Brown’s Britain leading the way out of recession. Not.

Obliged to Guido for this handy illustration of the UK’s relative economic performance in Q3 2009:

Which means that Britain [is the] Only G7 Nation Still in Recession.

Go Gordon, go.

AJ

Jahomstradamus’ pre-requisites for the double dip. Part 1…

One piece just started to fall into place… this is from October 25th 2009:

For the nation as a whole, it has been a year of shitty news on the economy, hectoring from the state about every damned thing we do, utter desperation about the state of education, the NHS, justice, law & order and the ghastly corruption, venality and greed of our elected ‘representatives’. Faith in democracy is draining away. People are fucking pissed off. Depressed. Deprived of joy.

In the meantime, a bunch of people have moved onto tracker mortgages at tasty rates, freeing up disposable income (but not for paying down capital, natch).

In this society, many people acquire and consume goods as an abstract pursuit. An end in itself, which satiates psychological needs imbued by aggressive and invasive advertising. Tis a given, right?

These factors combined with the continuing availability of (not cheap) credit cards will fuel a Christmas consumer binge. We know that much of the economic growth in the last 10 years has been driven by insane consumerism. This binge will drag the economy back on to an upward trajectory. But only for Q4 ‘09.

In January, we’ll all sober up from our binge, open our bank statements and discover we’re gonna have to eat tinned beans on Tesco value toast until payday.

At which point the economy falls back into diminution.

Today in the Times:

Are you optimistic? Or are you spending to numb the pain and face the consequences later?

Today’s poll will boost government hopes that voters may be feeling more positive by the time of the general election next spring. It shows that the number of voters thinking the country as a whole will do well over the next year has risen from a quarter to a third since July and is now the highest since April 2008.

But nearly two thirds still think that the country will do badly over the next year.

So, 65% think we’re still gonna be fucked for the next year. And yet:

Its findings come as the best October high street sales for seven years have fuelled hopes that a pre-Christmas surge in spending could confirm the country’s emergence from recession.

Hmmmm… with this in mind, I think my reasoning for a predicted election date of 8th April is looking more solid.

AJ

Timing of the next general election…

So, we’ve had Q3 GDP results around 23rd October. The (as below) inflated Q4 figures will, I suppose appear around 23th Jan 2010. These should be (falsely) encouraging. I expect Gordo anticipates this will be a good (least worst) time to be launching an election campaign.

If I’m right about the negative results likely in Q1 2010, these will appear around 23rd April 2010. But by then, we’ll have long since had enough corporate Q1 results to know that things are grim.

So Gordo’s window for launching a campaign and holding an election is from 23rd January until roughly 15th April (year end returns will be known for a lot of firms) when corporate results start seeping out prior to full ONS GDP results on 23rd April.

So, announce an election, and launch a campaign on 25th Jan. ‘Good’ economic news from Q4 gets Gordo off to a (falsely) encouraging start. He’ll be planning as long and tortuous a campaign as possible, because he’ll want maximum opportunities for the Dib Lems and Blue Labour to fuck up. As I’ve said before, Gordo really has nothing to lose.

All these things considered, I reckon if Gordo remains in charge, we’re looking at an 8th April election.

We shall see.

AJ

Dip once in the ass, and once in the mouth…

Murmurings abound about a ‘double dip’ recession.

Recent economic figures caused much consternation, if little surprise.

Now, Brown’s saying we’ll be back in growth by the end of 2009:

And here’s where the much anticipated double dip will enter it’s second phase of decline.

For the nation as a whole, it has been a year of shitty news on the economy, hectoring from the state about every damned thing we do, utter desperation about the state of education, the NHS, justice, law & order and the ghastly corruption, venality and greed of our elected ‘representatives’. Faith in democracy is draining away. People are fucking pissed off. Depressed. Deprived of joy.

In the meantime, a bunch of people have moved onto tracker mortgages at tasty rates, freeing up disposable income (but not for paying down capital, natch).

In this society, many people acquire and consume goods as an abstract pursuit. An end in itself, which satiates psychological needs imbued by aggressive and invasive advertising. Tis a given, right?

These factors combined with the continuing availability of (not cheap) credit cards will fuel a Christmas consumer binge. We know that much of the economic growth in the last 10 years has been driven by insane consumerism. This binge will drag the economy back on to an upward trajectory. But only for Q4 ‘09.

