Death Throws of a Dying System

It's all getting very interesting in the Eurozone, and even though I'm officially on holiday (in the EU if you're interested) I can't help but weigh in on the political up cry over rating agencies.

Schauble, Flassbeck and Borroso have all been floundering behind their throwns, looking for a scape goat rather than admitting defeat. And so they have all arrived at the ever more commonplace conclusion, to blame elements of the free-market. More specificly the evil "speculators" and rating agencies.

I've already discussed speculators/inveators at length and won't repeat myself, but what Borroso and his partners fail to realise is that rating agencies don't  perform a function that investors don't already do themselves. Anyone who invests their capital, wisely at least, assesses the likleyhood of return. Rating agencies, like Moody's, simply collect readily available information and publish it into a report for others to read more easily.  Essentially the credit worthyness of a country is already determined by economic factors regardless of whether rating agencies existed or not, they simply highlight the risks to the wider public.

Calling for a silencing of these bodies is nothing more than an attempt to cover up their own failure.  Borraso and his cleptomanical chums would love to opperate with complete secrecy; printing, borrowing and stealing whatever they like to keep the Euro sharade ticking over a little longet.  Fortuntaley for the rest of us the markets cannot be beaten, rating agencies just help us identify the bad eggs sooner rather than later.

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Debt Crisis: Greece Round 2

This is a consolidation of 3 posts I didn't quite get around to finishing over the recent days.  I was going to make the prediction that the EU was going to release funds to Greece, despite the medias over-reaction to a possible default, and that we would see an announcement of a further bailout package sometime in the next week.  All this was based on the fact that politicians have invested too much money & credibility into the bailout scheme now and that a default would be humiliating for both EU & national politicians.

Low & behold my predictions have come true, a further £100ish billion in the pipelines is set to prop up the failing Greek government for another few months.

If we take a step back at this and look at it from an objective point of view, what we have is a central government body (the EU) using its peoples own wealth to prop up a clearly faltering arm of this economic experiment.  It's not as though the Euro zone is an impartial body (like the IMF is supposed to be), it has a huge vested interest in the continuation of the Euro; in the form of currency control & thus more control over the individual EU nations.  It seems like a rather large moral hazard to make the tax payer foot the bill for a project which only really serves the interests of the politically powerful.

Further more, the bail outs are not even the cure for the problem, tax payers are just being charged for the pleasure of continuing this daft experiment a little longer.  As I and many others have mentioned before; more debt will not cure debt.

"Oh, but the stock markets are up, investors clearly think the bail outs are going to work."

Not really, all this tells us is that investors see positive short term prospects.  Investors can keep playing the game and continue trading in Europe a little longer so long as the banks are still functioning.  Knowing that the banks will be kept afloat simple returns some previously removed capital back to the markets.  This is certainly not a show of long term market strength, just investors leaping back in now that the conditions have been held temporarily stable.

Western economies have found themselves in this predicament by attempting to manipulate markets.  They fail to recognise that markets cannot be beaten, they will react to short term stimuli and incentives but as soon as they cease the investors take their profit and leave.  The greed of governments to be seen as economically important and capable of providing prosperity to their people has been exposed as the myth that it is and has inevitably become their downfall.

Don't be fooled by the near miss, nothing has fundamentally changed; the Euro still cripples Greece's ability to price its currency back into the market, the Greek government is still incapable of passing sufficient austerity measures to keep the debt at bay and even so the level of debt is still so extraordinarily high that there is an inevitable default looming on the horizon.

Disability Wage

I'm a little late to the party but would still like to weigh in my two cents on the disabled minimum wage hoo-har.  Personally I totally understand where Philip Davies is coming from, he raises an important point which not only affects the disabled but also traps young & unskilled workers in the unemployment cycle.  Labour's typical equality at any price response didn't surprise me (or anyone else I expect) but the response from "Conservative" MP Edward Leigh was much more surprising.

"Why actually should a disabled person work for less than £5.93 an hour. It is not a lot of money, is it?"

I guess this quote perfectly demonstrate the slightly different shades of red we get to vote for in the UK, politics is now all about who to redistribute to rather than whether we should even be redistributing.  But more importantly, Edward is so detached from reality that he would rather tax and steal from most of the population just to avoid subjecting a few people to what some would consider an "undesirable wage" (if such a thing exists, try saying that to a third world worker).  After all £3 an hour is still better than starving, but I guess benefits are even better if you don't have to lift a finger.

