicity as Japan belatedly did and yet we proceed to do exactly the same by not crystallising value losses early enough (see as an example recent EU ruling over delay of new accounting rules) in the hope that economies will recover and it can be done gradually. This is where inefficient allocation of resource macro-economically occurs.

Which bit of self delusion are we not practising?

By the way interesting to see that the cost of insuring uk's current debt is more expensive than McDonalds..........what does that tell you? (still not quite Ukraine and Greece levels). But hey Dubai World's was pretty low up until two weeks ago......

Economist, with their made up numbers and forecasts based on the hopes of future consultant contracts.
Japan is unique in that the culture provides for some sense of shared sacrifice. Also, the government is providing increased cash payments to families to ease the current economic situation and once these funds circulate in that economy things will get better. The UK and US gave the money to the banks, and surprise, nothing happened in the economy, but bonuses were paid. I would think that Japan will solve the matter before the US or UK as even the corrupt in that culture identify themselves as Japanese in a cultural sense and feel some obligation to the national well-being, unlike their Western counterparts. Maybe one day the economist and the politicans will understand that the economy is not driven by banks but by consumers...but of course there are no speaking engagements in that.
The banks diminished individual accounts through basically a process of fraud.
The government with the responsbility to insure that banks did not commit this kind of fraud failed to do so.
The government gave the banks money because their scheme failed and want the taxpayer to provide the funds they have given the banks that fraudulantly lost our money.
The government and the banks want us to go to the banks and borrow the money that is already ours and that we must pay additional taxes for. And not to worry about your reduced retirement account, you should be borrowing from the banks that lost your money so they will do well. This is all for the "national interest." Fairy tales as public policy designed on the charts of economist. Can't understand why this isn't working???????

I am confused, not an uncommon state for me.
I have family connections with Japan. I really cannot see any of the woe and misery which you (and others) seem to ponder and even worry over.
It is possible I am missing something, but so do, it seems to me, most of the Japanese part of my family.

Smoke and mirrors to me. hate to touch sensitive subjects but to me, bad is hiroshima, bad is london in the blitz. To get we are now we have actually dragged the nation and quite a lot of the world out of some very large holes.

Course it means there is a long way down but how bad can bad be? It can't be worse than the ultimate and premature mortality of lots of people. and buildings. We didn't bat an eyelid when we put millions of cattle up in smoke in ditches did we?

For some of us poor economics might mean the end of our little constructed fantasy worlds but I mean the majority of us are not shambling around in the streets with rags on our backs. Whatever situation we're in we always have a choice and an ability to act and change things as we wish. We build and destroy, all depends in part what others are planning on doing to us, outside of our control.

I can imagine horrific but I can't see that it can be any more horrific than what has happened in the past. Horrific might mean we can't afford to be lazy any more.

What I don't relate to is the histrionics we're just accustomed to things and people complain when they must change their habits. break a fingernail and it's a disaster? don't think so.

I just don't think people get it. We're still dreaming that everything is wonderful all the time. It's not the situation that's wrong psychology plays large part in this synergy, the relationship between us, others, the world, the environment and economy.

I've met people who throw a wobbly at the slightest criticism and other people who just don't notice if you break a plank of wood over their heads.

People get upset I've noticed if I look a bit rough and ready sometimes I dress down just to observe peoples reactions. It's incredible, truly it is they recoil from you like you're diseased or going to murder them on the spot.

We are shallow we make shallow judgements, shallow decisions and act like we have the memories of goldfish. We know what the drama's about you're as good as your last act and that's about it.

Some people make their way by being a bit sharper, at the end of the day life is a journey of discovery for people, we are only emulating what others have done. We want the nice experiences all the time but life is a mix of happiness and sorrow and will always be for all people everywhere.

Bankster pranksterrs can not write off more than their basic tier one capital without ceasing to exist , so they [to maintain the illusion of solvency ] sell their toxic AAA's holes to slip streaming governments who are also indebted and fearful of deflation turning debt hills into debt mountains ,that they eagerly comply .