In January, we’ll all sober up from our binge, open our bank statements and discover we’re gonna have to eat tinned beans on Tesco value toast until payday.

At which point the economy falls back into diminution. Brown’s getting on with the job of taking the tough decisions and, wait.. what?  just fuck off, you shameful bunch of nation-wrecking cunts.

Oh and it wouldn’t be the first time Gordo’s economic snake-oil has given us a W-shaped graph.

Although now that I think about it, rather than a W, it looks like a pair of tits, doesn’t it?

AJ

Let the bad times roll…

Brown’s already been talking about “Labour economic recovery.”

Ho hum.

AJ

Errr.. WHAT?

Now, I’ve not been on the banker-bashing-bandwagon, being as it’s mostly been a matter of envy and class prejudice, but check this shit out…

Do what now?…

I really don’t believe what I’m reading. I’ll comment further when I’ve gathered my thoughts and cleared all the coffee off my laptop.

Fuck.

AJ

It’s us little people who are gonna be fucked again, here, isn’t it…

So what? Well I’ve banked with RBS for 20 years, for my sins. This last year of fucktitude not withstanding, they’ve been pretty good.

And now the EU wants to fuck everything around, which will no doubt cause some hassle for me, whether it’s losing access to branches, or worse, my account being moved to NatWest (and going back to square one with the ‘how long have you been with your bank?’ question, not to mention the persistently inferior NatWest customer service ethos).

Royal Bank of Scotland could be made to sell more than 300 branches by the European Commission as a penalty for receiving billions of pounds of state aid. Negotiations between the Treasury, the Commission and RBS, which is 70 per cent owned by the taxpayer, were last night intensifying.

The Government is understood to back a plan which would involve RBS giving up its 312 branches under the RBS brand in England and Wales. It would keep its NatWest branches.

RBS has made plans to re-brand its RBS network south of the border under the Williams and Glyn’s name, a brand that disappeared from the high street 24 years ago.

Neelie Kroes, EU Competition Commissioner, may want to push RBS even further. Although her term of office expires at the end of the month, the Commission can continue to make decisions on state aid after that date.RBS’s 30 per cent share of the small business banking market has come under intense scrutiny by Brussels.

Why is the EU having to step in an do this? Why didn’t the UK competition (M&M) people speak up when all this shit was happening last autumn? I certainly had concerns that these problems would emerge.

And if you’re with Lloyds (and probably HBOS), you’re gonna get the same fucktwattery coming your way.

Lloyds Banking Group, 43 per cent owned by the taxpayer, is under pressure by the Commission to shrink its share of personal accounts, where it is the No 1 operator in Britain with 22 million customers.

Because we all know what that means – it means millions of people who have banked with LTSB/HBOS for years are going to get letters saying ‘we no longer want your custom’ – and naturally it’ll be the least revenue-rich customers.. OAPs, students, low paid etc. We’ve been moving back towards a situation in which a significant minority can’t get a bank account at all – without which you’re pretty much fucked in this day and age. This cannot possibly improve things.

As an aside, it may probably won’t interest you to know that LTSB/HBOS (Lloyds Banking Group as they are now) are going through a business integration and rationalisation process at the moment. I’ve long believed this to be a dangerous strategy, in light of the competition implications of the blizzard of consolidation that occurred last year. Which is why the altogether more sensible Nationwide Building Society isn’t doing any integration of the other building societies they acquired last year – they’re ring fencing it all, realising that the costs of integration are not defrayed by sufficient benefits, given the likelihood that these mega-banks (and building socs) are inevitably going to be broken up again at some point.

Whatever.

AJ

State owned banks pwning private businesses…

This is decidedly smelly…

Several companies, which declined to be named, have expressed concerns about RBS’s aggressive tactics in return for much-needed credit.

One chief executive of a FTSE 250 company said: "They have us over a barrel. What can we do right now? Nothing. They are in everyone’s facility. No one will be able to escape.

And here comes the rub…

But wait two years, when the lending market recovers, and we will never do business with RBS again."

This is solidifying my view that RBS shares will never recover to their pre-crash levels. This pains me.

So what is it they’re doing, exactly?

