Mindful Money’s news round-up: Wednesday 14th September 2011

14th September 2011

Story of the day:

From the New York Times, Tracking Europe's Debt Crisis

And the best of the rest:

News from the eurozone:

From the Financial Times, Moody's has downgraded its credit ratings on Crédit Agricole and Société Générale and kept France's biggest bank BNP Paribas on review for a downgrade.

Moody's cuts two French banks' ratings

Confidence in the future of the eurozone took a yet another knock yesterday as Italian borrowing costs hit a record high and the German Chancellor, Angela Merkel, was forced to quash rumours that Greece was about to crash out of the single currency, reported in the Independent.

Merkel rejects Greek default amid euro panic

And from This is Money, Italy was dragged deeper into the eurozone debt crisis yesterday amid mounting fears over the future of Greece, writes Hugo Duncan.

Italy engulfed by euro crisis as borrowing costs soar

Frantic trading as Europe struggles with its debt crisis is providing a brief shot in the arm for stock exchanges, but won't immunise their hefty valuations from fierce competition when the volumes abate, says Reuters.

Trading bonanza masks perils for exchanges

Some good news from the Wall Street Journal, industrial production in the 17 countries that share the euro rebounded in July, driven by a surge in Germany, the currency area's manufacturing powerhouse.

Euro-Zone Industrial Output Rises

The eurozone must begin to look to the future if they are to get help from elsewhere…the Financial Times reports,  Wen Jiabao, Chinese premier, has outlined conditions that Europe must meet before China will increase support for debt-laden Europe, in a sign of Beijing's reluctance to be cast as a saviour for the global economy.

Wen sets preconditions to help Europe

News from the UK:

Public sector job cuts imposed as part of the government's austerity drive have sent unemployment back through the 2.5m barrier, according to official figures released today reports the Guardian.

Unemployment rises above 2.5m milestone

And from the Telegraph, Adam Posen, a leading UK policymaker, has called on the Government to set up a state-owned bank to funnel desperately needed credit to small businesses.

MPC's Adam Posen calls on Government to set up state bank to help small businesses

While This is Money is reporting , stamp duty should be scrapped, VAT should be charged on everything and all savings returns should be tax-free under radical reforms proposed by an influential pressure group today.

Economists call for end of stamp duty and savings tax in radical redrawing of tax rules

Fear of the markets has blinded leaders to the alternatives. Economies can grow out of debt or plunge deeper into crisis, reported in the Guardian.

Spooked into austerity, we dig our own economic grave

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27 thoughts on “Mindful Money’s news round-up: Wednesday 14th September 2011”

  1. Patrick, London says:

    Interesting and sadly, depressing article. Unlike Slartibartfast I’m not sure whether I’d rather be happy or right in my understanding of where the economy is now/is heading.

    Apologies for a hijack here, but I’d be interested to hear whether you know the figures for the number of properties owned as BTL in this country, along with any rate of increase/decrease of BTL purchasing. Also, do accesible records exist to show how many properties are owned by what number of people? Finally, is there a non conspiracy theorist rationale for why there isn’t a taxation increase on second, third, fourth homes etc?

    There’s lots of awful short-term decision making going on with the government’s budgets as a whole, which as you rightly point out, is inextricably linked with the nature of modern day career politicians, but the lack of correction in the housing market seems to be at the root of a lot of average Joe concerns. 

    It strikes me that the market could be positively affected by BTL becoming very unattractive due to taxation. Increased revenue for the government, or an increase in the number of properties for sale, helping price reductions. 

    Fewer BTL properties would probably help prop up the exorbitant rents that can now be charged due to the current housing situation, so even the landlords might not lose out much, beyond the hoped for (and unreasonable/unlikely) capital growth. 

    You may have covered this in an older article, but I’ve been following for a while, and hadn’t spotted something specific to your thoughts on why the above hasn’t been offered by the government.

    Also.. in 60 years time, if my train isn’t floating through the atmosphere as I celebrate my 100th birthday, I’m going to sue Hollywood, Sci Fi writers, and all Game Designers. For Crying out loud, Skynet became self aware last April, and the Replicants should be back on earth in 7 years. 

    1. Anonymous says:

      Hi Patrick

      Many deadlines go by Skynet is one and the bloke who offers followers “rapture” seems to have had various goes at it! There is supposedly one for Greece on Friday and on and on they go…

      As to the Buy to Let market here are some stats to keep you out of mischief for a while on this link. http://www.cml.org.uk/cml/media/press/3144

      As to my views I think that we should start by applying the taxes we have as for higher priced property stamp duty has become voluntary. I can see that you have given this some thought so what would you do to 2nd.3rd homes and Buy to Let?