What is left is an unsustainable fiction of politico/financial interests that conspired to eat the golden goose after stealing its eggs in the form of bonuses and have nothing left but dead goosys wishbone to inflate their horn of plenty and maaarx1st "duck soup"



Governments at some point will have to prevent notional gains on property sustained through QE AND OTHER MEASURES ,being realized by those who wish to sell up and amigreat[or am i not] to Brazil or non indebted nation

National debt will be firmly tied to the national property register/s

{Property wealth that has dramaticaly diverged from the ballooning national debt will be forced to converge with it . }

as will individuals welfare consumption bill plus compound interest with the householders liebillatease being realised on his death by the hungry state or foreign investors if so promiced when fiat currency and its derrivative fictions cease to be concidered a secure tradeable asset.

Fiat currencies have been used to maintain permanent spring time environment fostering superbug errs within the statAAAs QUEUE THAT WOULD NORMALLY DIE AT THE FIRST WINTER CHILL.

7. At 5:27pm on 02 Dec 2009, KitGreen wrote:
3. At 5:10pm on 02 Dec 2009, tonyparksrun wrote:
As SF points out Japan at least has the export industry to pay off any external creditors by running a current account surplus. We in the UK have consistently run external deficits.......
-----------------------
I remember that when I was a child in the Harold Wilson years the news was always mentioning Balance of Payments. When did we stop caring about this figure?
hhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh



The reason that governments do not worry about trade deaficits is because they are recycled within our economy through public sector borrowing THEM in exchange for guilts.

Effectively the candle is being burnt at both ends ,with the city collecting further fees and comissions arranging it .


Government has used the trade deficit[recycled johny foreigners £iou] to finance a large part of the farewell state and then boast about their accomlishments ,this also maintains a strong pound by recycling pounds that would otherwise be dumped onto the exchange markets.


JOHNY FOREIGNER WILL WANT HIS £'S BACK FROM GOVERNMENT AND ONCE HE HAS THEM HE WILL EVENTUALLY WANT TO EXCHANGE THEM FOR OUR GOODS ,only Gordenialism refuses to reccognise this sobering reality.

Stephanie..I agree with most of what you say(although you will probably never read this)..I think the problem is though..in truth..when you cast aside the smoke screens of propoganda & hype..you CAN..only come to 1 conclusion....we ARE indeed heading for a massive financial tsunami!!...the like of which we have never seen before..& if we do not get our heads cut off by revolutionaries... are unlikely to see again in our lifetime..we did not heed the WARNING 1st time round so now its time for the lid to come-off the pressure cooker...so..for what it is worth...buy Barclays 280 February puts....and just..hope..against hope.....Perhaps it is time for things to take their course..our financial system is rotten to the core with corruption & double standards with starving millions throughout the World whilst my mate is earning £2M pa in bonuses..he was 1 of those who got us in the mess 1st time round & now RBS wants to pay them even more..what was that??..couldn't organise a p--- u- in a brewery..ok but maybe this time..mmm.sorry..something very wrong somewhere...The Establishment!!

''So Japan's example provides yet another reason for Mervyn King to bang on about the need for a credible plan to bring down public borrowing.''

And why did Merve the swerve not 'bang on' about problems before they happened instead of swerving the whole issue and voting against interest cuts. Strangely wuiet then it would seem. There is no way around this problem other than a mix of inflation, cuts and taxes. Ah yes, better late before never is better than never before late.

There will be no credible plan before the GE, and the question is will there be one after it.

The key problem is beneficaries of services have to de facto vote for cuts and taxes. So the problem is political not financial. dealing with the finacial problem is fairly easy to identify, the political problem is a minefield, I dont want mine touched, thats mines mine. The most likely model is a 5 year taper. Will things stick to the taper though. Most unlikley unless things get lucky.

8 rugbyprof

'By the way interesting to see that the cost of insuring uk's current debt is more expensive than McDonalds..........what does that tell you?'

We've been burgered.

But keep up the ad nauseam.

Most of the media blogs appear to be tools of the governments to prepare everyone for a tax increase. The governments have lost all connnection to the people who elected them and continue to show them no respect by offering these forecasts by their economist who offer numbers with the same reliability as their numbers of the endless economic growth. It is interesting that the media refers to the "boom" rather than called it a fraud designed by bankers and investment firms. Also, no call from the media for accountability for those who caused all of this. Just wouldn't be proper to have a banker or elected officials put in jail at a time of economic crisis. Everyone in the West was told that opening China would be an economic boom for the West. Maybe for a few big companies and banks but for most it has created job loss and inferior products and sometimes dangerous products, but the main point is that they lied, again. The West needed to engage China we were told but of course the first step was to tell China that human rights would not be discussed, nothing about labor laws or letting their currency be valued at a correct rate. Would be best to scrap all the Western governments and start all over as the fumes of corruption are probably a primary cause of global warming.

