Gordon Brown's fiscal profligacy finally outed – Telegraph Blogs

'... tax revenues were consistently falling short of spending from about 2002 onwards. These were mostly boom years economically, yet tax revenues repeatedly came in lower than the Government's optimistic, and apparently largely made up, forecasts for them. The fiscal rules were bent and manipulated to ensure compliance. For the five years from 2002/3 onwards, the Government consistently ran a budget deficit of between 2.5 and 3.5 per cent of GDP.

As a result overall government debt rose at a time when most industrialised countries were paying theirs down, leaving the UK peculiarly ill prepared, and with very little room for manoeuvre, when the crisis hit.

So please, no more talk about how everything would have been fine but for the recklessness of bankers. Government and finance were reckless together, it would seem, and boy what a mess their hubris has left behind.'

More here http://blogs.telegraph.co.uk/finance/jeremywarner/100028071/gordon-browns-fiscal-profligacy-finally-outed/ but not on the BBC who still worship Gordon Brown.

Spain Dips 37% Into Social Security "Piggy Bank", Fund Depletion in 4 Years at Current Rate. Worried?

'The Government of Mariano Rajoy has released 24.65 billion euros of the Social Security Reserve Fund in less than two years. Such amount represents nearly 37% of the total 66.815 billion fund accumulation. That figure marks the highest cumulative piggy bank draw-down in history, following its commissioning in 2000 and after eleven years in which successive governments did not need to dip into it.

The situation changed dramatically with the height of the crisis. The current government has broken into the social security bank twelve times since 2012. The total amount withdrawn exceeds 24.6 billion euros while 54.69 billion remains.

This implies "at the current depletion rate, in a period of four years or so, the fund would be exhausted".'

More here http://globaleconomicanalysis.blogspot.co.uk/2014/08/spain-dips-37-into-social-security.html

Time to panic?

Beppe Grillo's Blog asks if Italy a economy is brushetta (toast?)

Read it all...  http://www.beppegrillo.it/en/2013/07/today_2_july_2013.html

The Rout In Spain | Zero Hedge

A truly scary article.
http://www.zerohedge.com/news/2013-05-24/rout-spain

Ed Miliband political and economic genius

On 24 July 2012 the BBC reported approvingly:

'Labour leader Ed Miliband has declared the political "tide is turning" against the economics of austerity, after a meeting in Paris with French President Francois Hollande.

He said he and Mr Hollande agreed that Europe needed a "different way forward" to deal with the debt crisis.

...


Mr Miliband held a half-hour meeting with the French president, a fellow centre-left leader, at the Elysee Palace, saying afterwards: "The points of agreement we have were around the fact that the tide is turning against an austerity approach, that there needs to be a different way forward found.

"What President Hollande is seeking to do in France and what he is seeking to do in leading the debate in Europe is find that different way forward.

"We are in agreement in seeking that new way that needs to be found and I think can be found."'

Today the BBC report somewhat less cheerfully that:

'Official figures show France has entered its second recession in four years after the economy shrank by 0.2% in the first quarter of the year.

Its economy shrank by the same amount in the last quarter of 2012. A recession is defined as two consecutive quarters of negative growth.

France has record unemployment and low business and consumer confidence.

...

France entered its worst recession since World War II in 2009. Although it was thought to have been in recession in 2012, these figures have now been revised to show only one quarter of negative growth.

The news comes on the first anniversary of Francois Hollande being sworn in as president.

Earlier this month, the European Commission warned that France would enter recession this year and said the eurozone's economy would shrink by 0.4%.

...

In France, the rate of unemployment is running at 10.6% and is forecast to rise further next year.

Its deficit is also expected to rise sharply, the commission says, to 3.9% of GDP - well above the EU deficit target of 3%.

But French unemployment is below the eurozone average, which was 11.4% in 2012 and is expected to hit an average of 12.2% this year. In both Greece and Spain, it is expected to peak at 27%.