Before we go any further I would like to address the politically correct crowd who are no doubt lurking in the shadows somewhere.  The "disabled people deserve the same wage an an able bodied person" is fine providing they are as good a worker as the able bodied person (the same argument applies to the feminists and affirmative action crowd too).  In other words is their labour as valuable?  For some disabled people it is, but the minimum wage doesn't affect the skilled workers, a wheelchair-bound lawyer for example has no problem practising law compared with his able bodied contemporaries.  However a one-armed individual who screws bulbs into lamps for a living may not be as efficient as his two armed co-workers.  So by forcing the employer to pay him a wage worth more than his labour can produce the company is loosing money and would eventually go out of business, the only choice is to fire the disabled worker.  This isn't pleasant but is a fact of life so the PC crowds opinion holds no weight here as it is economically un-viable.  The best solution which allows the disabled man to keep his job is to pay him a wage more aligned to the value of his labour.

Everybody hopefully understands that by enacting a minimum wage labourers who skills are valued below that price cannot enter the market, they therefore cannot gain skills to move up the employment ladder and hence become trapped in poverty.  To address this newly government created injustice we "grant" the now unemployed individuals benefits so that they can survive.  Eventually the do-gooders identify that the disabled people can't seem to find work (totally neglecting the fact that the minimum wage is stopping employers from hiring them) and bump up the benefits further to ensure a more fair & equal living standard for the unemployed disabled populace.  We've now reached the stage where earning less than the minimum wage is considered totally despicable & people often get offended if you suggest that disabled people should be allowed to earn what they are worth.

What annoys me most about this case (even more than the PC bullshit) is that the minimum wage doesn't even help to secure equality or a good standard of living for the disabled, yet we all pay the price for this failure.  By leaving disabled people with no choice but to take benefits they are not improving their workplace skills & thus will never be able to get over the initial minimum labour value hurdle.  Instead they will spend their lives dependant on handouts from Joe-pubic rather than improving themselves and moving on to bigger and better things.  The potential life prospects that have been wasted simply by being denied the opportunity to work is a far bigger injustice.

Further more the benefits are paid for by the rest of the public; draining resources from the economy (which could be invested in more jobs to help employ people of low labour value), decreasing individual spending power (thereby depriving other disabled and ordinary people of employment) and further increasing the cost of employment, courtesy of taxation, which deprives even more low skilled workers of potential life prospects.

The minimum wage, for both able bodied & disabled people, has and continues to create generations of welfare dependant, prospect deprived individuals with little more to look forward to than the next government cheque.  At the same time this injustice not only damages the lives of the dependant, but also deprives the working populace of their earnings and potential economic innovations which improve the lives of the whole country.  Three cheers for socialism.

Don't Fight the Markets

Having done a little more thinking on my previous post I've come to the conclusion that we are being fed total economic nonsense.  Pretty much everything spouted from the mouths of politicians in this country, continent & even across the pond, is complete bullshit.  They blame reckless speculators, tell us that stimulus is the cure and then force the few remaining savers to part with their capital in an inane attempt to revitalise the economy.  It's lies, all of it.

It is so hard to trawl through all the smokescreens, there are so many lies to debunk that I could type for a week straight, but the main point I would like to raise is 'why are the politicians fighting the markets'?

Re-visiting the bank lending issue I wrote about before got me thinking; the government honestly believes that they know better than the lenders!  The banks refusing to lend is telling us that they don't think the climate is right for their investments to see a decent return.  On the other hand the government believes that this credit is the shot in the arm the economy so desperately needs, but if this lending was to ensure a decent recovery wouldn't the banks be leaping at the opportunity to lend and secure a decent return?

What we have here is two opposing interests; the capital owners wanting to ensure they don't flush their wealth down the toilet & the government who want to be seen doing something to improve the economy for all us common-schmucks.  So who should be believe; the greedy, self-interested lenders or the greed, self-interested politicians?

Well at least we benefit from the lenders, but gain nothing from political "good will".  I guess my point is that if the lenders don't have enough faith in the economy to lend then perhaps the government should be looking for solutions to this problem rather than simply forcing them to loan out the money into the very economy they are hesitant about.  The fears banks and other lenders have are legitimate concerns about the prospects of their potential investments & therefore the economy, which don't go away simply by forcing them to lend the money out.

