Wednesday, January 23, 2008

Count Your Pennies

Prime Minister's questions at Westminster today and in the Commons, Gordon Brown and the Chancellor, Alistair Darling, are expected to be accused of failing to prepare Britain for a possible recession. Government borrowing has already breached official limits, leaving little room to cut taxes or boost public spending to kick start the economy.

Commenting today, George Osborne, the Shadow Chancellor, said: "Gordon Brown could have used the boom years to prepare Britain for the lean years. He failed to take the tough long-term choices and so we are not well prepared to deal with the difficult economic times that may lie ahead."

At the same time, the Governor of the Bank of England warned that that we may be facing most challenging economic environment since the Bank was granted independence in 1997, Mervyn King said that the City must brace itself for more pain.

Not good news then for a Government still struggling with the Northern Rock fiasco and a crisis in health, education, data protection... the list goes on and on. Worse still, for the man in the street, the impact on investments and big pension funds could present a problem for those facing retirement in the near future.

The probability of a change in Government at the next General Election is now higher than ever before but I wonder if anyone would really want the job, given the potential economic and social train-wreck that faces us all in the future, unless a number of very real challenges are dealt with both efficiently and quickly by a government that had shown itself unfit for purpose in many different areas that affect us all. Family Tax Credits and the Child Support Agency being two small examples that hurt people here in Thanet.

The economy, this week anyway, seems to be out of Government's control as world stock markets suffer and perhaps we should worry that at a time of rising prices and inflation, the government needs money and that could prove very painful to the already overstretched tax-payer after the April budget.

22 comments:

Ewen Cameron said...

The Chancellor and the ex-Chancellor have both lost control. Government borrwing rose to a record £2.5Bn last month alone, and total public debt is also at record levels. And all this before a slowdown blows a hole in tax revenues.

Annual borrowing has been way above Mr Brown's predictions for each of the last five years. As for the "Golden Rules", well, don't get me started on them.

We also have a trade deficit of 6% of GDP. We rely, in other words, on the kindness of foreigners to finance our economy, and the wheels are falling off.

Ewen Cameron

Tony Beachcomber said...

Ewen, I know finance is your game and you must me good at what you do to be in the job you are in.
But is your 10:58am reply a finacial statement or a political statement.

Also this is the first time I have seen the word investment replaced by kindness.So in other words Sandy went to China looking for kindness for Thanet by your definition.

Michael Child said...

In amongst all of the political bluster the really worrying thing that Northern Rock showed is that changes made to the status of the Bank of England mean that we could get a run on the banks.

With the whole country running on credit and the general move away from using cash, we could all find ourselves in a very difficult position.

Ewen Cameron said...

Tony, it’s a financial (and factual) statement. Nothing political about it at all.

(It’s only a loose rule, but if I’m getting political, I usually put the “Cllr” bit in front of my name.)

It’s actually an extract from our weekly client e-letter, issued two days ago.

There’s a difference between inward investment, such as the hoped-for China investment in Thanet, and a trade deficit.

Inward investment is generally in capital projects, which may themselves become generators of exports. The UK’s biggest single inward investment is, interestingly, Pfizer’s Sandwich research unit.

A trade deficit is a revenue issue. It’s not investment, it’s borrowing.

It means that we require foreigners to buy Sterling assets, principally government debt, on a constant basis, otherwise the whole country becomes a Northern Rock, unable to renew its existing borrowing, or borrow more.

This is why over 50% of the USA’s debts is now owned by non-US holders. It’s also the reason why the US dollar has done a swan-dive over the last two years.

The theory of sound economic management is that a government, of whatever colour or persuasion, should run surpluses, both trade and fiscal, in times of growth, to hoard value for deficits when the economy turns down. Those surpluses can then be released to stimulate the economy back into growth.

What we have is the opposite of that – a government which is running trade and fiscal deficits in a boom (now rapidly ending), which will get much, much worse, as the economy slows. If it were my (political) lot doing it, I would be just as vociferous about it.

The economy coasted happily into surplus in the late 90s, aided by massive windfalls such as the £23Bn auction of wireless phone licences. HM Treasury (on record) dubbed it “The UK’s gold-plated economy". It’s been steeply downhill ever since, and the nation, collectively, is binge-spending under government-endorsed policy on debt internationally, just as it is doing so at household level, domestically. Again, a factual point, not a political one.

It’s an aged truism of economics that it takes around a decade for fundamental policy changes to bite. On that basis we are now starting to suffer from the profligacy of the late 90s, and as for what’s been going on since – well – that’s a whole other story, which sadly, we are all going to have to pick up the pieces from.