The German growth figure was far weaker than expected. Economists had expected to see growth of 0.3%'

So in 2012 Ed Miliband supported Mr Hollande's policies as a way out of the economic crisis and as being better than George Osborne's so called austerity plan. How about now that France has gone back into recession whilst the UK has not? Perhaps the BBC could ask Ed Miliband or the unusually shy Ed Balls that question, perhaps not!

The one hundred and seventy fourth weekly "No shit, Sherlock" award

This week's award is presented to The Guardian for this breaking news:

'France could join list of eurozone casualties in a fresh crisis - New figures lay bare growing disparity with Germany as jobless rate hits 15-year high and consumer spending stagnant'

Really? I've been saying this was the case for months now. France in economic crisis - "No shit, Sherlock"

Why is the EU and beyond in this economic mess?

Devils Kitchen has the explanation:

'The simple fact is that the people of the Developed Nations have selfishly continued to vote for politicians who promise to give them more of other people's money.

The Western social democratic model is bust—but there is no shortage of ideological idiots and selfish morons who think that things can carry on as before.

This is dangerous stupidity.

A step change in the attitude of the Western demos is required—for it is, let us to beat about the bush, they (we) who are at fault.

I propose that the first start should be an attitudinal change: whenever someone receives benefits, they should also get a covering letter with the following inscribed in large, red, block type:

This money was stolen by force from your neighbours. You are a thief and an extortionist. Enjoy!

It's a small thing, but might be a first step in to pointing out the intrinsic truth of our benefits system.'

Does anyone seriously disagree? if so, why?

Is the government expecting rampant inflation?

For some years now I have predicting high inflation coming to the UK. For most of that time I have been ridiculed by friends and colleagues. Now they are less certain that I am an absolute fool!
One interesting fact is that the ultimate protection from rising prices that has been available for most of the past 30 years has been National Savings & Investments' (NS&I) tax-free, index-linked savings certificates.

These certificates have guaranteed to beat inflation, and your entire deposit was protected by the Government. Oddly (or not) the state-owned savings bank has withdrawn these products twice in the past few years and they're currently not on sale at all. There is plenty of demand, the latest issue sold out after just a few months in 2011.

NS&I recently stated that it is unlikely to bring the savings certificates back before April 2013. That doesn't mean that they will return in 2013, it's just that NS&I don't plan that far ahead.

It would seem that the Government, which decides how much savings NS&I is allowed to accept in any given financial year, doesn't want any more of our money to finance its massive borrowing needs.
Now why might that be? Is it because it's currently cheaper for the Government to borrow from elsewhere than for it to pay us more than inflation? Does that not point to higher inflation coming?

Some graphs and charts that should scare the living daylights out of you

Zero Hedge's EU economic roundup is a scary read with charts and graphs that speak for themselves. Here's one to whet your appetite...

'All benefits from the creation of the euro have been erased: Spreads above levels prevailing before the euro's birth'

Will the latest Euro bail-out actually work?

Do you really have to ask if the latest Euro bail-out will actually work? Of course it won't, it has bought some time that is all. So what does the future hold for us in the pampered Western countries whose leaders bought votes and made themselves feel moral and liberally minded by expanding the welfare state so it became no longer a safety net but instead a lifestyle choice for the lazy and feckless?
Berliner Zeitung have this cartoon

But I think that this article in The Telegraph by Liam Halligan is a fuller read, if a scarier one. Do read the whole piece but here is an excerpt to depress you on a Sunday afternoon:

'Having said all that, the prospect of "haircuts", however half-hearted, now looms over eurozone sovereign bond-holders, not least fragile European banks. So Thursday's announcement also stressed that the €440bn (£386bn) euro European Financial Stability Facility would be "levered", allowing it to borrow to make it bigger. This is supposed to allow the eurocrats to raise cash without having to trouble national parliaments, given that they're likely to refuse.