The same applies for "evil speculators" who were blamed for "messing up the markets" when the government was banking on them acting in a certain way to keep the economy moving along.  But speculators are investors (just like the banks the government seems so reliant on now) and again are concerned with the return on their risk, they are not blinding speculating but reacting to legitimate concerns about the economy.

We would all be better off if politician's stop trying to blame and fight the capital owning portion of the economy and instead went with the markets, listened to concerns & made improvements which encourage legitimate lending rather than forcing it.

Post-Democracy

Where do we go from here?  I think it's pretty plain to see that democracy fails to protect us from an authoritarian centralised body of power.  Instead the worlds democratic systems have seized more & more power over the past century, simply to pander to every possible insecurity they can convince the public of.  The emergence of a power hungry  EU & the perseverance of Federal over State level law in the USA are just two examples of this decaying systems failure.

I suppose we have let this happen to ourselves, perhaps democracy requires a constantly vigilant populace, in which case we have only ourselves to blame.  But there are those of us who have resisted & attempted to convince the public of the dangers created by large government and who certainly don't deserve the same fate as the muppets who followed the blind over a cliff.  So what is the next step in governmental evolution, how do we improve upon the failures of democracy?  Personally I would see the whole pointless farce of government demolished but I doubt many others are so willing to give up their hard fought 'right to vote'.

Probably the most popular idea is localisation, make politicians more accountable and implement decisions by & for local people.  As good as this sounds it doesn't solve the problem of an overburdening central body and depends on just how far are people willing to take the idea of localisation.  Who decides taxation, crime/defence policies or personal liberty laws (drugs, sex, driving requirements, etc)?  Surely having local people decide on exactly what goes on in their surrounding area produces the happiest constituents, but then aren't we just talking about splitting the country up into smaller allied countries/states?

That sounds fine to me but the USA has shown that this doesn't really work to well in practise, at first it was a huge success don't misunderstand me, but the Federal/central government found a way to claw power away from the local level which has resulted in the nations current predicament.  If we are to learn anything from this century it is that we must do away with a central body of government as even limiting it by a set of rules (written constitution) doesn't seem to stop the monster's advance.

But then if we are dividing down into smaller local states how small do we go?  County, town or village size?  Surely the most satisfactory democracy, from the voters point of view, is one where a single vote has the biggest impact (you can see where I'm going with this), which essential would involve ruling over your own life and making your own decisions.  Oh look Anarchy, wonderful we made it, what a success; no government & total control over your own life.

On the other hand perhaps we may only get as far as limited localisation (which is still an improvement so I'd take it), or perhaps a system of digital referendums on all issues (no more MPs) or an altogether more bizarre system.  I suppose the real question is when, when do we finally free ourselves from this debacle and try something new?  I'm free tomorrow, how about you?

Credit isn't the Cure

Banks seems to have become a relatively hot topic again recently (or perhaps it's just me) as the media attempts to spin up more hatred for our financial service providers.  Whilst I don't hold the majority of these rent seekers in particularly high regard I am getting pretty sick of reading the bullshit being pedalled about economics and financing.

This week has seen the banking sector miss it's quarterly target of some £19billion in loans to be handed out to small business under the "Project Merlin" agreement (which is a hilariously apt name when you think about it).  Upon hearing the news Vince Cable unsurprisingly came out flinging criticism at the banks yet again.  This whole episode is based on the notion that lending will bring us out of recession, that without credit we will stagnate and may even enter a "deflationary spiral" where people hoard resources for a greater return later.  Which of course is just as rubbish as an inflationary spiral where wages keep rising to catchup with other peoples wage rises.

The idea that some level of credit is required to help an economy grow quickly is founded on truth, a loan is a much easier way to raise revenue than to save for decades, but it is far from the magic economic cure for our problems.  What worries me the most is that the '08 recession was brought on by easy credit, the boom in the US housing market which collapsed when the credit tab was reigned in, and we don't seem to be learning any lessons.  If anything the hesitation of the banks to lend so readily shows that they are slowly learning, although huge barriers to competition and taxpayer sponsored bail-outs are an obvious disincentive to act responsibly.  Meanwhile new regulations are imposing financial restrictions on banks which reduce their capacity to lend, so who really knows if lessons have been learned!