13 sparty

I preferred the ol' sparty before you wore odoureaters around your neck. Put a bit o' glue in the keyboard ol' boy, no bouncing reality cheques please ; )

#16 glanafon

I'll take that as a compliment......

The real crippler is that Japan has been on this treadmill now for close to 20 years with no sign of getting off.....

And the resonance is that when you add in UK's off-balnce sheet financing and public sector pension liabilities we are in Japan's 180% GDP debt leverage ball park (that's without any option price of bank toxic potential write-offs)...

It's a little scary. The point is at some moment all's an economy can do is eventually reboot but with massive fallout not dissimilar to the much smaller but similarly consequential Dubai World fallout we are seeing but on a sovereign scale....

Is this the Derren Brown blog? Full of misdirection, sleight of hand (well word), and fake imagary.

So let us think what Japan and the UK have in common. Both have open ended commitments to an unwinnable and uncosted wars? No. Maybe both have exploited a large natural resource base that is now in irreversible decline? No. OK so both have a strong export orientated manufacturing base? No.

Ah but Japan ha muddled through for a long time now, but wait wasn´t most of the rest of the world going through the mirage of a boom for most of this period? Oh yes so it was, but what difference would that make in a non linear dynamic system? Who knows, but it can´t be important otherwise someone would try to report it.

I note that gold has burst through the $1,200 barrier - but that can´t be important otherwise it would be reported. Luckily the US economy is being managed by people of skill and experience. People like Laurence Summers whose skills are so self evidently obvious that only a fool would dare to examine the academic record on which this skill base rests. Luckily the Â鶹ԼÅÄ are not fools hence they do not waste time by examining his intellectual thoughts regarding the gold market. No need to look at evidence let us just assume as an article of faith that a rising gold price signifies nothing of interest to anyone. Much better to look for the commonality between the UK and Japan. Maybe they are 2 countries that are both located offshore Europe. Oh so true except for Japan, or should that be the UK - geography is so tedious. Who cares about facts or evidence?

What I don't understand about deflation is that why is money not simply printed, given to the populace, and that would stimulate demand and cause inflation?

8. At 5:49pm on 02 Dec 2009, Rugbyprof wrote:

By the way interesting to see that the cost of insuring uk's current debt is more expensive than McDonalds..........what does that tell you?

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Looks like we've had our chips....

#Spartacus... Now listen here old boy, Johnny F is not about to be allowed access to any residual value attatching to sterling. God has made you safe from all pernicious influences. Remember the words of Cecil Rhodes "Always remember that you, as an Englishman have won first prize in the great lottery of life." (He said many other wise words - Glanafon please let me know if you would like a full range of Cecil quotes - I note he is conspicious by his absence from your normal sources of great quotations throughout the ages)

Now where was I? ah yes money and value. No sorry all you will get for your sterling is the threat and/or actuality of being bombed. A much more real threat now that our transatlantic cousins find themselves in the same sad pickle, but remain armed to the teeth. Look at those Persians....(or maybe Parisians, its almost an anagram so it is close enough)

"Oh how I love the smell of Napalm in the morning" - Is that not also a quote?

I'm nowhere near an economist, nor as well informed as many bloggers or to Stephanie Flanders, but maybe some of you out there can help me in one of my wonderings.

It seemed to me at the very beginning of the credit crunch, that the only way to restore confidence and therefore a way out, was for governments to pass legislation that at the very beginning, forced UK financial institutions to open up their balance sheets and almost have a 'bad debt amnesty'.

Could this have been possible? Wouldn't it have helped address the crisis and therefore have put all onto a route to recovery more quickly?

Would love to hear thoughts on this because it occurred to me even before the full crisis became apparent and has been bugging me ever since.

Curse of the Zombies.

Propping up Zombie Banks by transferring liability to tax payers via QE is just a long night of the living dead.

Banks can't lend , public and small business can't/ won't borrow, everyone lives in fear.

Someone is going to have to swallow some losses - Banks, Â鶹ԼÅÄowners, Investors, Savers and Business too.

