The price of everything

Debt wish

 

“The duration of the slump may be much more prolonged than most people are expecting and much will be changed both in our ideas and in our methods before we emerge. Not, of course, the duration of the acute phase of the slump, but that of the long, dragging conditions of semi-slump, or at least sub-normal prosperity, which may be expected to succeed the acute phase.”

 

-       John Maynard Keynes, writing in 1931, and cited by former BoE Monetary Policy Committee member Danny Blanchflower at a recent investment conference.

“The government borrowed £163.4 billion in the past financial year, the worst level of borrowing in Britain’s peacetime history..”

-       Financial Times article of 22^nd April 2010.

Or, as Rogoff and Reinhart put it, financial crises are long-drawn-out affairs and their aftermath, unlike that from a volcanic ash cloud, tends to linger dangerously, for years rather than months. Pimco have made similar observations about the likely medium term impact on the western economies with their ongoing reference to a “new normal” that is likely to display distinctly sub-par growth and the dead hand of increased government intervention. Facing significant but as yet intangible crisis, human nature is not helpful. We can only stand so much grief, and then sunny optimism kicks in, whatever the objective reality. Another problem is the mob-like status of modern communications. The Internet has given a voice to millions with nothing to say. Finding meaningful and relevant (investible) signals within the relentless barrage of cretinous noise is an ever-growing challenge.


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Gigantic cloud of cash “to leave UK tonight”

“I did maths for a year at university. I don’t think I was very good at it.”

 

-       Gordon Brown.

 

April 19 (London) – Investors throughout the UK and Europe were left in the dark over the weekend as a gigantic cloud of cash started surging out of London. Meteorologists said the cloud of red hot cash was being bolstered by unsustainable torrents of hot air associated with the now 14 year-long election campaign. At Heathrow, there were angry scenes as hundreds of families desperately trying to escape the now permanent political coverage were told that none of the major parties’ election pledges would fly.

Six million passengers, otherwise known as the civil service, could be affected if the cash cloud, as feared, is leaving the country for good. Commentators speculated that the cash was heading towards Asia but that the climate just about anywhere looked preferable to Britain. “The outlook for today is in fact worse,” said air traffic control officials. “The forecast affected area appears to be growing.” The cash is surging out of local currency savings accounts and is expected to drift southeast before reaching Switzerland, where much of it is expected to settle. Some climatologists believe the cash plume may be joined by a separate stream of cash currently leaving Greece as fast as it can be bundled into suitcases and stuffed down trousers. As and when the dust starts to clear in Athens, other parts of Europe are forecast to become engulfed, including Spain, Portugal and Italy. In Lisbon, there are reports that townsfolk have already abandoned the use of Euros and are paying for purchases with pasteis de nata.


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Woe, to be in England

“There cannot be a crisis next week. My schedule is already full.”

 

-       Henry Kissinger.

 

All these bank runs are getting exhausting. Two and a half years after the failure of Northern Rock and a year and a half after the failure of Lehman Brothers and most of the rest of Wall Street, Greek investors are finally joining the party. μπράβο! In this case, better never than late. On the one hand, you can believe that some kind of political settlement to Greece’s seemingly intractable fiscal problems is possible. On the other hand, just follow the money. Depositors in Greek banks are weighing up the options and seem to have decided in favour of branches of HSBC, Société Générale – despite its awkward serial habit of employing massively fraudulent anomaly-causing staff – and sundry Swiss banks. According to the FT, Greek savers took €10 billion of deposits (or 4.5% of the total) out of the country’s financial system during January and February. UK bank depositors should not be feeling too smug at this point. No matter how carefully you check your bank statements this year, the post May 6^th new government will be on the prowl for any spare cash. Cynicism or realism might suggest that anyone luxuriating with surplus money in the bank will have at least some of it forcibly removed. For those on higher pay, the forcible money removal process has already begun, at source. Oh, to be in England, now that April’s there. This is probably not what Robert Browning was thinking about.


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