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How Safe Is Britain’s Proud Pound? – Speculators Eye Next Prey

Britain may soon turn into a nation for the government, from the government and by the government.

Will there be a private sector in the future?

Will there be a private sector in the future?

budgetary and debt problems facing Greece, Portugal, Italy, Ireland and Spain have reinforced (British) conviction that staying out of the euro zone was the right decision. Unlike Berlin, London is not under pressure to come to the aid of Athens.

But speculators have taken aim at the British pound – a favored target. Market pressure on the British currency is not likely to disappear overnight.
Alarm on the Markets
Markets were alarmed … that a close election could make it difficult for parliament to pass a strict package of savings measures. Such political concerns are temporary. More permanent, however, are the fundamental debt and budgetary problems that have fuelled the British currency’s downward trend since October 2008.
The problems start with the size of the country’s budget deficit. With a budget deficit of 13 percent of GDP this year — Greece’s is 12.7 percent — Britain is by far the deficit champion of the G-20 states. Britain has so far avoided an Athens-style crisis primarily (because) unlike Greece, which is facing the need to immediately refinance €20 billion in debt, most British debt won’t come due until 14 years from now..

Mass consumer debt in Britain is whitewashed in a similar manner. With an average personal debt of 170 percent of annual income, British households are even further indebted than the Americans. And interest rates kept artificially low by the Bank of England are still feeding this bubble. Sooner or later, a rise in interest rates is inevitable — at which point domestic demand could take a nose dive. (via Speculators Eye Next Prey: How Safe Is Britain’s Proud Pound? – SPIEGEL ONLINE – News – International. Parts excised, punctuation provided).

If everyone is part of the Government, who will you tax?

If everyone is part of the Government, who will you tax?

Safe for now

In the short run, Britain may be safe. Redemption 14 years away, debt designated in GBP and issued out of London. With the unraveling of the Bretton Woods, London’s reign at the cross-roads of the world capital markets, may be thin and short-lived. A seemingly probable scenario is an increase in interest rates will increase defaults by British households unwinding British banks.

But in the meantime, Britain will need to place additional debt to tide over the next 10 years. Britain (and the world) will see another cycle of recession, inflation and economic dislocation. The main difficulty for Britain will be placement of new debt when the new crises hit the world. Considering the frequency of financial crises, Asian Crisis (1997), the Tech Meltdown (2000), The Great Recession (2008), Britain will face a fresh crises soon.

Will there be takers for British debt then?

Population Break up of UK  |  Source - ons.gov.uk

Population Break up of UK | Source - ons.gov.uk

Debt and demographics

The other element in this equation is the size of the British public sector. The British public sector with “6.1 million people on the state payroll, (and) an increase of about 900,000 in 13 years.”

From a population of some 60 million. And a working population of some 30 million. From a working population of some 30 million, the British Public Sector (significantly) funded by the Government) employs some 6 million.

Britain and Europe - One huge public sector nation!

Britain and Europe - One huge public sector nation!

The coming storm

For every four private sector employee, there is one public-sector employee. If India were to follow this model, the Indian tax payer would be burdened with 10 crore public-sector employees.

Add another 2.5 million unemployed, who are also taken care of by the State. Add another 8.0 million inactive people (largely students) who are subsidized. a working population of some 29-30 million supports 15-17 million people from the public sector, unemployed, inactive. Add to this difficult situation, an aging British population. A perfect recipe for an economic disaster. Most promises of public sector cutbacks are met with disbelief and incredulity.

This may soon turn Britain into a nation from the Government, for the Government and by the Government.


The Government should something about this!

August 10, 2009 2 comments
One – The Government should do something about this. Two – It is not like this in foreign countries. Both remarks used frequently, now rarer.
The poor Indian didnt ask for this ...

The poor Indian didn’t ask for this …

Where did this come in from

Growing up in various parts of India, one often heard, for every problem, two common remarks. One, “The Government should do something about this.” The second, “It is not like this in foreign countries.”

Whether it was overflowing drain or a pothole on the road. In the last few years, I wondered where this bit of escapist phraseology came in from! Till I saw this news report.

