EU looks to China for a bailout.

The head of the European bailout fund - the EFSF - is on his way to China. He is looking for cash from the Communists.

What does this say about the eurozone? At a minimum, it looks desperate.

Do you think eurozone leaders will be raising any human rights issues when they next visit Beijing?

What is the price for silence?

No more Germany

While the BBC has focused on the projection that the world's population will reach seven billion by next week, I was struck by another alarming forecast; if current German fertility rates continue for the next two hundred years, its population will shrink by 98 percent. The projection comes from David Goldman's recent book "Why civilizations die".

How seriously should we take such a forecast? Would the fertility rate back in 1811 tell us anything about rates today? Goldman's forecast does tell us the logical consequences of current fertility rates. If they remain unchanged, a very big if, then Germany disappears in 200 hundred years. That is always a useful thing to know.

Germany's current fertility rate is below the level necessary to sustain its current population level. Moreover, it is hard to see how it could be reversed. The consequences of lower fertility will be severe. Germany is ageing rapidly, and has a welfare system that will either collapse or change radically.

Can anyone explain why Germany won't exist in 200 years? Or, to put the same question into different words, are there any reasons to think that German fertility rates will increase to at least 2.1 children per woman on a sustainable basis?

The UK Inflation-Unemployment Trade-Off

One more tentative step towards better data visualisations. This is a motion chart of the famous UK phillips curve - the relationship between inflation and unemployment.

Before you press the start button on this little application, click on the little bubble within the chart. If all goes to plan, then you should see the chart trace out the inflation and unemployment rates since 1991.

What does this application tell us?

First, in the early 1990s, the trade off was very bad; lots of unemployment and inflation.

Second, the Conservatives managed to reduce unemployment without actually increasing inflation. This was a major achievement.

Third, Labour managed to keep both unemployment and inflation down, at least until the crisis.

Finally, inflation has shot up since the crisis began. Unemployment is up too, but it hasn't reached the levels experienced during the 1990s recession.

(Finally, two things; first this is a flash based application. It won't work on an Ipad. Second, I have had some technical problems with this thing. It may not work on any machine apart from my own. If so, I am sorry, but I have reached the limits of my abilities with this kind of thing. Let me know if there are any problems, it would be useful to get some feedback)

Pay back time in Greece

Today, the Greek parliament narrowly passed yet another austerity package. Like the previous packages, it contains another round of public sector downsizing; wage cuts, benefits reductions, cuts in civil service numbers.  Overall, the package was nasty; top full of dreadful and desperate measures designed to stem Greece's slide into the abyss.

The streets of Athens witnessed another day of mayhem. In their incandescent rage, Greeks feel the need to take to the street. I am not quite sure about the purpose of these demonstrations. Tramping around the centre of the capital isn't going to generate any additional revenue for the Greek state. Nor will it contribute directly to economic growth. 

It all begs the question would it not have been better to constrain public expenditure during the years of economic growth, rather than let things slowly drift along. Year after year, the Greek public sector spent more than it received. Government debt rose, in terms of GDP.  There were opportunities to fix the Greek economy, but it was easier politically to let things slide.

Whether Greece defaults or not, the country will have to pay for those decades of fiscal irresponsibility with declining living standards and deteriorating public services.  The next time you hear someone advocate higher public expenditures, remind them of Greece. 

It is payback time in Greece and it is a terrible thing to watch. I wouldn't want to see anything like that here.  So lets agree to take the fiscal medicine now, get government finances in order, and avoid the kind of crisis that has destroyed Greece.

Time is running out

If, four years ago, Mervyn King had posted his recent speech to the Institute of Directors on a blog, he would have placed himself firmly on the outer fringes of the bubble doomsayers. At that time, there were a small number of bloggers who predicted the imminent collapse of the UK and US economies. For the most part, their dire predictions were not taken seriously. I know, I was there, and I have a large archive of blog posts to prove it.

The governor said some extraordinary things to the Institute. With remarkable candidness, he suggested that is is now time to accept that the "underlying problem is one of solvency not liquidity - solvency of banks and solvency of countries". Moreover, he acknowledged that the "underlying problems of excessive debt have not gone away."

Only economic growth can resolve Europe's crisis

It wasn't a good weekend for Europe. Politicians gathered, hoping to "decisively resolve" the crisis facing the continent. The big idea was to create a super sized bailout fund. Bond investors were going to be shocked at the amount of resources to back-stop EU economies and rediscover that old desire to buy Italian and Spanish bonds with yields similar to those offered on German bonds.

The press releases were ready to go, but the big breakthrough didn't arrive. No one could find a magic wand and conjure up €2 trillion from €440 billion.

Rather than spend their time concocting incredible schemes of financial engineering, EU politicians would have found it more profitable to seriously ponder Europe's most pressing difficulty - a lack of growth.

The coming demographic crisis - a new interactive data application

ukhousebubble.blogspot.com

The decline in the number of workers per retiree affects all advanced countries. No one escapes the demographic time bomb.

I had a few difficulties putting this data app together. Sizing the thing to make it fit on the blog page has proved to be quite a challenge. This is mostly because I often don't know what I am doing with these graphics packages.