The question of who will lend to the EFSF, on whose collateral, and who will ultimately repay the loans, was barely addressed last week. Such tricky questions will apparently be answered at the next European summit in December. Meanwhile, the fundamental disagreement between France and Germany regarding who should take the biggest losses – eurozone governments or private creditors – remains unresolved. Since Thursday's announcement, though, Germany's powerful constitutional court has issued an injunction requiring the country's full Parliament to approve any EFSF bond-buying.

What is needed, urgently, is a clean, transparent Greek default – allowing this flailing semi-developed economy to leave the eurozone, re-establish a weaker drachma and regain its self-respect. Portugal should leave too, its membership of the same currency bloc as Germany is as absurd, and self-defeating, as that of Greece. There would be further market turmoil, yes, but a few more months of volatility, leading to an ultimately more stable outcome, is surely better than the current situation where the entire world is living in fear of a massive "euroquake".

The eurocrats, of course, lack the guts to trim back monetary union to a more manageable size. Too much face would be lost. So "euroquake" fears, once viewed as outlandish, are gaining pace. Despite Thursday's deal, and all the reassurances of a "durable solution", the Italian government on Friday paid 6.06pc for 10-year money, up from just 5.86pc a month ago and a euro-era high. Such borrowing costs are disastrous, given that Rome must roll-over €300bn of its €1,900bn debt in 2012 alone. A default by Italy, the eurozone's third-biggest economy, and the eighth-largest on earth, would make Lehman look like a picnic.

The eurozone must be consolidated. World leaders should similarly force European banks to disclose their losses, we all take the hit and then we move on. Instead, we are served-up, in ever more complex variants, the same "extend and pretend" non-solutions. It gives me no pleasure to write this, but I give this deal two weeks. '

Meanwhile I have just found a stonking piece on this same subject and along similar lines at the ever readable Alex Masterley. This particular piece is ostensibly about how capitalism has not failed but lives on in China and India, facts that are clear to anyone who has visited China and/or India and seen the dedication and attitude to hard work that pervades so much of those countries. However it is the second half of Alex's article that interests me more here today:
'So what is the problem in the West? ...But the bigger problem, which now hangs over Europe is the fact that politicians who were happy to open their borders for free trade failed to spot that this inevitably meant that their countries' own standard of living would inevitably be undermined.

At first it was easy to turn a blind eye, and just think that Eastern countries were backward places that were unlikely to compete with the West. But inevitably, with their immeasurably higher populations and their improving standards of education, the West was going to be put under pressure by the lower costs in the East. Westerners who were complacent about their prosperity failed to understand that although they were in the richest 10% of the world population, that position was not guaranteed.

The real failure, of course, not that you will hear it on the radio, is not Capitalism but Socialism, which we all learnt at the time of the collapse of the Berlin Wall was unsustainable. Unfortunately Western politicians on the left side of the spectrum didn't listen. They found that companies didn't invest when they put up taxes, and in fact moved all their new investment to other parts of the world. So in order to keep their captive voters happy, they borrowed money to finance present government consumption, which they erroneously called "investment". Leaving aside the Italian Cosa Nostra basket case, Greece, Portugal, Ireland and Spain, the most heavily overborrowed of the Eurozone countries, have all had one thing in common for the last 10 years: left of centre governments. Just like the UK, the most overborrowed of the lot currently.

You won' hear it on the BBC, but the real problem is that Western social welfare has placed an impossible burden on states, which is why the UK has a current annual deficit of €200 billion, i.e. on its own 20% of the amount of funding sought by the EFSF, although this is a recurring shortfall for the UK government.



Doctors expect to be paid hundreds of thousands of pounds to provide cradle to grave healthcare for many who have never and will never pay much into the state coffers, while other civil servants expect six figure salaries, generous pensions and early retirement, all to be paid by a private sector that is constantly undercut. In the long run, none of them should have any reason to expect to be paid any more than their Chinese or Indian equivalent as the economies of the East align themselves closer to those of the West.

If the governments of Greece, Italy, Spain, Ireland, Portugal or the UK were companies, their respective cash shortfalls would have pushed them into insolvency years ago, and their problems will continue until their spending is cut to realistic levels. '

Alex is right but there are too many people who don't want to face facts and that is why the future for Western Europe is protests, riots and a breakdown in civil society. I am sorry if that thought is hard to take in but it is more likely than us all living happily ever after.