      1. Patrick, London says:

        I’d love to see the figures for how many individuals hold those BTL mortgages. It feels as though you can trace the price boom through the TV shows of the last 20 years, starting with Changing Rooms, and on to Property Ladder and Location. 
        Week after week, these ‘entrepreneurs’ could make what seemed like disastrous choices with regards to their improvements, yet still ‘make money’ from a rising market… Let’s all get on board. It’s Money for less than nothing!Self certification, overseas investment, interest only BTL mortgages, and equity release specialists… the blood boils.I get it though, shoddy returns on savings, volatile markets, who doesn’t want a sure thing. So what the hell was a supposedly socialist government thinking when this land grab was going on? Perhaps because it was open to anyone (who had disposable cash or were prepared to lie), it felt egalitarian. Maybe it could’ve worked as well, if safeguards were put in place to limit individual avarice. All that was needed was a combination of increase on stamp duty for each subsequent home, combined with an increase on taxation from either the rental income from those properties or an increased capital gains tax on the sale of that asset. By the fourth home, the costs involved would make it much less attractive to continue on the buying spree.I accept that there are people who need, or prefer to rent, and that therefore there is a need to have rental property, but the form of taxation I’ve described shouldn’t drastically reduce the number of rental properties, it would just distribute them, inevitably leading to more competition for tenants, creating a healthier marketplace with no monopolies. This could reduce the governments burden on council tenancies as rental prices could come down. It could have cooled the housing market at the time, but would certainly have an impact now as those landlords with over 4 or 5 properties look to release those houses back on to the market to ease their tax burden.More Homes on the market, more competition in the rental sector, more part time landlords (Who would still have to meet a lot of criteria) who have a reliable investment for their retirement, cheaper rents, cheaper houses, FTB able to get on the ladder, more money in your pocket, more money to spend.One more thing – Seems odd to me that we have a system where an individual can’t afford a house where they work in the South East, who then chooses to get a mortgage on a property to rent out outside of the south east which they can afford to pay for, has to get a much more expensive BTL mortgage when it is their sole property. Another way to make it difficult for FTB to get on a ladder?!?Is the higher rate on a BTL mortgage an artificial way to discourage BTL…? Might actually work if we hadn’t had artificially low mortgage rates for so many years now.Sorry for the long post!

        1. Hi Patrick

          The proliferation of TV programmes on the housing market were a sign of a problem and if that wasnt enough I agree that some were in effect promising a get rich quick future.

          I am a fan of a free market and rather than taxation (which in politicians hands would lead to spending even if there wasnt a need) my preference would be to reform the banking sector. Accordingly there would be buy to let mortgages but not so many and hopefuly the froth would go out of that market.

          As we stand the housing market is actually seeing a boost with the mortgage guarantees I wrote about a week or two ago and I wouldnt be surprised to see it receive more help. Wasn’t it Charlie Brown in the Peanuts cartoons who used to say.

          “When,when will I ever learn?”

          1. Patrick, London says:

            I’ll look for the article on the guarantees…. sounds interesting. In an ideal world (hah!) the taxation would be invested in new builds / empty housing stock regeneration / brownfield site development, as opposed to being swallowed up in the general kitty.

            Without that guiding hand that was supposed to moderate free markets (whether deity inspired, or derived from communitarian principles) I cannot accept it as a long term solution. Without massive revisions to corporation laws – or perhaps the removal of corporations altogether as a legal entity, I really don’t think a free market will ever be guided by a moral philosophy.

            The BRIC countries look to me to have 10-20 years max, before they’ll need to be outsourcing all their manufacturing to (most likely) the least developed parts of Africa. Their own populations, will become increasingly aware and desirous off ‘higher standards of living’ (i.e. consumerist behaviour) and the economies will need their people to buy stuff. How long before the work place demands for wage increases reduce their cost effectiveness. 
            It will be interesting to see where this will be felt first – I would guess Brazil. India (largest democracy – most ingrained class/caste system with) to follow, with China and Russia resisting the longest due to the blatantly/slyly totalitarian nature of the governments.

            Potentially Africa benefits as infrastructure is required… who knows, could be the making/saving of the continent – but do the BRIC countries begin to stagnate? What happens when it all happens again. Will we be so destitue at this point that we’ll have a thirving sweat shop industry, so that those self cleaning jeans, and hover trainers are now made in England?

          2. Hi Patrick

            It was contained in here.