Anyway my point is that easy, incentivized & forced credit got us into this mess and certainly won't get us out of it.  What Vince and the rest of the political economists seem to ignore is that lending is fine providing you receive the return, I would even condone printing money to hand out to producers if you could guarantee that it would create more production than the costs.  But the point is there are no guarantees.  Encouraging/forcing the banks to meet lending quotas means nothing, they are just throwing money at businesses in a hope that there are more winners than losers.  This is little more than gambling, but with our savings and earnings put up as collateral if a bank hits the red line.

A far better solution in my opinion would be to let the markets find equilibrium again, lenders need to ensure they have hard assets to cover their loans (savings), interest rates need to adequately reward lending whilst discouraging poor investments (market prices) and we need an environment which encourages business to grow and invest (deregulation and less taxation).  Overall this is part of a much bigger problem where fractional reserve banking and government regulations are the key problems halting growth, not a lack of credit.

This whole easy lending issue becomes even more of a problem when we introduce low interest rates (further encouraging borrowing over saving), foreign bond markets and all the other regulatory & money printing tools the government, sorry I mean the Bank of England has at their disposal.  There has been no effort made on the part of government to facilitate sustainable growth, whilst forcing the banks to hand out money on their behalf and then criticising, heavily regulating and taxing them at every turn is totally hypocritical.  In my opinion this wreaks of desperation, when politicians don't know what to do just throw cash at the fools, blame somebody else and hopefully they won't notice who's responsible for our decline.

Wealth Redistribution = Guaranteed Inefficiency

[Right, it's time to deal with this backlog of writing, apologies again for my sporadic blogging.]

Ed Balls is a man who is either possesses the most incredible sarcastic wit or is utterly deluded & incredibly dangerous: 

"we need another fair tax on bank bonuses to get people off the dole and into work. It's the best way to get the deficit down"

 
A statement straight from the horses arse, but I just can't seem to get my head around it.  Does Balls honestly propose that a tax (an oxymoronic "fair tax" at that) will help youth unemployment and deal with the deficit?  I suppose his idea is to pillage money from the banks, kindly impart some of it to the unemployed in a way which encourages them to work (if he's found some miraculous cure for the welfare trap then I'd very much like to hear it) and then tax the new workers to sellotape over the crevasse in the public purse.

Such a ridiculous idea doesn't even stand up in theory, let alone when put into practise by the monstrously inefficient state.  Firstly, tax never encourages growth!  The Keynesian redistribution theory is nonsense, taking money from Person A's earnings (potential future investments) and using it to employ Person B does not produce any extra growth.  What Balls fails to understand is that Persons A's capital will either be spent in the way required by him (pumped back into the economy creating useful employment) or saved/invested in a way in which he secures the best result (Milton Friedman, you look after your own money best).  Either way Person A's earnings are being used in a fairly efficient manner, providing goods for himself and thereby employing people to provides these goods or tucked away to save/invest in a project which will produce a healthy return, which again is quite likely to produce sustainable employment for someone else at some point.

However if we take Person A's money and use it to conjure up employment for Person B (benefits obviously don't stimulate growth so we will assume Balls isn't that dumb), Mr A has less income to spend on things he likes, adding strain on the businesses he used to support, whilst Person B is now employed in a roll that no-body asked for.  You see neither Ed Balls, myself or anyone else can accurately predict the future demand for goods or services, trying to create jobs via redistribution takes resources available to fulfil actual demand and relocates them to parts of the economy where the demand is (at best) slightly lower than the market the resources came from.  This could be kindly described as inefficient but in reality is more like shooting yourself in the foot.

Regardless of whether we talk about taxing individuals or companies, either way you end up taking money from people and most likely the people at the bottom.  Who does Mr Balls really think will end up bearing the brunt of a bank bonus tax, the banker who loses a small percentage of his earnings or the dry cleaner who depends on it for business?  How does Ed think the economy will be better off when resources are no longer available to invest in new business ventures but instead we have subsidised factories churning out goods nobody wants?  With this socialist nonsensical economics no-one wins, we are all made poorer either through tax or lost potential innovation.  But I'm sure we'll all sleep soundly knowing we got revenge on the bankers 'ey?