UK can trade and inflate it's way out of debt, but we need to drive some stakes through the Zombie hearts before dawn breaks.

19 rugbyprof

The facts are available sufficiently that any joe like me can see the basic problem, but not many want to look. Meanwhile Gordon says - Can I supersize that. And anybody knows what that does.

A few more ad nauseams help somehow. To infinty and beyooooonnnnnd.

The following is a legal advisory note issued by the United Peoples Front

We at the UPF having considered the issue currently facing the RBS in respect of its forthcoming bonus payments and the legal implications of the same, and having consulted with our lawyers now issue the following advice.

The payment of monies hereinafter referred to as bonus payments to members of the company known as The Royal Bank of Scotland Group would be illegal.

The citizens of this nation having made available to the bank money to prevent its collapse are similarly aware of their duty under the Human Rights Act Article 2 (Everyone’s right to life shall be protected by law. No one shall be deprived of his life intentionally).

We are also aware that the National Health Service, hereinafter referred to as the NHS, is short of funds and there are those who by virtue of the shortage of funds may lose their lives.

Our legal advisors having been so consulted, are of the opinion that the Humans Right Act in this instance takes precedent over bonus payments to employees and/or self employed persons engaged by the RBS.

In that such monies given over to the said employees and/or self employed at the RBS would prejudice those in need of life saving care.

As a consequence of the above we at the UPF recommend that whilst there may be an obligation in contract law regarding bonus payments, the Human Rights Act does in fact take precedent in this case.

Great, a graph with three tyeps of blue, none of them distinguishable from the other...

That clears things up. :p

23 arm n leg

I am please to see your uptake of quotes, it has grown recently, all this long distance blogging is all knocking the sharp edges off you. Rhodes - no, I avoid quotes about Rhodes, and Clive of Market Drayton, sorry Cive of India. Or Leopold of the Congo 'Free' State etc etc. I wonder why.

Anyway, any thoughts about a house scrappage scheme to encourage building activity. Or - Do you think the EU would object to a renewal of the King James act to enforce hat wearing to keep people employed making hats?

Before my serious economic comment is reduced to a pile of empty Mc-cartons I see breaking news of RBS board threatening en masse resignation over bonus rights.

Mmm - that didn't last long then. Obviously some posturing but the circus takes a new turn.

Next question:
If Japan's QE has failed to stop the emergence and re-emergence of deflation given the similarities with the UK (and also some differences for example we are much more reliant on inflationary imports) is the UK heading for deflation, inflation or stagflation?

This one has been vexing for some time.

Real estate is heading downwards as are commodities (gold the exception).
Energy going up.
Basics going up (due to import prices through weaker sterling)
Basic wages frozen or going downwards certainly when PS restraint kicks in
Interest rates? Ah - staying low but will have to rise due to market pull (we're no longer in control)

Previous recessions have seen the emergence of one of DEF, INF and STAG. This time it looks like all three in some form. It's nice to think that they cancel each other out in a kind of 'Merv type of way'. But that's too simplistic isn't it?

If you put three voraciously hungry sharks in a sea-cage you don't get peace and tranquillity do you?

Or have we got a giant game of paper, rock and scissors going on?

Anybody want some fries?

Matt Durbin #21

Absolutely correct. But there are no consultant contracts in that and no bonuses for bankers and no corruption for politicians, so you see that simply cannot be done.
The Japanese are making some direct payments to families and talking about eliminating toll roads to provide the consumers with money to spend. Seem to be the only ones that are not being held hostage by the bankers or with the sense to understand how economies work.
We live in complex societies: definition: so corrupt that a great deal of effort is spent to hide the corruption.

I will simplify the previous post No.27

The question is……….. do bonus payments come before peoples lives?

The poor soul waiting for life saving treatment at his/her NHS hospital is denied it, because tax payer money is going to pay a bank employees bonus.

In God’s sweet mother earth, is that reasonable?

Stephanie

An interesting piece which has a very strong underlying issue (which I will come onto later) but it just goes to show how different analysts can show different perspectives from the same/similar set of data:



This I think is how the UK's governments' national economic position should be shown in the same style and format as in the above links as masterfully set out by Sean Corrigan.

As I have been saying in one form or another for nearly a year now - the 'devil is in the detail' and strip out the Government/QE and then see where GDP and the economy really are.