RBS, now 70pc-owned by the state, has been asking corporate clients to sign "side letters" alongside bridging loans or refinancings to formalise their mandate on future equity or bond issues as well as M&A advisory work. RBS has been on almost every deal this year, bagging £46.8m in fees from equity placings alone, according to Thomson Reuters.

The strategy is being driven from the top, as Stephen Hester, chief executive, is keen to repay the taxpayers’ £20bn as quickly as possible by chasing profits aggressively. The bank is now using its vast loan book to cash in on the equity and advisory capabilities acquired with its ill-fated purchase of ABN Amro by tying customers into pledging higher margin investment banking work.

The practice is known as "tying" and is illegal in the US. However, it is allowed in the UK and Europe. Before the financial crisis, though, clients were able to shop around. Most big lenders have since reined in credit, leaving "survivor banks" in a strong negotiating position.

Some company directors feel RBS is abusing its role, with at least two considering a formal complaint. One insider said RBS has been asking for a 10pc arrangement fee for re-financing debt: "Ten per cent is an egregious amount. They are a state-backed bank that we own. They should be helping corporate Britain, not crippling it."

I’ve lost count of the number of levels of wrong here.

AJ

250,000 additional public sector jobs in the last 12 months…

My brain is starting to fizz… I need to go back to posting music videos from YouTube.

AJ

Excellent Speech…

My first knowledge of Rush Limbaugh was via Bill Hicks, who never held Mr Limbaugh in particularly high esteem. So, it’s somewhat surprising to find myself uttering words of respect for this speech he gave to the Conservative Political Action Committee.

I think it sums up much that conservatives and many libertarians are concerned about just now on both sides of the Atlantic.

Part 1:

Part 2:

Part 3:

Part 4:

H/T Stephanie Gutmann at the Tellywelly.

AJ

Because there are still people who think Broon was a good chancellor…

 Gold: Does Gordon Brown’s regret selling half of Britains’ gold reserves 10 years ago?

A decade ago Gordon Brown started to sell-off Britain’s gold reserves – at the time the price of gold was $282 an ounce, today it is $900-plus.

And another graph I like that tells of the same period….

And Wat Tyler reminds us of a useful rubric:

Why Do You Always Forget?

This used to be an economy

EVERY SINGLE LABOUR GOVERNMENT WE HAVE EVER HAD HAS LEFT OUR ECONOMY IN RUINS:

• MacDonald – ruins
• Attlee – ruins
• Wislon -ruins
• Callaghan – ruins
• Bliar/Broon – ruins

See?

See the pattern?

Now WTF can’t you just remember it?

Is that so much to ask?

Remember all of this when you’re next in a polling booth, if you’re thick (or heavily invested in the state) enough to even consider voting for these useless bastards.

AJ

Threat of deflation? Nah

The most laudable Wat Tyler, writing at Burning our Money, reminds us that any talk of deflation is an illusion. Just as the retail price index (and consumer price index for that matter) underplayed inflation when it did seem to be getting out of control, with prices of food and fuel spiralling, it’s still being underplayed now (exploiting the large effect petrol prices have on perception) -Which justifies their ‘quantitative easing’ of the entire exchequer into the puckered ringpieces of workers and savers alike.

Anyway – over to the expert Mr Tyler… I’m quoting in full, because the blog is written by a true pro:

Inflation Accelerates

As we’ve blogged many times, our currency is being systematically debauched. Interest rates have been slashed, the printing presses are roaring, and savers are being raped.
It’s all being done on the pretext of fighting the bogeyman of deflation. Deflation, we are told, will destroy our economy and leave us in Japanese-style penury.

Never mind that Japan’s per capita GDP is still virtually identical to ours despite their supposed "lost decade", and despite our 15 years of unsurpassed nomoreboomnbust. And never mind that inflation is just as good as deflation at destroying economies, and that as the 70s showed, you can easily end up with inflation and recession side-by-side.

And where exactly is this much touted deflation?

We were told that it would break cover this morning in the latest inflation stats from the ONS. All morning the BBC was saying that the year-on-year RPI would go negative for the first time in 60 years.

But guess what – it hasn’t. It’s actually just shaded down from 0.1% in January to zero in February. And that is entirely down to the sharp fall in mortgage rates – the RPI excluding mortgage costs (RPIX) is running at 2.5% pa, up from 2.4% last month.
Worse – for our deflationary scaremongers – inflation on the CPI measure, which is the government’s preferred measure, has actually increased.