Go out and buy tinned food, a generator & stocks of fuel for it; but more importantly get a gun and some ammunition, because if you were scared by the riots of a few months ago, you ain't seen nothing yet!

Why is the gold price down?

'- The '70's: Gold rose 2300% in the nine years from 1971 to 1980. Sure it is "up" 500% since 2000, but as the song lyrics go "you ain't seen nuthin' yet."
In 1972 it rose 49.7%, in 1973 +73.5%, 1974 +60.1%, and 1979 +140%.

- COT [*1]: The LARGE Commercial "shorts" are violently cutting their positions, absolutely slashing them in Gold & Silver. The 'futures market' data is reading it's most bullish since 2003. (Eight years ago Silver was $4.40/oz., it's over $30 at present). The big boys see what's ahead and are trying to shake the leaves from the tree (flush the weak hands and the retail investors) so they can scoop up more Gold & Silver while covering their 'shorts' at a lower cost.

- PHYSICAL: If you want to get 'physical' precious metals instead of 'paper' you'll have to pay a premium. The paper ETF's GLD and SLV hold no physical, and their trading at 'discounts' should be a clue to investors that they don't have much or any physical to back the paper they have sold. In contrast, Eric Sprott's ETV's (Silver) PSLV and (Gold) PHYS trade for premiums of 20.81% to NAV [*2] for Silver PSLV, and 3.15% to NAV for PHYS (close 19 Oct 11) because they are fully backed by physical inventory. If you can find some physical to hold yourself the premiums get even higher, but it might be a good time to think of yourself as your own Central Bank while the Bureaurats in Europe and at the FED talk themselvs to death while doing nothing tangible to solve the problem.'

More at Theo Spark from Rico.

I am sorry to ruin your Monday morning but economically we are well and truly f***ed

Ludwig von Mises wrote that 'there is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.'
 
The Central Banks and their associates in government are trying to put off the evil day but that day will come. The problem is that Capitalism has been replaced by Corporatism is recent years and thus whilst Capitalism works through trial and error in free markets to find an optimal allocation of resources, Corporatism works by fixing the markets. We have had over a decade of central banks deliberately providing cheap & easy credit thus negating the existence of Capitalism. Under Capitalism losses are penalised, under corporatism loss making banks are instead bailed out or otherwise protected - thus we reach the position where a €2 trillion bailout fund is required. That's not €2 billion but €2 trillion; I have explained before how big a trillion is.

Central banks egged on by unscrupulous governments kept interest rates far too low for far too long. This engineered a boom, a fake one but a boom nonetheless, this boom enabled Gordon Brown and others to claim that they had 'ended boom and bust' and to increase taxation just less than the increase in (albeit fake ) wealth that the middle classes experienced as house prices rose. The US housing bubble also resulted from easy credit and liberal guilt over the comparative difficulty some blacks had in getting mortgage credit.

The trouble is that we are now in a situation where it is not the banks that might fail, but countries. If the banks are "too big to fail" what about Greece, Italy, Spain, the UK the USA?

We are well and truly f***ed, there's bugger all most people can do about it and as savings become worthless through the vicissitudes of inflation we may as well spend the lot - the decision is should it be a new car, new kitchens and holidays... or gold, generators and guns?

John Redwood is not impressed with the latest piece of Quantative Easing

John Redwood is not impressed with the latest piece of Quantative Easing

'How silly of me not to realise we could simply create £75 billion to sort out our problems.  Now we are told we can, maybe we should ask what we should do with the new money?

It seems such a pity just to go on buying government bonds with it. After all, taxpayers have £199 billion of them in the Bank already. They are not a lot of fun, and do not seem to do a lot of good. Once you have  got some, having more does not add a lot.