I don't think that anyone has done this for the UK yet but in relation to Japan, Cobden says:

'It shows that the current GDP recovery that has been reported widely in the press for this country, when you strip out the Government part of the economy, has actually gone backwards for 6 successive quarters.'

That is getting the real big picture!

When Gordon Brown accuses other politicians of talking down Britain - the talking has not even started yet and as I have been saying strip out the government and GDP and then see how the country is doing - probably on the same course as Japan as having some underlying similarities as relying heavily for fuel and other imports.

The other issue, when this kind of analysis shows that despite of all the bail outs, debts, QE, fiscal and other stimuli for the economy - after all this the underlying economy is still falling - Where does the UK go from here?

An urgent reality check and reliable statistical analyses of what is happening in the UK are desperately needed now to see what the devil is in the detail as the true economic position of the UK is still shrouded in spin, toxicomic, taxonomist megalomaniac New Labour rhetoric.

We've a right to know and the government/BoE/ Treasury have all this information (having paid millions and millions in fees on rolling contracts to City analysts, to provide this at taxpayers’ expense) in abundance and the tri-partite conspiracists deliberately hide this all from the British public.

This is another major scandal which rivals the MP's expenses fiasco and is more expensive and is just as damaging to the UK.

#29 glanafon. Ah yes houses.

No need for a scrappage scheme, you just need to learn creative acounting. Where I live we have 1.6 million empty houses but are still busily building more.

Just near me someone has built about 100 houses, all of which are empty. The developer departed these shores sometime ago and the houses are now owned by a well known bank.

Looking to mimic the rich (well who wouldn´t) I thought I would make an offer to see if there were bargains to be had. Oh no Sir we can´t do anything like that otherwise we would need to revalue all of the other houses at a much lower price and that would inolve booking a loss.

But no-one will buy anything at these prices. Oh we know that, but it´s better for the accounts that we don´t actually sell any of the houses, unless someone will pay full book value - which they won´t. That is why we only pretend to market them - we have to do that to comply with the law that allows us to carry these houses on our books at something over 3 times the price that anyone would pay.

Sounds promising - just multiply that up and it´s oh so easy to see how recovery is fully underway, and everything is under control.

34 arm n leg

House scrappage scheme scuppered then. Down to caravan scrappage schemes then, not the camel type.

Houses on the way up it is reported, if real must be crazy people about buying with a forecast of -6 percent next year.

All very Alice in Wonderland, no I wont quote. But it does take great skill to see nothing.

30 rugbyprof

Thing is - in the muck n flurry of all this stagnight def-inf-lation the next recession is only a decade away on the historical cycle so do we get an up before we hit the down. Assuming that the UK is best placed - as judged by Gordon Blair - and other countries do get a bit of an up against the UK

Japan may have made mistakes - but they also make goods that people all around the world want to buy. That will stand them in good stead...

I will simplify the previous post No.175 & 195

The question is……….. do banker’s bonus payments come before peoples lives?

Well do they, has no one got an answer?

Imagine your child’s life was at risk and needed treatment, and such treatment is no longer available because your taxes had been used to pay a banker’s bonus.

What would be your reaction?

If you believe your child’s life is less important than a bonus payment for a banker, then do nothing and let it happen, and live with it.

And even if you don’t have children consider, would your parents rate banker’s bonus more important than your life?

Well would they?

The Japanese abandoned their way of life because it failed them.

It looks as if our way of life is failing us, so maybe we should learn a few lessons from them, while there is still time.

38. Dempster

This is what it boils down too, its judgement time, they need to be brave enough to make the only right and fair decision

no bonus , nothing at all
I had to check I heard it right on the radio that a select mp committee were putting pressure on network rail exec's not to take a bonus, they dont realise how obscene they are

18. At 8:17pm on 02 Dec 2009, glanafon wrote:
13 sparty

I preferred the ol' sparty before you wore odoureaters around your neck. Put a bit o' glue in the keyboard ol' boy, no bouncing reality cheques please ; )

Glan


Martyraaas is resting his retarius at the moment, paaatching his net and hohoning his tridentine mass so that it will be up to giving the QE'r Gladioliars crew bulbs a forking they will never forget during their winter of discointent dancing arround empty musical chairs after the music dies.