            As to the other issues you mention I have a friend who is working to help the Ghanian economy and he tells me economic growth is now 7/8%. So we may see changes in some of Africa faster than we think and let us hope that any economic improvement will help with the famines and other porblems that the continent is prone too…

  2. Drf says:

    Hi Shaun,

    “But now we need to plan more carefully and I will be interested in
    readers thoughts as to what we should do. We cannot go on as we are.” That is of course true, but politicians being politicians they will not recognise it!  The root of the problem is that politicians in government do not have the skills or proper training for the job, and they are corrupt almost without exception.  Above all they have a complete inability to control money and to understand the large actual amounts involved and how they compound. When dealing with other people’s money they have no concern since it is not theirs and not their potential loss.  Therefore although as you observe we cannot go on as we are THEY WILL!  Eventually there will be national fiscal disaster and there will be forced action rather as in Greece now, unless there is a violent revolution or coup first. 

    I watched afresh an old film a few nights ago called “Mr. Smith goes to Washington” with James Stewart in the leading role.  This has recently been restored from archive material. It was made in 1939.  As I re-watched it I was astonished to realise that the plot recounted a political scenario very like that now; politicians do not change and their abilities to control other people’s money and appetite for corruption does not change.

    My recommendation for what we should do is that any individual and their family should leave the EU altogether pronto and go to live where taxes are much lower and government spending is much lower.  That is now the only escape from ruin.

    “So any forecasts tomorrow should be taken with much more than a pinch of salt.” Should anyone pay any attention at all to any forecast made by any government or any government agency?  As I have pointed out before on this blog none of them are to be trusted, because their objective in publishing these forecasts and supposed statistical numbers is quite different from that declared and quite different from that in the interest of those receiving these forecasts.  Some have suggested that whatever any government or government agency forecasts or states should always be treated as the direct opposite of truth.  That is probably the reality.

    1. Anonymous says:

      I have several suggestions for you.

      Firstly we use binding democratic referendums to replace politicians diktat. Switzerland does use referendums and appears to be better run than the EC.

      Secondly, in regards to government agency statistics – use markets to predict forecasts. Unfortunately this won’t work when governments are allowed to manipulate the market.

      Thirdly, consider information service businesses to provide alternate forecasts. The rub here is – who will pay for the service ? The big 3 ratings agencies provide free credit ratings but does this compromise their ability to issue bad ratings ?

      1. Drf says:

         Hi ExpatInBG,

        Are your answers intended for me or in response to Shaun’s questions?

        I think you raise some good points, but with regard to the first there is no way in which UK or EU politicians would ever accept your suggested binding referenda to the curtailment of their autonomy to wreak havoc without violent rebellion. Switzerland is as you infer much better run than the EU without doubt.

        On your second point you describe exactly why that does not have much potential for reality.  With the third, most larger businesses already do use independent data services and forecasts, but as you observe it is expensive.  The results are not always accurate in any case because the reality is that it is impossible to predict the future with complex systems, because there are too many unknown variables.  Murphy’s law being as it is, an unexpected variable which had not been considered to be significant comes from nowhere like a stray filly and demolishes the complete forecast which you paid so much to obtain!

        1. Anonymous says:

          Hi Drf,

          On politicians, I agree that our current politicans are too deep in their trough to allow us referendums, but there is hope of a new party or an outside party taking up the mantle. In times of crisis voters are more willing to support outsiders.

          While I agree with Nigel Farrage on the EC, I think a 1 issue party cannot become the government using the UK’s first past the post system. If they promised us voter democracy they might gain lots of votes.

          We have a lot to be thankful for with our political system, as much as I hate Brown & Balls for wrecking the economy with debt and their useless “balanced budget law” which didn’t put them in jail, they did release power in accordance with our electoral law. The EC is not all powerful, Cameron vetoed a stupid tobin tax and Rajoy refused to comply with austerity. To misquote Stalin – how many divisions does the EC have ?

      2. Anonymous says:

        Hi Expat

        I have been thinking of the first one myself as a way of expanding my plans for democratisation of the Monetary Policy Committee. In the modern communication era it should be much more flexible and feasible.

    2. Anonymous says:

      Hi Drf

      As to politicians I wonder if it was always so and I supect that in general this has been the case. Indeed the James Stewart film is evidence of that. But in a crisis like this it becomes much more  obvious…And this makes me wonder about the timing of the film (just pre WW2….)

  3. Anonymous says:

    I believe that HS1 came in below budget, so it is possible.

    1. MickC says:

      I don’t think HS1 was entirely new though. Wasn’t it effectively a renovation of existing track?

      1. Anonymous says:

        It is all new, except that St Pancras was an existing station.