“The government needs to look at this,” Crowden said. “Budgets are being cut. If they don’t do something, it’s going to be a serious public-health risk.” (via Coming to a bin near you: rat pack takes Britain by storm).

And now I know. Looking back, and seeing things now, I can see that things have changed.

The Indian State in retreat

To many, brought up on the Western schools of political understanding, the Indian Voter will vote for cash, sops, caste and allurements. This displays a profound disrespect for the Indian Voter – and greater ignorance.

The Indian State has been gradually and steadily retreating – and the Indian Voter has been at the forefront of this retreat. For all practical purposes health care in India has been privatized over the last 70 years. The vestigial State support for health care can also go, if the State cuts away its exclusive dependence on Western medical systems – and the complete collapse of Indian medical systems. The Western Voter will not let go of the subsidized health care system – while the Indian Voter has been gradually shifting the the private sector.

Similarly, the dependence on subsidized grain has been steadily decreasing. Inflation may give a false impression of increasing food subsidy bills. However, fact is that from about 75% of the population in the 1960-1970 decades, the dependence on subsidized food grains has reduced to 30%-40%.

Similarly, in other sectors too, the reduction of the role of the State is becoming apparent and welcomed – by the Indian Voter. The resistance is from the bureaucracy and the vested interests of Big Business.

Do things change

Over the years, Indians use this phrase less and less. This phrase is now close to becoming either extinct or may even become a parody. It may soon make its way into Indian films as a joke.

The interesting thing is …

The other thing was that the people who could do something, the educated, the elite, the Westernized used this phrase, hankered for this solution more than the poor or the desi and the dehati types. In all my years, I have never heard a desi say that “the Government should do something about this.”

Curious eh!

Coming to the Brits! Till they get up, and stop asking the Government to do something, the decline will not stop!


 

Where Marx comes alive – Pallavi Aiyar

August 9, 2009 1 comment

For greater good of the most many ...

For greater good of the most many ...

perhaps nothing exemplifies European socialism more than the maze of regulations governing the retail trade in Belgium. It took a panel of five young government officials from the Directorate for Regulation and Organisation of the Market, armed with pages of notes, to explain the main highlights of these to me.

This is what I learnt: In Belgium, shops can only legally go on ‘sale’ twice a year, in January and July. It is only during these periods that shops may sell goods at below cost or ‘extremely reduced’ profit. For six weeks before the sales period, shops may not advertise price reductions.

Although offering discounts (as long as these do not amount to a loss) is legal at other times of the year, for a month before the biannual sales, textiles, shoes and leather products may not be discounted at all. Moreover, the sales are reserved for the ‘seasonal renewal’ of stock, so products deemed non-seasonal may not be included in the sale. Sofas, for example, are considered seasonal but antiques are not.

To implement all of this, two hundred-odd inspectors from the Directorate wander around the country inspecting and many complaints regarding non-compliance are also phoned in.

The rationale behind this mountain of red tape is the protection of small and medium enterprises (SMEs) which it is believed would go bankrupt if big retail were to be allowed to dump in an unrestrained manner. (via Pallavi Aiyar: Where Marx comes alive).

Europe has come a full circle!

The State has slowly and surely, completely taken over. The hard-fought liberties, the Magna Cartas, the Liberté, Egalité, Fraternité, have been in vain. The people have just stepped up to the dias and handed over all the power back to the State. The much touted Renaissance and Reformation have all come to nought.

For the Rest of the World, what is truly a cause of anxiety is that the East seems to be embracing Western political ideology and constructs with reckless enthusiasm – in their quest for ‘progress’ and ‘modernity’. And the public sector behemoths may yet cause some damage.

Remember the East India Company – a public sector company.

Mercantilism reconsidered by Dani Rodrik

July 28, 2009 1 comment

Healthcare is killing

Healthcare is killing

the mercantilist mindset provides policymakers with some important advantages: better feedback about the constraints and opportunities that private economic activity faces, and the ability to create a sense of national purpose around economic goals. There is much that liberals can learn from it.

Indeed, the inability to see the advantages of close state-business relations is the blind spot of modern economic liberalism. Just look at how the search for the causes of the financial crisis has played out in the US. Current conventional wisdom places the blame squarely on the close ties that developed between policymakers and the financial industry in recent decades. For textbook liberals, the state should have kept its distance, acting purely as Platonic guardians of consumer sovereignty. (via Dani Rodrik: Mercantilism reconsidered).