I shall tell him you called ....and by the way who shall i remind him he was/is....it must be done before he aaawakes

What is the point of trying to compare the Japanese situation with the UK? The two economies have far more essential differences than they do similarities. In the same way we cannot truly compare the UK with either France or Germany. If we are to engage in useful analysis then we have to turn towards the global elements that are effecting all of our economies.

To my mind the major elments are our understanding of what wealth actually is and its relationship with debt. Until we forgo the sophistry of the wealth generating system as it is currently enacted we have no way of avoiding the continuation of this depression.

As an example, let us consider the RBS bonus problem. It would appear that a majority of the general population of the UK agree that the stance of the board is not acceptable. When the rest of the working population are losing their jobs or having to accept pay cuts or freezes it does not appear ethical to pay bankers large bonuses to the very people who caused the problem in the first place. If the individuals concerned do decide to leave RBS then so be it. For too long we have accepted that those who 'create' wealth without adding real value should be prized and cossetted well beyond the 'norm'.

We need to question the true value of the markets themselves. Do we need to have 'open' commodity markets and therefore create the opportunity for gamblers to use them for their own benefit? Merely because the financial systems have grown like toppsy and employ ever more 'clever' models does not mean that they are fit for purpose. We need (as far as possible) to get back to basics and re-design a system that actually works for the majority rather than the few.

I can see years of stagflation for most western economies, no credit means no sale, no job means no purchase its fairly obvious the QE cash should have gone directly to the families to boost consumer spending and prevent house foreclosures. Handing it to the banks has just reduced there losses as they cling on to the cash, it was a fatal mistake which did not boost consumption at all.
The numbers for the banks got massaged and the bosses still got there bonuses , it covered up a mess which is still there bubbling beneath the surface.

|It is essential to increase public debt now to avoid another Great Depression Paul Samuelson said yesterday, this concurs with the view of colleagues on the board of the Cambridge Journal of Economics.

#2 "In Japan they are saying "things may be bad here, but at least we are not Britain"."

Damn right, they aren't !! They still have Toyota, Honda, Nissan, Mazda and Suzuki, to name a few. There are *NO* British mass-manufacturing car-makers in Britain any more !! The last one, Jaguar Land Rover, was flogged to the Indians some time ago !!

Then there's Sony, Toshiba, Hitachi and the ever-ubiquitous Matsushita Group (now re-branded as Panasonic) that fill the world with household electronics !! The nearest equivalent we have is Dyson who moved manufacturing to Malaysia a couple of years ago !!

And they have their bullet-trains that are fast, efficient and bang on time. Meanwhile our horrible lot crawls along and gets there *when they feel like it* !!

Dear Ms Flanders,

"Continuing a long tradition of bickering between central bank and finance ministry, the finance minister, Hirohisa Fuji had been pushing for more traditional quantitative easing"

Actually, his name is Hirohisa Fujii, with 2(two) 'i's in his last name !!

Just thought you'd like to know !!

#7 "I remember that when I was a child in the Harold Wilson years the news was always mentioning Balance of Payments. When did we stop caring about this figure?"

When Old Bushy-brows Healey discovered how easy it was to borrow to cover the deficit in the Balance of Payments. This led him to go cap-in-hand to the IMF for his £6 billion millstone around his (and our) neck !!

41 SpartacusmartyrAAAs

''winter of discointent'.

That was some time ago, this is the Winter of our discount tents, manufactured in China ; )

#10 "It is possible I am missing something, but so do, it seems to me, most of the Japanese part of my family.It is possible I am missing something, but so do, it seems to me, most of the Japanese part of my family."

It is part of the Japanese culture not to disturb the "peace" or "well-being" (I believe it's known as "wa") by raising ugly facts. Just have a tour of the Tokyo parks at night and see those people sleeping rough because they are ashamed to "burden" their families when they were made redundant !! Look at the number of people passing by and count the numbers that "cannot see" them even thought these people are sleeping on park benches 2 feet from them !!

Every country has its ugly sides. There is *NO* paradise on Earth !! Even the Garden of Eden had a snake in it !!

That said, the new government of Japan may actually break the cosy cronyism between government, big businesses and the moneyed classes that had burdened Japan since after the Second World War and had contributed to its massive national debt !! There is much hope for Japan !! It's still early days yet !!

#16 "We've been burgered."