In case anyone’s wondering, Yes, we did foresee the market crash, and pulled all money out of shares last July. We also saw the Northern Rock coming, and issued a specific warning about it three weeks before it hit the buffers.

Regards

Ewen Cameron

Anonymous said...

Good to see that Cllr Cameron has plenty of time to deal with national economic issues but I wish he would investigate hedge or is it fence funds (I am not an economist) in Bradstowe Ward.

Laura Sandys said...

Straying from the economy and returning briefly to the vigourously debated topic of local planning, yet more planning powers are to be taken from councils and given to unelected bodies

In case you missed it, a raft of new laws is coming before Parliament which will take away power from local people across East Kent on planning issues, and impose a host of unelected planning quangos on them.

The upshot could be unsustainable development, overriding local opinion and harming the local environment.

With local control being eroded year and year by this Government, this is yet another set of unelected organisations that will further undermine our local residents’ ability to make decisions for their local area. This comes on top of the planning appeal process that is centralised and more and more dictates from Whitehall about what we are compelled to build.

Gordon Brown’s new quangos include:

The new unelected Homes & Communities Agency, with powers to seize land, enter private property and act as its own planning authority.

The new Infrastructure Planning Commission, which will take complete control of planning permissions for large developments like power stations, motorways, sewage plants and hazardous landfill sites: the types of development which rightly concern local people so much.

Unelected Regional Development Agencies which will adopt all the powers of the unelected Regional Assemblies, but with no local councillor involvement.

Ministers have confirmed in recent answers to Parliamentary Questions that local councils and elected MPs will have absolutely no say on the appointments of any of these quangocrats. This is despite Gordon Brown’s pledge last May to stop politics becoming a ‘spectator sport’ and build trust in democracy.

Anonymous said...

Our beloved leader Gordon sold 415 tons of gold when it was £280 and ounce. It's now creeping towards $1000 per ounce.
The man is a buffoon.

Anonymous said...

$280 an ounce I meant to say...

Michael Child said...

With the possibility of a run on the banks Gold does have a certain attraction.

Ewen Cameron said...

Well observed, anon 3:53

We keep an entirely informal tally of what Mr Brown's enthusiasm for selling gold has cost all of us, compared to the current price.

It's currently around £6.5Bn. Nice timing Gordon.

I can't and won't give investment advice here, but our client equity portfolios are currently positioned approx 31% gold, 19% oil, 50% cash (not deposited in the Northern Wok)

anon 3:20 - I do not understand your comment - could you please be more specific about what troubles you? If it's steel fencing along the Vere Road-Albion Street footpath, I am already aware of that one and working on it (within my limited powers). If it's something else, can you give me a clue?

Cllr Ewen Cameron

Mr Friday said...

I think Gordon Brown was a nutter to have wanted to be PM so much with the ticking timebomb of the failing economy in the background.

Blair did it at the right time. Rode a very lucky streak all the way through - albeit a murderous one and he will always have our soldiers' blood on his hands but that's a debate for another time.

The old saying of "you reap what you sow" has never been truer. Brown has to sort out his own mess now. He can't even blame the half-man half-badger currently in the Treasury.

Mr Friday said...

PS - But all this pales in comparison with a scruffy set of railings in Broadstairs. Sorry for straying off-topic.

Michael Child said...

I once heard Wilson an Oxford don address the Oxon union, in an accent like any other oxon don, who says politicians don’t lie many are one, well looking out on the vista of ergonomics perhaps Brown Job will do the same, just go.

Saxon Serf said...

Well picked up, Cllr Cameron. Spot on and glad to read you are onto it. Will await outcome with interest.

Asfor Laura Sandys: tut tut! Our new MP for Thanet South has raised the subject of planning .........oops,
( Laura,the Editor doesn't like people going off piste or is it off thread).
It is likely to raise from the depths of the thread "Zimbabwe then Margate" zombies who have been buried in the depths talking about a fence in Broadstairs. It seems to me as a casual observer of Thanet and Thanetlife that we need to keep an eye on our own TDC Planning process without worrying too much about external labour inspired quangos etc etc.

Hope the campaign over in Ramsgate has gone well re 'Garden Grabbing' but that of course was a planning application campaignand could be discussed and supported in detail by Thanetlife.