We could, for example, give every man, woman and child  in the country £1250 each to spend as they like. They could use it to pay off the credit card debt, or meet the tax bills on their petrol. It would help with the Council  Tax and the VAT. As the main problem over the last year has been the drop in  consumer spending, this would offer a way of boosting it. Funny how the authorities never want the punters to have any of the new money.

Or we could use the £75 billion to recapitalise the state owned banks. They could write off  their losses for that, and have a load of new capital to lend. That too could do a lot to promote recovery.

We could decide to spend it on a big capital programme. It would buy plenty of roads, railway capacity, energy supply and broadband access. We could all be given free shares in the projects and companies established with the money.

Or the government could just use the money to pay its bills direct, instead of going through the mechanics of buying in old government loans, and then issuing new ones to pay for the excess of spending over income.

Come to think of it, why don’t we always pay for public expenditure like that? Why do we go through the painful process of demanding tax revenue from people, when you could just print some more tenners? Is there a snag the MPC haven’t spotted yet? Why pause at £275 billion?

The Bank will have a nice tidy income from the gilts it buys in. The government could simply cancel all the bonds the Bank owns, to get its interest bill down. Come to think of it, why stop at just £275 billion for doing that? The more you   buy in and cancel , the less interest you have to pay.That would monetise the lot, and should prevent the deflation the Bank must fear.

Why do so many spoil sports and jeremiahs write in to this site to say this is a bad idea?  Does the Bank think there are any   limits to electronic money?

We are owed a proper explanation from the Bank of why they think printing money when inflation is already 5.2% is a good idea.  Just telling us yet again that inflation will fall and that we are in the midst of the worst crisis ever is not a sufficient argument for actions that savers will fear.

Maybe the Bank does  worry that the banking problems remain acute. If so, the right approach is to seek actions to create strong banks out of the weak banks that currently spook the system. We need honest money.

In the UK there is no substitute for sorting out RBS.'

I could not put it better myself, so I haven't.

This country's economy is heading for disaster and the 'Conservative led government' seems to be accelerating the process.

Are you prepared for the complete meltdown of the world financial system and the subsequent chaos?

If you have laid in food and water, purchased a generator and hold stocks of gold coins, do you have any way of defending you, your family and your possessions?

Where now for the Western economy?

Sorry folks but the only direction for the foreseeable future is "Down, down, deeper and down"

As the markets fall and more people realise that our futures really are a bleak as I and others have been warning for some years, I fear that the resulting riots and civil disobedience will make last month's riots look like a country tea-party.

The future does not look bright, it looks bloody dreadful.

Are we doomed?

The Adam Smith Institute have published a summary of the four problems that face us:
Sovereign Debt, An exposed financial sector, Sclerotic growth and Low private sector confidence.

A worrying and accurate article.

Are we doomed? Yes I fear we are.

Who's to blame for the current state of the UK economy?

Politics Home report some YouGov polling and includes two interesting pie (or should that be doughnut as the centre is missing) charts:

So the general public mostly see where the blame should lie, firmly at the door of the government that screwed the UK economy up over the last 11 years of its rule. However the idiocy of the Labour voters worries me; how can 26% blame a government in power for just over a year for the economic situation? are they so blinkered that they seriously believe that the Coalition can do anything other than try and resolve the appalling situation in which they find themselves? The 39% who blame 'global factors' are at least not so blinded by party loyalty that they must blame the Tories for everything. However only 3% of Labour voters are willing to ascribe any blame to their party in government; such loyalty in the face of all evidence to contrary must warm the cockles of Ed Balls and Ed Miliband's hearts...

If you thought you were depressed about the UK economy; Liam Halligan makes me look cheerful about its prospects

'The only reason we are still able to roll over our sovereign liabilities is because, for the most part, the true extent of the fiscal risks we face hasn't yet been priced in to yields on global markets. What's happening on the eurozone's periphery, even if the current crisis is averted, is just the beginning.'

There's plenty more in Liam's Telegraph article  but I warn you it is not a cheerful read.