(retch !! retch !!) :-)

#19 "The real crippler is that Japan has been on this treadmill now for close to 20 years with no sign of getting off....."

Japan had been on this treadmill since after WW2 !! In the early days, they needed it to rebuild their war-shattered economy and occupation. Then the Communists kindly and generously helped them by starting a war in a nearby peninsular and Japan profitted from prostitution and the US R&R !! From there, their economy burgeoned and their governments cosied up to their big businesses. Bad business decisions were "nationalised" leading to their massive national debts (deja vu, anyone ??)

The new government, the Democratic Party of Japan, has promised to sweep away such cosiness and return Japan to the Japanese people !!

We shall see what we shall see !!

Meanwhile, back in Blighty, it is now conclusively shown that HBOS was a "dead man walking", despite all Scottish propaganda to the contrary.



Mr Kane added: "I think it's quite clear now that HBOS could not have survived on its own. HBOS was finished as an entity."

And some sneered when I said the same a year and a half ago.

The Lloyds Banking Group was, and still is, a necrophalic shotgun marriage !! The Lloyds TSB shareholders were led up the Swanee !!

And today the Bank of Japan releases another £70 billion of stimulus, which will no doubt continue to expand the currently developing bubble in commodity prices and stock markets. Probably £10 billion of that £70 billion will find its way into banker bonuses, before the next economic collapse. You would think after so many years of feeding bubbles with cheap money the Japanese would learn!

Yesterday the BOE's Mr Dale said: "We are likely to be moving into a period of renewed expansion."

The expansion, such as it is, will be short lived.

The UK's Quantitative Easing has resulted in £7,000 being printed per taxpayer and lent it to the government so it can pay its bills.

The UK's budget deficit will be close to £200 billion this year. The government has recently announced its "fiscal responsibility bill" aiming to cut this in half. That's a cut of about £100 billion (or 16%, ouch!) in spending and it still leaves debt growing at £100 billion a year.

That's going to be very, very painful. It will counteract any (much needed) private sector recovery.

The UK's structural borrowing (i.e. total borrowing minus stimulus borrowing) is about £100 billion per annum. To pay this (in other words, to stop government debt continuing to grow) requires an income tax increase of 20p in the pound!

said, "markets can remain irrational far longer than you or I can remain solvent."

Were he alive today, he might have added, "and governments and central banks can remain irrational far longer than their countries can remain solvent."

#21 "What I don't understand about deflation is that why is money not simply printed, given to the populace, and that would stimulate demand and cause inflation?"

Well, the Parker Brothers (makers of the Monopoly board game) do a lot of that. Will you accept their notes in your next pay packet ??

#23 "Oh how I love the smell of Napalm in the morning"

Napalm is made from oil and oil is getting more and more expensive by the day, hour even !! Surely there are much better uses of oil than to make napalm !! :-)

I don't buy the excuse that we should be miserable and cheerful about it because someone else is even more miserable than us.

We should learn from other people's mistakes. Just because there are a lot of people complaining it doesn't mean that we can't solve our own problems it's up to each of us to do something wait for other people to help and you'll be waiting for a long time.

Stephanie, at last somebody has brought our attention to the country that I think we he all lost sight of. We are so used now to a subserviant Japan, all bows and producers of useful electronic goods, that we have forgotten their past passions. Japan has now two old enemies that have nuclear weapons, and their nuclear protector, the USA, has got to rely on on of them for its spending money. If this Japanese government fails, what comes next? You can forget the problem of Islamic fundimentalism, if Japan goes all militaristic again. They will have a nuclear bomb in about six weeks and the means to deliver it in about a fortnight.

#24 "It seemed to me at the very beginning of the credit crunch, that the only way to restore confidence and therefore a way out, was for governments to pass legislation that at the very beginning, forced UK financial institutions to open up their balance sheets and almost have a 'bad debt amnesty'."

A "bad debt amnesty" is the fastest way to a Zimbabwean-style economy !! If you think this is the correct way to do things, then lend me £1 million and I'll just say "Thanks and we'll just call it quits. Now be a good chap and toddle off; you'll not be getting your money back." !! I'd bet that'll make you a very happy chappy !!

#25 "UK can trade and inflate it's way out of debt, but we need to drive some stakes through the Zombie hearts before dawn breaks."