Let’s say that again:

INFLATION HAS INCREASED

The price of food is soaring – up 12.5% year-on-year (compared to 11.1% last month). The price of non-alcoholic beveridges is also increasing faster. Drink and tobacco are going up faster. And many imported items like clothing and footware, which have been falling in price for a long time, are now falling less fast because of the weakness of sterling.

Right across the board, inflation is accelerating. The ONS groups its CPI shopping basket into 12 major headings, and all bar one show higher annual inflation compared to last month’s figures. The one exception is domestic fuel supplies, but even that can offer only the scant comfort of an inflation rate falling from 36% to 23%.

You need to remember this the next time you hear someone spouting about the dangers of deflation.

We haven’t got deflation.

It’s not your imagination increasing the price of your supermarket trolley.

Our clothead rulers are turning a drama into a crisis.

Brilliant… and against the backdrop of inflation and weakening of sterling, it’s not difficult to see why people are starting to demand double digit % pay rises. No good can ever come of it.

I foresee another round of ‘redefining’ inflation from Gorgon and Pals.

AJ

Explain something to me…

As an (extremely pissed off) RBS shareholder, I have just received notification that there is to be a new rights issue. Existing shareholders to be entitled to buy 3 shares for every seven they own.

Now, RBS are currently at about 26p. The broker recommendation in The Times is a 100% sell.

Why, then, would I want more of their shitty shares at 31.75p each?!

Am I missing something or do they just think I’m fucking stupid?

Just one other question. As UK PLC owns around 70% of RBS shares, will they be churning even more of our cash into the benighted Royal Bank of Looting Scotch Bastards by this mechanism?

AJ

I like this thinking…

Via Mr Eugenides… an Oirisher has a novel and compelling solution to the credit crisis.

NEWTON’S OPTIC: THE ANSWER to all our problems is staring us in the face. It may even be quite literally staring at you, right now, across the breakfast table.

So put the paper down, stare back and ask yourself a selfless question.

Does the woman in your life really need a job?

Admittedly, this is not a fashionable question. From Iceland to Australia, men are blamed for causing the credit crunch, while a more feminine approach to finance is proposed as the solution.

Of course there will always be a place in the world of business for exceptional women. Women also have an important role to play in jobs that are too demeaning for men, like teaching. But the general employment of women is another matter. Indeed, working women almost certainly caused the credit crunch by bringing a second income into the average household, pushing property prices up to unsustainable levels.

…

Consider the issue of unemployment. There were 221,301 men on the live register last month and just under one million women in work.

Surely at least half these women have a partner who is earning? Surely at least half would be happier at home? One half of one half is a quarter and one quarter of a million is roughly 221,301. I think we can all see where this argument is going.

It would be ludicrous to suggest that women should be sacked purely to give men their jobs. In many cases, their jobs should be abolished as well.

Women are twice as likely as men to work in the public sector. They account for two-thirds of the Civil Service and three- quarters of all public employees.

Do pop along to the Oirish Times and read the rest… I needn’t wonder what sort of postbag this generated.

AJ

A disastrous confluence predicted in European banking

Can’t remember where I saw this link – probably from Chris Dillow – but this is an alarming collection of Pan-European looming disaster:

The Looming Collapse of European Banking
by Gary North

The banking system of Europe is at the edge of the abyss. A brief story by The Telegraph revealed this last week. The original was almost immediately deleted. A new version was substituted.

You can see the original headline on Google:

European banks may need £16.3 trillion bail-out, EC document warns …

There are dozens of these links. I read the story last week. I saved the link. But, lo and behold, when I clicked my saved link on Monday morning, the story did not mention a specific figure.

There was a reason for this. The editors at The Telegraph had taken out the following paragraphs:

European Commission officials have estimated that impaired assets may amount to 44pc of EU bank balance sheets. The Commission estimates that so-called financial instruments in the trading book total £12.3 trillion (13.7 trillion euros), equivalent to about 33pc of EU bank balance sheets.

In addition, so-called ‘available for sale instruments’ worth £4trillion (4.5 trillion euros), or 11pc of balance sheets, are also added by the Commission to arrive at the headline figure of £16.3 trillion.

