13 Mar 2013

Month of March

I've been neglecting this blog for a while now because I'm busy with other things. But some things have stood out in the last couple of weeks.


Firstly I note that some pundits are pointing to another bubble in the stick market. Stephanie Flanders is not so sure about the FTSE, but the Dow went through 14k this month and some sources are trumpeting madly that it might rise to 36k. See for example Dow 36000 is back at Zero hedge. It speaks of "euphoria" in the markets. See also 13 European Housing Markets Sure Look Like Bubbles, and the blog The Bubble Bubble generally.

Steve Keen tweeted: "It's the private debt bubble that counts. Debt rising again in USA & that's why both economy & stock market seem to be recovering."

The rise on the FTSE may be a result of the weak pound as Flanders suggests, but the bubble in the USA isn't. This month HSBC bank recorded record profits, well beyond pre-crash levels. Banks' income comes from speculating on assets and commodities, and from interest payments. Record bank profits is not a good sign when economies around the world are struggling. It either means their speculations have forced up commodity prices or that another debt bubble is building up somewhere.

David Cameron

DC has been caught out several times recently being economical with the truth.

Back in Oct the New Statesmen ran this story: Cameron hasn't created "a million" private sector jobs". This got less coverage than it deserves I feel. Cameron has repeated this false claim recently. There's been some analysis of the way that DWP have warped the figures by shuffling people around job schemes.

The way unemployment figures are reported hid that the actual number increased last month.

Mean while December 2012 the Telegraph ran a story entitled  "David Cameron ordered to stop saying NHS spending is up". The leader said "David Cameron and Jeremy Hunt have been ordered to stop claiming that NHS spending has increased after the official statistics watchdog found health funds had fallen."

Cameron misrepresented the Office of Budget Responsibility. The Chairman Robert Chote felt moved to publicly rebuke the PM (I first I think) and to point out that the OBR consider the governments austerity to have a negative impact on GDP.

Fact Check made it clear that the government was not been "rebalancing the economy" as they claimed to be.

It's quite likely that the government will miss their deficit target because they do not understand national accounting.

Cameron keeps telling us that the good news will keep coming. It appears that he's quite willing to make it up if need be. And politicians wonder why we are cynical about politics?


With the IMF and the OBR questioning the success of austerity it is difficult to find any reputable economists who still supports the government policy of cutting public spending (to the extent that it has been cut). Austerity squeezes demand even more and has appreciably slowed growth - according to the OBR. There is a growing consensus that without growth the government will not meet their deficit targets. This is because, as the IMF pointed out some time ago, the problem with the deficit is not created by over-spending, but by drops in revenue caused by the long recession - now the longest depression in modern history.

Growth has to come from spending and investment. Spending is low because consumer debt is still high and the risk of investing is high. Everyone I know with a bit of spare cash is putting it into rental housing; surfing the property bubble that makes so much profit that it can afford to support a whole layer of middle men that leach 10% (or more) of the gross.

Investment is low because business debt is still high, and risk is high. So interest rates at the sharp end are still high (despite banks borrowing at next to nothing and being bribed by the government) and lending criteria are high. Bankruptcy levels are high, with a series of high-profile insolvencies and in each case the business seems to have been carrying substantial debts borrowed in a boom, that it could not service in a recession. Businesses are sitting on surplus cash because risk is high.

So banks lending money is not really an option for creating growth in the UK. All power to Dave Fishwick and the Bank of Dave, but he's a small player, and I don't think Burnley reflects the national situation.

In the end I agree with Ha-Joon Chang (Britain: A Nation in Decay) that facts about austerity are irrelevant to the Tories:
In reality, though, the coalition government isn't as stupid or stubborn as it appears. It is sticking to its plan A because spending cuts are not about deficits but about rolling back the welfare state. So no amount of evidence is going to change its position on cuts.
The government are like those asset strippers in the 1980s who would buy a company, run it into the ground and sell of its assets. Only the Tories, with the assistance of their LibDem toadies, are doing it to Great Britain. Great for how long I wonder? And even if we vote for labour in the next election would things really be better?

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Keep is seemly & on-topic. Thanks.