You've obviously been watching too many Hollywood movies !! Driving stakes through the heart only "kill" vampires; *NOT* zombies !! To "kill" them, you either have to break their calling spell, chop them to pieces or burn them to cinders !!

Just thought you'd like to know in case your neighbourhood is infested with them !! We cleared ours out by voting them out of office !!

#28 "Great, a graph with three tyeps of blue, none of them distinguishable from the other..."

Well, it's obvious that blue ink is cheaper than red ink since the banks have used up a lot of that red ink and green ink can't be used because of....err....green(??) reasons !!

Hope this helps !!

#29 "Or - Do you think the EU would object to a renewal of the King James act to enforce hat wearing to keep people employed making hats?"

Oh, NO !! Please, no more tin-foil hats, I beg you !!

One of the most insightful Â鶹ԼÅÄ blogs ever! And ably extended by Dempster and Tonyparksrun.
Other points about Japan are that:
* There is lower investment in education than in US & UK, because the Japanese birth rate has been so low for so long. In turn that is creating an ever growing dependency ratio of pensioners. Maybe growing productivity of working age people will grow sufficiently to support a growing army of unemployed retirees? Or maybe not?
* Japanese people have got used to paying insufficient taxes to pay for pensions and other public services? Will that benign willingness to accept real negative interest on their savings (instead of paying higher taxes) continue? Maybe not?
* Retail and other service productivity is much lower than elsewhere. So far there's insufficient competitive force to push up service productivity, and its consequence of lower service employment.
I have no doubt that Japanese people will eventually face up to these issues and overcome them. Just as we all have to change in the end.

#52 "You would think after so many years of feeding bubbles with cheap money the Japanese would learn!"

It all depends on who's doing the feeding and who they are feeding it to !! I'd not be too quick to judge this current lot until they've had a bit more time in office. 60 years of LDP cronyism cannot be put aside in a day !!

The BoE, OTOH, is a different kettle of fish !! Our Glorious Leader has a proven track record for bailing out "dead men walking" (NR, HBOS, RBS, etc.) !!

"John Maynard Keynes said, "markets can remain irrational far longer than you or I can remain solvent."

Were he alive today, he might have added, "and governments and central banks can remain irrational far longer than their countries can remain solvent."

To that, we must add "...unless there is a revolution and they all get taken out and shot !!"

*56 "They will have a nuclear bomb in about six weeks and the means to deliver it in about a fortnight"
And it will fit in your pocket, hold 100,000 mp3s, make an Esspresso and pick up Satellite TV Now thats what you call a Nuke!

Stephanie wrote "As a result, we have probably avoided a repeat of the Great Depression."

What on earth are you basing this little nugget of information on. Has someone let you know the actual extent of the derivatives overhang and the liabilities of all financial institutions throughout the world or have you just spilt the guts of a chicken?

Come on now - can we have some sort of factual reporting or has the Â鶹ԼÅÄ morphed into PRAVDA

Gold at 1220. Nope, nothing to see here.

#63 "And it will fit in your pocket, hold 100,000 mp3s, make an Esspresso and pick up Satellite TV Now thats what you call a Nuke!"

It'll also vibrate and keep its owner happy !! :-)

#64 "...have you just spilt the guts of a chicken?"

Chickens from supermrkets don't have their guts anymore !! They come cleaned out, shrink-wrapped and pre-packaged !! Such is progress !! :-)

OTOH, she could gaze into the crystal screen of a TV and, perhaps, the mists will part and reveal some nugget of information pertinent to that subject !!

#65 It's an interesting link. A lot of that could have been deduced if sufficient open-minded research was made. Still, he is right in most of his points.

A few points not mentioned are -

(1) China is a major gold producer although many don't realise this.

(2) Russia is a major oil. gas and gold producer and they would rather exchange their products for tangible Far Eastern goodies than intangible Western promises on pieces of paper that may or may not be worth the same tomorrow or the next day.

(3) The Gulf states are trying to unshackle (un-Shekel ??) from the petro-dollar because of fears that the US dollar will inflate away their wealth in order to inflate away the $7+ trillion national debt.

(4) Diamonds are also artificially priced and have been for the last 150 years or so !! This will break down when sufficient artificially produced diamonds flood the market !!

(5) Many people have taken an American motto to heart - In God, we trust; all others pay cash (or other tangible assets) !! No promissory notes, please, especially QEed ones !!