Fortunately, web sites around the globe have posted the deleted paragraphs.

Converted into dollars, £16.3 trillion are the equivalent of $25 trillion.

The original paragraphs can be found in several links in the Google list of headlines.

Why did the editors do this? A call from some government bureaucrat? Or the realization that the article might start a bank run? I think the latter. In either case, it’s scary.

The current article begins with a lie: "Last updated: 6:34 GMT, 11 Feb 2009."

WHAT THE EUROPEAN ESTABLISHMENT IS FACING NOW
The original February 11 story was a shocker. The author claims to have seen a secret European Commission report. The report estimates that losses (write-downs) by European banks will be in the range of $25 trillion.

If true, then to save the banking system, European governments will have to find an extra $25 trillion, fast. There is only one source of such funding: the central banks, mainly the European Central Bank (ECB).

For comparison’s sake, consider the $700 billion banking bailout in the United States last fall. Of this, only about half has been spent. That was sufficient bailing wire and chewing gum to keep the American banking system going. More will be needed, but so far, this has sufficed. The Federal Reserve did a lot of asset swaps in 2008 – Treasury debt for toxic assets – and pumped in an extra trillion dollars or so. But the system has held.

Adding these together – the increase in the monetary base and $350 billion in bailout money – the total is around $1.5 trillion. Then think "$25 trillion." This is a sobering thought for some, and a reason to get unsober, fast, for others.

The European Central Bank will have to serve as the lender of last resort. There are over a dozen national EC governments. How will they coordinate their respective bailouts? Think of a dozen Barney Franks and a dozen Nancy Pelosis. Think of a dozen Henry Paulsons. Think of a dozen Gordon Browns. Terrifying, isn’t it?

Here is the story, as airbrushed by the editors.

"Estimates of total expected asset write-downs suggest that the budgetary costs – actual and contingent – of asset relief could be very large both in absolute terms and relative to GDP in member states," the EC document, seen by The Daily Telegraph, cautioned.

Very large? That’s it? Just very large? Twenty-five trillion dollars in losses are merely very large? That is twice the size of the gross domestic product of European Union.

It is not as though there is a lot of time to deal with this. Bank runs can take place very fast. What if Europeans try to pull out currency? There will not be enough currency. So, they will move their assets to American or Japanese banks. They will have to sell their domestic currencies to buy dollars and yen. The euro will crater.

"It is essential that government support through asset relief should not be on a scale that raises concern about over-indebtedness or financing problems."

Wait a minute. If asset relief is not on this scale, then what will sustain a bankrupt European banking system? You are telling me that these banks are sitting on top of $25 trillion in losses, and this can be concealed? Does no one audit these banks?

The secret 17-page paper was discussed by finance ministers, including the Chancellor Alistair Darling on Tuesday.

National leaders and EU officials share fears that a second bank bail-out in Europe will raise government borrowing at a time when investors – particularly those who lend money to European governments – have growing doubts over the ability of countries such as Spain, Greece, Portugal, Ireland, Italy and Britain to pay it back.

National leaders apparently have a clear perception of the public’s lack of faith in specific governments’ ability to repay. But that does not answer the crucial question: "What are the depositors’ fears regarding their individual banks?" It’s one thing for a government to be unable to pay back loans over the next two decades. Of course they will not pay it back. No national debt is ever paid back. It is rolled over. It’s another thing to deal with bank runs.

The Commission figure is significant because of the role EU officials will play in devising rules to evaluate "toxic" bank assets later this month. New moves to bail out banks will be discussed at an emergency EU summit at the end of February. The EU is deeply worried at widening spreads on bonds sold by different European countries.

In line with the risk, and the weak performance of some EU economies compared to others, investors are demanding increasingly higher interest to lend to countries such as Italy instead of Germany. Ministers and officials fear that the process could lead to vicious spiral that threatens to tear both the euro and the EU apart.

Ministers and officials have got the picture. They are facing a breakdown of Europe’s economy. If the bailouts are insufficiently large in every nation to reduce depositors’ fears regarding their banks, there will be a rush out of the euro and into dollars and yen. If the bailouts are sufficiently large to stem the tide on bank fears, then there will be a rush by bond investors out of government bonds. This will make the existing recession much worse.