It is a learning process I suppose.

All property is theft

From the Occupy Wall Street demonstration.

What is yours is mine, but what is mine is my own.

Ten bizarre things that happened yesterday

Is it just me? News stories have a strange surreal quality.Here are just a few of the weird and wonderful things that happened yesterday:

1. Standard and Poors downgraded Spain.
2. Fitch downgraded UBS.
3. The Portuguese government won’t pay the 13th and 14th month salary payment for civil services who earn €1,000 a month. Two Christmas bonuses a year; it can only happen in Europe.
4. Slovakia voted in favour of the European bailout fund – the EFSF. The Slovakian parliament voted against it earlier this week. Barroso thanked Slovakia.
5. German banks told the EU that they didn’t want to increase their capital buffers.  If things go pear-shaped, these same German banks won’t be slow to ask for a bailout.
6. Hedge Fund managers aren't supposed to do jail time. However, Raj Rajaratnam, has broken that glass ceiling. He is off to Club Fed for insider trading. He received 11 years for retribution and correction. Ironically, he will be sent to the same prison as Bernie Madoff. Mercifully, there are no insider traders in the City of London.
7. The US economy records another huge external deficit.
8. At last, some good news; in the last three months, JP Morgan fired 1,000 investment bankers while their bonus pool is down by $700 million.
9. There is a 48 hour train strike in Greece, which should boost growth and help pay down that mountain of debt.
10. Berlusconi is still Prime Minister of Italy, but that could change tomorrow after the confidence vote. Italy even managed to sell some five year bonds. The real question is who is mad enough to buy them. The ECB?

I plead the fifth amendment

Just in case anyone is wondering what the fifth amendment of the US constitution actually says, here it is....

"No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury, except in cases arising in the land or naval forces, or in the Militia, when in actual service in time of War or public danger; nor shall any person be subject for the same offense to be twice put in jeopardy of life or limb; nor shall be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation."

What do we want? Free education!

A young activist lays out the case for free college tuition.

Well, he convinced me.

Where do I send the cheque?

Yet another comprehensive plan to fix Europe

Today, the European Commission announced a comprehensive plan to decisively deal with the euro zone sovereign debt crisis.

Haven't we been here before? Over the last three years, the Commission bravely spoke on several occasions of ambitious rescue plans only to discover that those plans were not sufficient to stabilize the European financial system or resolve the growing public sector funding issues in southern Europe.

This latest plan comes in five parts.

So Mr. Fox, you have a friend.....

I know I should be more diligent and read up on the latest political crisis. Unfortunately, I can't get much beyond the headlines of the Liam Fox saga.

Based on my limited and negligent reading, I gather that Mr Fox has a friend that has subsequently proved to be an embarrassment. I've also picked up that there is a security dimension to the scandal since Mr Fox is the U.K.'s Defence Minister. This is hard to believe, since successive Labour and Conservative governments had downsized UK military capacity to the point where it no longer offers any protection against any threat beyond a suicide bomber. I can't see why the fact that the Defence Minister has a male friend would make the UK more vulnerable that it has already become.

Part of my reluctance to delve deeper into this story is that there are so many more important issues floating around at the moment. There is, for example, the impending collapse of the Italian government. This could set in motion a sequence of events that could finally lead to the collapse of the euro, and unleash the greatest European economic downturn since the Black Death. The US is threatening sanctions against Iran for a despicable plot to assassinate the Saudi ambassador. A major European bank has just failed. Unemployment has risen sharply in the United Kingdom. The Federal Reserve is again thinking of printing cash in the vain hope that the US economy will begin to recover.

Perhaps there is something we're not being told. Maybe in a few days we might learn why this otherwise unforgivably dull story has dominated the newspapers.

Goldman's sweet deal with HRMC

There are days when I am filled with despair about Britain. I just read this article in Telegraph about the reprehensible behaviour of Goldman Sachs, and the despicable response of Her Majesty's tax collectors.

Slovaks vote down the bail out fund, but don't worry, they will get a second chance to vote again.

The Slovakian Parliament has just voted down an extension of the European bailout fund - the EFSF. Obviously, this was the wrong answer as far as Brussels is concerned and shortly, the Slovakians will be given an opportunity to vote again in order to arrive at the right "European" answer.

Richard Sulik - one of the Slovak party leaders - offered some interesting insights in to Europe and its single currency in an interview with Der Speigel.

In case you haven't already seen it, here is a translation of that interview.

UK regional house prices; what happened?

ukhousebubble.blogspot.com

There was a time when I could string out ten posts from the regional house price data set. "Today, we are going to look at the East Midland. Just look at that bubble. What were they thinking when house prices rose 50 percent in two years".

Now, I can put all the prices in one post. However, the story remains the same; massive price appreciation, followed by bust and generalized ruin.