    2. Anonymous says:

      A word of warning for prospective financiers of HS2. Eurotunnel forced a debt write down on creditors. I think that many of the original railways also had debt write downs and bankruptcies in the Victorian era. And if private financiers won’t take the risk then the government should not either.

    3. Anonymous says:


      HS1 revenues below budget. Looks like HS1 is another project requiring taxpayer bailout.

  4. James says:

    Great piece although very depressing. I love the idea that the assets of the pension fund count, but the liabilities don’t.
    The key message from the whole of the last fifty years is that, where governments are elected by people who think/hope other people will pay, there is no mechanism for rational analysis of what governments should do and pay for.
    The only time that politicians are able to cut expenditure seems to be where the recipients of reduced spending have no say (e.g. Greece, Portugal, Ireland etc). the rest of the time, the instinct to sponge of the general weal seems too strong to resist.

    1. Anonymous says:

      Hi James

      Thank you. As to your point about cutting expenditure it has made me think about what they cut and I find myself thinking that “we are all in it togther” and other such phrases were a mirage…

  5. Rods says:

    Hi Shaun,

    Another really excellent blog.

    Don’t politicians like grand projects like HS2, which will do nothing to solve Heathrow / Gatwick runways running at full capacity, so if an aircraft misses its takeoff slot, it is normally delayed for hours waiting for another one! We also need electricity to run the trains and with the retirement of older polluting power stations, to comply with EU law and the delays in building replacement nuclear ones, it is looking increasingly likely there is going to be an energy gap here.

    I’m glad you have touched on pensions as this with old age health care and care home provision I can’t see how it is sustainable. We are told that we currently need immigration so there are 3 working tax payers to pay for each pensioner. So with this expanding population, when they retire they will each need 3 tax payers to support them! As today’s tax is tomorrows pension, health care bills etc., this is a giant Ponzi scheme and at some point there is going to be a Madoff moment where the money has run out. I suspect it will be in the 2020’s or 30’s.

    Now will the poor returns on pension funds over the last 10 years and this probably continuing for the foreseeable future along with poor annuity rates, even those who have tried to have a good private pension are going to be disappointed. With long term energy and food prices only likely to go in one direction, upwards, then I think there are going to be a lot of very poor old people.

    I can’t see how Western society is going to survive in its present form, as clearly with most GDP to debt rations approaching 100%, the capacity to borrow is going to run out.

    1. JW says:

       Hi Rods
      In response to your comments about ‘energy gap’. This will not be a ‘gap’ but a yawning cavern. The ‘older polluting power stations’ closed by EU dictat contribute 50% of the UKs electricity supply. With scrubbers and FGD installed, their only ‘pollution’ is a plant food gas. When the UK is suffering brown outs, and then black outs on a regular basis whilst China burns 50% of the world’s coal, it will ‘warming’ to think of all that good that is being done to the planet.

        1. JW says:

           Waste of time and money. Scottish Power have looked at exactly this set-up via Peterhead for at least two decades. Can’t make it work.

    2. Anonymous says:

      Hi Rods

      Thank you. On the pensions issue of the worker/pensioner ratio then the place to look where problems are much nearer is the land of the rising sun.

  6. Anonymous says:

    Hi Shaun
    Thought provoking as usual. Incompetence and hubris will continue. It’s part of human nature. In the notayesman tradition however I want to refer to some good analysis of the long term fiscal sustainability of the UK. In my view, we will all have to work until we drop. The Office for Budget Responsibility is usefully reviewing long term fiscal sustainability, the costs of an ageing population, contingent and actual pension liabilities, lost revenues from North Sea and fuel duties etc. They encourage the production of Whole of Government Accounts ( WGA) which depart from the ‘clever by’arf ‘ accounting you refer to.Those accounts do try to start to map assets and liabilities on a commercial accounting basis – referring to much of that left out of PSND accounting.

    1. Anonymous says:

      Hi Shire

      I hope that the “holistic” accounting by the OBR will give us a better road map. The catch is that most of what the OBR has done/forecast so far has been wrong! It has not gone well as a concept although to be fair these have not been easy times for it to start in…

      Still if they do a decent job then we can resume debating the assumptions made :)

  7. Ian_jones says:

    When the country has been so skewed to the left by the last Labour Govt (spending from 37% GDP to over 50%) it is always going to take a long time to bring it back. Its even worse for the higher rate taxpayer because the extra spending has not gone to them so taxes rise for less service. This was always going to be the outcome of socialism following the war, Thatcher only made a small dent. The question is how will the next 30 years go, if we dont fundamentally change then we are destined to stagnate for the whole time as China, India and the rest quickly catch up and overtake us.

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