If each country has widely different rates, the euro will break down. The poorer countries will borrow at low rates from the European Central Bank. The Germans will revolt. They could demand an end to the ECB, which will have become a welfare agency for the Mediterranean governments. That would end the euro. That would end the attempt to create a new European order. This thought brings to mind one of Johnny Mercer’s masterpieces.

So you met someone who set you back on your heels – goody, goody
You met someone and now you know how it feels – goody, goody
You gave him your heart too, just as I gave mine to you
And he broke it in little pieces, now how do you do?

You lie awake just singing the blues all night – goody, goody
And you think that love’s a barrel of dynamite
Hooray and hallelujah, you had it coming to y’a
Goody goody for him, goody goody for me
I hope you’re satisfied, you rascal you,
I hope you’re satisfied ’cause you got yours

But I digress.

"Such considerations are particularly important in the current context of widening budget deficits, rising public debt levels and challenges in sovereign bond issuance," the EC paper warned.

These considerations are indeed important. But solutions are a lot more important. The report is 17 pages long. The solutions – if any – will be a lot longer.

SO FAR, SO GOOD

So far, the euro has not collapsed. It has fallen, but there is no rush for the exits. Why not? These answers come to mind.

1. The story is not true: no such document.

2. The document is wrong: banks are not really that much in the hole.

3. The banks are in the hole, but public faith in their governments remains high.

4. The report is true, but it is not believed by currency speculators.

5. The report is true, but currency speculators believe that the governments and central banks can handle it without major shifts in currency values.

European bank stocks have fallen since the article was published, but they are not in free-fall.

In my view, the European public still has faith that the governments and the central banks will successfully intervene to restore commercial banks. But if the original article was correct, that 44% of bank balance sheets have disappeared, then the public is living in la-la land. The entire structure of Europe’s capital markets is at risk. Or, I should say, what remains of the capital markets is at risk.

How are governments going to replenish lost capital? It’s gone. It’s missing in action.

EASTERN EUROPE

Ambrose Evans-Pritchard has explained this in a Telegraph article published on February 15.

If mishandled by the world policy establishment, this debacle is big enough to shatter the fragile banking systems of Western Europe and set off round two of our financial Gotterdammerung.

He was referring to loans to Eastern Europe. He used Austrian banking as the example.

The European Bank for Reconstruction and Development (EBRD) says bad debts will top 10pc and may reach 20pc. The Vienna press said Bank Austria and its Italian owner Unicredit face a "monetary Stalingrad" in the East. . . .

Stephen Jen, currency chief at Morgan Stanley, said Eastern Europe has borrowed $1.7 trillion abroad, much on short-term maturities. It must repay – or roll over – $400bn this year, equal to a third of the region’s GDP. Good luck. The credit window has slammed shut.

Not even Russia can easily cover the $500bn dollar debts of its oligarchs while oil remains near $33 a barrel. The budget is based on Urals crude at $95. Russia has bled 36pc of its foreign reserves since August defending the rouble.

"This is the largest run on a currency in history," said Mr Jen.

This reminds me of the bankruptcy of Long-Term Capital Management in 1998. That hedge fund had bought ruble-denominated assets on a leveraged basis: 30 to one. When the Russian central bank failed to defend the ruble, LTCM went bust in a few days. It had to be bailed out by $3.6 billion in loans from New York banks. Today, the European banks are gutted, not a lone hedge fund.

Russia is going belly-up. It will have to liquidate most or all of its reserves of Western currencies. It has stopped buying U.S. Treasury debt. It is selling.

In Poland, 60pc of mortgages are in Swiss francs. The zloty has just halved against the franc. Hungary, the Balkans, the Baltics, and Ukraine are all suffering variants of this story. As an act of collective folly – by lenders and borrowers – it matches America’s sub-prime debacle. There is a crucial difference, however. European banks are on the hook for both. US banks are not.

Almost all East bloc debts are owed to West Europe, especially Austrian, Swedish, Greek, Italian, and Belgian banks. En plus, Europeans account for an astonishing 74pc of the entire $4.9 trillion portfolio of loans to emerging markets.

They are five times more exposed to this latest bust than American or Japanese banks, and they are 50pc more leveraged (IMF data).