Under Offer (part one and two)

Urban civilisation versus the desert dwellers

This article from the Chief Rabbi - Jonathan Sachs - summed up neatly Britain today. This paragraph seemed particularly apt:

"(E)very urban civilisation becomes vulnerable when it grows decadent from within. People live in towns and get used to luxuries. The rich grow indolent, the poor resentful. ...People no longer think in terms of the common good. They are no longer willing to make sacrifices for one another. Essentially they lose the will to defend themselves. They then become easy prey for the desert dwellers, the people used to fighting to stay alive."

Just to put the quote in context, Sachs was suggesting that the writing of the 14th-century Islamic thinker Ibn Khaldun might have insights to the modern condition, hence, the reference to desert dwellers.

In Britain today, the "common good" means anonymous and personally distant welfare provision. There does appear to be a marked reluctance to provide any defence, both literally and metaphorically. Indolence and resentfulness - that pretty much describes the prevailing atmosphere right now.

What is driving UK inflation upwards?

ukhousebubble.blogspot.com

This was a tricky little number to put together. Interactive charts are complicated. At the same time, they are far more effective at illustrating key trends compared to static charts.

This chart, covering inflationary developments over the last decade, tells quite a story. It is a tale told in seven chapters.

UK house price to earnings ratio (again)

Powered by Tableau

If there are any problems using this data application, please let me know.

This is what I think about the Occupy Wall street movement.

One of my regular readers - Steve - recently asked me what I think about the "Occupy Wall Street" movement.

Well, Steve, they scare me. I fear chaos and disorder. A riotous mob is a recurring nightmare for me, that goes back to childhood. They are a disorderly rabble, and if they prosper they will offer only social unrest. As a Londoner, I found the recent riots extremely disturbing. It was a tense time, where some of my deepest anxieties came to surface.

I believe the demands of the "Occupy Wall Street" are impossiblist nonsense. In any practical sense, they offer nothing useful.

However, I also believe that the roots of this movement is in the irresponsible and inflationary policies of western governments. When the likes of Greenspan and King unleashed their asset bubbles, they set of an inevitable chain reaction that would lead to a crash, and an economic slump that would increase discontent and eventually destabilise politics in advanced economies. The "Occupy Wall Street" movement is really only symptom of an illness that has afflicted the advanced economies for the last two decades.

Quantitative easing is just the latest manifestation of this short sighted and destructive approach to economic policy. What Western economies need is order; balanced budgets, positive interest rates, and genuine welfare reform that restores incentives for work and investment.

What is that old line about the definition of madness?

Quantitative easing is back. The Bank of England is on its third attempt to reflate the economy by printing cash.

We are now four years into the crisis and policy makers have made little if any progress towards stabilising the economy. Growth is non-existent, inflation is running at 5 percent, unemployment is high, and the housing market continues to slide. Inevitably, the FTSE is in the toilet.

Fiscal policy is the only area where there has been any progress. Even here, the results have been somewhat paltry, although the hope is that things will look better next year.

Printing money doesn't generate income and wealth. Only production can do that. This requires entrepreneurs finding suitable labour and acquiring capital in order to make things.

The bank will justify their renewed cash creation in terms of kick-starting bank lending. True, firms need credit. However, previous quantitative easing efforts failed to restore credit lines to small and medium enterprises.

Why? Because firms need something much more important than loans in order to survive, and ultimately prosper. Firms need macroecoomic stability. They need to believe in the future.

Quantitative easing means future chaos; it means inflation, negative real interest rates, and the possibility of more crisis. Entrepreneurs understand that QE is a panic reaction; a cheap attempt at creating the illusion of prosperity. It can not be a basis for returning the UK to stable growth.

The previous two attemps at quantitative easing only served to prolong the crisis. The third attempt will also fail. There is that tired old line that the definition of insanity is to keep trying the same failed policies, expecting things to change this time. Yet despite its overuse, it accurately explains the behaviour of the Bank of England.

Seven reasons why European banks continue to struggle

The European financial system is again in trouble.

Dexia, the Franco-Belgian bank, has just received a government guarantee. European Union finance ministers are again cobbling together late night rescue plans in an effort to prevent the financial crisis from worsening.

So what is going wrong with Europe's banks?  In no particular order, there are seven reasons why European banks continue to struggle:

Never below two

Over the last ten years, UK services inflation has never been below two percent.  As often as not, it has been above four percent.

The story of UK inflation is straightforward. Cheap manufactured goods from Asia kept the inflation rate low, which the service sector, which can not easily be substituted by foreign competitors just kept raising their prices.

If you want proof, just take a look at tube prices in London.

Why a single European Financial Supervisor would be a bad idea.

There are few problems facing Europe where a solution cannot be found in Brussels. Exchange rate management, tax policy, the environment, trade, foreign relations, and defence - the European Commission has the answer to every challenge. Furthermore, the answer is always the same; member states should delegate more decision-making authority to the Commission.

The credit crunch continues

Click on the image for a larger version

Deep impact

There is an apocryphal story that in the summer of 2006, the US Federal Reserve became worried about the property bubble that was raging in many US cities.

So the Fed dusted off its macroeconomic models and conducted a simulation to see how the US economy would respond to a 20 percent fall in house prices. The model predicted that the US economy could easily absorb that kind of correction and that there would be no major impact on output or employment.