'In my view, a sudden and massive re-pricing of Western sovereign risk will happen much sooner than is widely expected. For now, global investors are in denial, assessing that default risks in many of the big emerging markets are much greater than in the West.

This is nonsense – particularly when you consider that the governments of the "advanced" countries are tacitly reliant on debasing and depreciating their currencies in order to lower their liabilities, so imposing on their creditors a form of "soft default".

At some point soon, and it brings me no pleasure to write this, private sector Western investors, together with our emerging market creditors, will drastically cut their exposure to Western sovereign debt. This will come as a rude awakening to the US and the big European sovereigns, who for years now have abused their "risk-free" status.'

Who is Liam Halligan. He is chief economist at Prosperity Capital Management. Greece, Ireland, now Italy the EuroZone is not in a good state and most people are in denial.What should we do, how do we survive the coming financial apocalypse? I don't think any but the super-rich can or will.

Fisking Ed Balls

Not me but Fraser Nelson who has responded to various Tweeted requests and fisked Ed Balls' recent speech. Take a read and wonder why the BBC never raise these obvious failings in his memory and/or logic.

Here's a graph to remind youof the economic record of Ed Balls...

Raiding our pensions

Over the years I have warned that world governments have and will steal from our pensions pots and other savings in order to get their hands on money to fund their activities that they just will not cut. The most recent article was from January this year and can be read here. Up until then the countries affected so far were Hungary, Bulgaria, Ireland and France; today I read at The Revelation Group that:

'The United States is expected to reach the legal limit on its debt later on Monday and will start dipping into federal retirement funds to give the country more room to borrow, a Treasury official said.

As Reuters reports further, The U.S. Treasury will settle $72 billion in maturing bonds on Monday, which will push the country right up against its $14.294 trillion borrowing cap, the official said.

...

Secretary Geithner sent a letter to Congress this morning alerting them to actions that have be taken to create additional headroom under the debt limit so that Treasury can continue funding obligations made by Congresses past and present.

The Secretary declared a “debt issuance suspension period” for the Civil Service Retirement and Disability Fund, permitting Treasury to redeem a portion of existing Treasury securities held by that fund as investments and suspend issuance of new Treasury securities to that fund as investments.

He also suspended the daily reinvestment of Treasury securities held as investments by the Government Securities Investment Fund of the Federal Employees’ Retirement System Thrift Savings Plan.'

Land of the Free? Budgetary restraint? What you save is yours? All of that counts for nothing when left-wingers 'need' to preserve what they 'need' to fund. The money may have run out (see Liam Byrne in the UK) but that won't stop them spending it. Left-wing governments don't admit their mistakes they just keep on spending and find new sources of income. If you think that the US Federal Government will stop at suspending payments into state pensions then you are wrong. How long before they follow the Hungarians and force you to either remit your individual retirement savings to the state, or lose the right to the basic state pension (but still have an obligation to pay contributions for it)? How long before they follow the Bulgarian government and try and transfer private early retirement savings into the state pension scheme? The US government is screwed, the money has run out and they will not cut back, or if they do it will not be by anywhere near enough.

In the US, and elsewhere, the future is more Quantative Easing and thus inflation, more debt (only reducing because of that inflation) and more much more taxation and misery.

Unconvinced that I am right, sure that the US government (and others) would not take this sort of action? Really sure?

The Elevation Group include this handy reminder:

'What do people in power do with that power? Do they willingly give it up, or do they abuse it?

* What do people in power do with opportunity? Do they let it pass, or take it?

* What do people in power do when they make mistakes? Do they do what’s right for the masses at their own expense, or do the protect themselves and their friends first?

* What do people in power do with responsibility? Do they accept it, or pass it on to someone else?

* What do people in power do? What’s right for others, or what’s right for them?

* So ask yourself… What will our politicians, lawmakers, bankers, and traders do?

Will they face the pain of their decisions and do what is right to fix the problem, likely losing everything they have and all of their power in the process, or will they do everything then can to try and keep their power, and above all else, protect the status quo?'

Still convinced that I am wrong?