The problem of fencing in Culmers Land, Broadstairs is increasingly looking like an internally driven fiasco by TDC officers who whilst suspending normal planning regs and procedures for an 'internal' job to provide security for Allotment holders down there ( a most laudable an urgent requirement) may have failed to appreciate that TDC is not responsible, as 'trustees' of the endowment made in 1640 for the 'poor of ye Parish of Boredstairs' are actually those sitting on Broadstairs & St Peter's (parish) Council! The whole issue is academic as the 'blot on the landscape' is in place. It now needs men and women of character and integrity to admit that "just,... perhaps...., maybe...., a good idea ,for the best of motives,has not been done well and that 'guys and galls' WE as Councillors had better step in and sort the issue out" .

I hope this will be the case but just in case its not, we all should be aware that there is a growing, rumbling and grumbling swell of anger about the location and size of the fencing at Culmers Land in those quiet corners of Broadstairs, as I discovered this afternoon by going out and talking to people. The words of a Norman father to his son by Rudyard Kipling come to mind about Broadstairs:

"The Saxon is not like us Normans. His manners are not so polite.
But he never means anything serious till he talks about justice and
right.
When he stands like an ox in the furrow--with his sullen set eyes
on your own,
And grumbles, 'This isn't fair dealing,' my son, leave the Saxon
alone.

"You can horsewhip your Gascony archers, or torture your
Picardy spears;
But don't try that game on the Saxon; you'll have the whole
brood round your ears.
From the richest old Thane in the county to the poorest chained
serf in the field,
They'll be at you and on you like hornets, and, if you are wise,
you will yield.

A Saxon Serf

Tony Beachcomber said...

Annon 3:53 that is realy old hat, The gold was sold for euros which earnt a greater interest. The gold price at the time had remained static at about £240 .
Eventualy the price of gold actually fell and the euro incresed in value.

For the record in the year 2000 a half sovereign could be purchased for £28. Did you by any?

Tony Beachcomber said...

Ewen,

When the gold was sold the price was always about £240 and ounce some people were selling krugers at £256, lucky them.
In the year 2002 the price dropped and sheild back half sovereigns were selling at £28 each as I bought a load. This was because nobody wanted them. I doubt in 2002 nobody would have been able to forecast the price of gold being close to $1000, but then most people didn't think george bush would be reelected.

Ewen Cameron said...

Saxon Serf – I was unaware of the discussion running of the Zimbabwe/Margate thread. I confess I had given up on it half way down, as it seemed to be wandering off into the boonies, before Broadstairs fences came into it. Update duly posted.

Tony – Gold is widely regarded as having been driven down though 99/02 by the scale of the Bank of England selling. It was equivalent to around a fifth of world annual gold extraction (mining), and when you introduce supply of that volume, prices tend to fall. In late 02, when the selling stopped, it recovered, and doubled over the next two years to over $US 400 (gold is always priced in dollars per troy ounce). This was the start of the bull run it is still in (a touch under $US 900 today).

Anyone wanting predictions will have to look elsewhere, but, if gold’s previous 1980 peak of $US 850 is corrected for US GDP growth (as fair a measure as any), that translates to around $US2,500 per ounce.

I have no claims to genius, but I and my colleagues certainly spotted it. But, I confess I didn’t think George Bush would get re-elected either.

Regards

Cllr Ewen Cameron

Ewen Cameron said...

Oh - forgot to mention;

The Euro thing is one of Gordon Brown's most blatant chestnut-flavoured humbugs;

(a) the Euro did not appreciate against Sterling (other than over the last six months)

(b) Euro interst rates over the last eight years have been lower than Sterling rates.

It's a bit academic. The money raised has long since been hoovered up by government deficits.

Cllr Ewen Cameron

Saxon Serf said...

Cllr Cameron has perhaps inadvertently made the point about the well known blogging editorial technique of 'burying an item' in the depths of another thread when he writes:

"I was unaware of the discussion running of(sic) the Zimbabwe/Margate thread. I confess I had given up on it half way down, as it seemed to be wandering off into the boonies, before Broadstairs fences came into it."

Glad to see he has returned from the depths unscathed!

Ewen Cameron said...

The opposite of burying it, Saxon. It was me who posted here to say I had posted on the other thread (in case anyone died of ploughing their way to the end of the thread).

Pardon my typos - I have never pretended to be the world's most expert typist.

Ewen Cameron

Saxon Serf said...

You successfully, dug it up, Cllr Cameron. Were your ancestors Burke & Hare? The burial was some-one elses editorial decision!

Tony Beachcomber said...

Ewen,

I always thought you could loan euros it is a bit easier than loaning gold.

On another point I bet there is more gold tucked away on the millmead and newington estates than the rest of Thanet put together.