This is the ringing of the bell. The bell of the Great Depression of the 1930’s rang on Wall Street in October 1929. But that was not the cause of the Great Depression. The causes were these: (1) monetary base expansion in the 1920s, (2) the cessation of this expansion in 1929; (3) the governments’ raising of tariff and trade barriers in 1930 all over the West, and (4) the collapse of the Austria’s Credit Anstalt Bank in 1931. In the USA, we saw the first two, 2000–2007.

Central banks will inflate to keep any major bank from collapsing. But the trend is ominous. Russia and Eastern Europe are gonners. European banks that lent to them are, too. So is the purchasing power of the euro – and maybe even the actual euro. I can see Germany cutting and running sometime before 2011. Evans-Pritchard pulls no punches. This is a gutsy forecast.

Whether it takes months, or just weeks, the world is going to discover that Europe’s financial system is sunk, and that there is no EU Federal Reserve yet ready to act as a lender of last resort or to flood the markets with emergency stimulus.

If he is correct about the inability of the ECB to imitate the Federal Reserve System, this means a collapse of the banks. That means the collapse of Europe’s economy.

"This is much worse than the East Asia crisis in the 1990s," said Lars Christensen, at Danske Bank.

"There are accidents waiting to happen across the region, but the EU institutions don’t have any framework for dealing with this. The day they decide not to save one of these one countries will be the trigger for a massive crisis with contagion spreading into the EU."

He ends with this: "If one spark jumps across the eurozone line, we will have global systemic crisis within days. Are the firemen ready?"

The capital markets do not indicate agreement with his assessment. People still trust the banking system. Generally, I trust capital markets rather than journalists. But I think the report is too explosive to ignore. I think the optimism of investors is greater than the optimism of European bankers, bureaucrats, and newspaper editors.

CONCLUSION

The West’s economy really is at the edge of a leveraged disaster. The politicians know only one answer: deficit spending. The central bankers have only one significant tool: monetary inflation. The speed of events is increasing.

The markets don’t reflect this yet. This gives time to a few people to get out. But the vast majority cannot get out. There are too few escape hatches open.

AJ

Join the campaign for Scottish Independence – from south of the border…

In this morning’s Indypedant, Dominic Lawson lays the blame for our financial woes squarely in Scotland. With the bankers, but also with Gordo and Ally.

Sometimes I wonder if hubris is a Gaelic word, rather than ancient Greek. It seems only yesterday that all of Scotland was in uproar over the takeover of HBOS by Lloyds TSB.

…

Gordon Brown can protest in vain that he – and indeed his equally Scottish Chancellor, Alistair Darling – was denounced as "a traitor" by the Scottish Nationalists when he pushed the deal through. It is now his sorry fate to be despised by English and Scots alike. Note, by the way, that there was no such uproar in Scotland when the Westminster Government took a majority stake in RBS, thus saving the other of Edinburgh’s banking behemoths from immediate liquidation.

Since over half of the Scottish economy is bankrolled directly by Westminster – amounting to a gigantic subsidy by English taxpayers – this arrangement could be seen as entirely normal, exciting neither outrage nor gratitude. It certainly helps to explain why Alex Salmond, himself a former chief economist of RBS, made no fuss about that particular bail-out. I think we can rule out embarrassment as a factor, although given that Mr Salmond declared a year ago, "The Scottish banks are among the most stable in the world", it would have been the natural human emotion in such circumstances.

Not the least of the ironies of the Caledonian debacle is that it was the takeover of the National Westminster Bank by RBS a decade ago which lies behind so much of what subsequently unfolded. RBS had in fact to fight a bitter battle with the Bank of Scotland for the control of NatWest. Both Scottish banks were much smaller than the English financial institution they wanted to buy, and both were openly dismissive of the fuddy-duddy "Captain Mainwaring" London management of NatWest who did not understand the modern style of banking, which believed in a much more ‘dynamic’ use of capital.

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I say Edinburgh, because it was Scotland’s financial establishment which backed Sir Fred Goodwin to the bitter end.

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Imagine, for example, what might have been the case if the banks which had needed to be bailed out with the taxpayers’ billions were not those run by Scots of fiercely meritocratic mien, but London-based concerns dominated by boards consisting entirely of pin-striped English ex-public schoolboys. I wonder if Gordon Brown, Alistair Darling and John McFall – or indeed the British public as a whole – would have been quite as understanding.

Yet if they already had independence, who would have had the wherewithal to bail out these porridgeous institutions?

AJ

Paddy DiFaulty

Boggist update…

Ireland ‘could default on debt’

FEARS are mounting that Ireland could default on its soaring national debt pile, amid continuing worries about its troubled banking sector.

The cost of buying insurance against Irish government bonds rose to record highs on Friday, having almost tripled in a week. Debt-market investors now rank Ireland as the most troubled economy in Europe.

Simon Johnson, the former chief economist of the International Monetary Fund, called for this weekend’s meeting of G7 finance ministers to put Ireland’s troubles at the top of the agenda.

Johnson said: “Don’t, please, tell me more about the basic principles of financial reform unless and until you have addressed the Irish problem. And don’t tell me the Irish have to sort this out for themselves. Eventually, the world always comes to help; check your notes on Iceland.

Bacon and cabbage broth for breakfast, lunch and dinner – coming right up.

AJ

Mundane Monday

THE CHAIRMAN of the Committee on Standards in Public Life says electoral fraud has increased since Labour’s postal ballot reforms. Just like in Glenrothes, from which Labour seem to have benefitted massively – that the records have gone missing makes this difficult to prove. Not that Labour are the only ones to have, benefitted, with Tories also being copped at the electoral fraud racket.

Labour have neglected to implement the safeguards recommended by the Electoral Commission, which would have curtailed such activity.

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A COMPLAINT has been lodged with the Office of the Parliamentary Commissioner for Standards regarding Jacqui Smith’s expenses scam. The complaint cites the previous case of Michael Trend MP, and raises the possibility that Jacqui Smith has committed offences under the Fraud Act, which should be investigated.

This could mean the Boot for Jacqui. I wonder if there’s a market on her departure? Oooh.. here it is.

And out of interest, here’s Darling’s:

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WHILE GUIDO appears to have taken leave of his senses – at least in respect to bonuses for RBS bankers – Barclays announce that their executive directors will get no bonus this year, in spite of posting profits of £6.1bn.

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THE PREVIOUSLY noted Northern Ireland Environment Minister, Sammy Wilson, continues to have the courage of his convictions. Lentils are being thrown from prams. H/T B&D who address the environmentalist arguments with aplomb. Also providing this link regarding the fact that temperature increases precede CO2 increases.

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OBO SAYS “Aussie fires: Sounds like they’re definitely keeping the Ashes this year.”

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THE DEVIL brings us a chuckle…

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AJ

A thought on bankers’ bonuses…

So, RBS are dishing out big bonuses to some of the monkeys responsible for the company posting the biggest loss in British corporate history.

This is RBS, which is now 70% owned by GB PLC. Which ultimately reports into the Treasury. Which is run by Alistair Darling.

Alistair Darling is the MP for Edinburgh South West. RBS’s world headquarters is in Gogarburn – South West Edinburgh.

If Gogarburn isn’t is Ally’s constituency, it’s damned close and how many of these bonused bankers do you reckon live in his constituency (where some of the best properties in Edinburgh are)? Quite a lot of them I’ll wager.

Of course, nothing untoward could possibly be underway – and certainly, there is no suspicion whatsoever that the Labour Party have any record whatsoever of electoral fraud and gerrymandering in Scotland. None. At all.

AJ

More public sector lard.

Further to previous observations about public sector bloat – here, here, here and here – and news reports like this one, we now learn that not only do the non-productive public sector leeches have zero accountability, gold-plated pensions and total unsackability, they are now earning more that their peers in the private sector.

Pay ‘apartheid’ between  public and private sector workers grows by 50%

The pay gap between the public and private sectors has widened dramatically in just four years, official figures show.

State workers now earn an average £62 a week more than their private sector counterparts – a 50 per cent increase in the differential since 2004.

Critics say it is fresh evidence of a developing apartheid between the two groups.

It comes at a time when public sector employment is rising while private workers are losing their jobs at a rate of more than 1,000 a day.

There is also growing anger that many pensions in the private sector are being closed, but taxpayer-funded state pensions remain seemingly untouched by the financial crisis.

These people are hardly going to vote anything but Labour, are they? Makes me sick.

AJ

H/T Coffeehouse