Public sector or oblivion?

During the Great Depression, more than 19 auto companies (similar to the number of banks today) were folded into the Big 3. The Big 3 lived to fight for another 70 years. In their death throes, the US Big Auto is likely to go the way European auto sector has gone – public sector or oblivion.

What is on the table

Hobsons choice?

Hobson's choice?

2 out of the G-7 countries are bankrupt – US and Britain. Their industrial base was supported by raw materials and captive markets – acquired by genocide, and the loot of centuries.

France, Germany, Canada, Italy  and Australia (not in G7) are tethering on the brink – under the weight of their social security system, and most of their business is in the public sector. A geriatric Japan is dependent almost entirely on exports to these declining seven. Japan’s investment in India and China has been negligible.

Real low … real truth (seen an oxymoron like that?)

The real question – who will pay for this financial crisis?

Not the Americans! No siree. Definitely not. Neither the American super-rich or the American welfare-poor! Not the American tax payers or the American tax evaders? Not the American Whites or the American Blacks?

It is the Chinese, the Russians, Indians, Brazilians, and above all, the Africans, who will pay for these bailouts! They (BRICS+Africa) have done, what bankers call non-recourse lending! The Chinese, Russians, Indians, Brazilians and the Africans, have no recourse. Who will the Chinese go to, for redeeming their US$2 trillion? The bankrupt US of A?

Welcome to the real world.

US economic outlook

How the West can become competitive?

How can the West become competitive?

US auto is down – but not yet out. It will limp along for few more decades. The US is still the prime force in the computing industry – though not on the manufacturing side. US oil industry no longer dominates international markets the way they did in mid-20th century. The US nuclear industry faces increasing competition from a public sector French and Russian industry. The seemingly strong position of the US in agriculture is based on two aspects. Massive direct subsidies – of more than 8 billion dollars. And indirect subsidies of possibly another US$ 8 billion. Most of which goes to the 46000 farmers who account for 50% of the US agricultural production. The communication sector has again seen the erosion of US competitiveness – with the domination of GSM technology seemingly solid for another 10-15 years. The global financial markets were dominated by the US organizations in the past – but with the global financial crisis and the end to dollar dominance may see reduced clout for US firms.

Big Government ... Big oil ...

Big Government ... Big oil ...

With such an economic outlook over the next 10-25 years, what the US leadership may focus on, is Arctic oil. Oil will remain a strategic asset only with high prices (slower production increase and faster demand growth) and if no other energy source appears. Oil finds in the Atlantic and Pacific republics may spoil the party – for instance, Cuban oil.

Much like the respite of the North Sea oil to Britain, Arctic oil may provide a temporary halt to the slide in US economic dominance. If the US can lay its hands on a significant part of it!

The other option is to nationalize the US economy. Like France, Germany and Italy. The economies of France, Germany and Italy are practically run by public sector monopolies – or subsidized behemoths, who make survival of competitors difficult by their ability to sustain losses – based on Government largesse.

The lure of ‘capitalism’ …

The Franco-German-Italian public sector model may be the only answer

The Franco-German-Italian public sector model may be the only answer

Why is the West so keen on calling these publc sector, subsidy driven regimes as Capitalism? Capitalism depended on looted capital and slave labour to prosper – resulting in the famous ‘laissez faire’ quip. Capitalists wanted and got ‘laissez faire’ capitalism – which was a ‘coda’ for unlimited slavery. The restrictions on laissez faire were actually restrictions on slaves.

Now under socialism, they get unlimited protection from ‘destructive’ competition. Which is being papered over by names like crony capitalism, free market capitalism. etc.,  etc.

After the multi-trillion dollar bailout, which has just begun, and with more than US$4 trillion with China, Japan, Russia and India, neither is the outcome certain nor is the outlook bright.

Last but not the least, we must remember the power wielded by the Chartered Companies of Europe – another word for public sector.  East India Company was a public sector company!

The Rest of the World needs to be careful of these public sector monsters!

Bank Regulators Clash Over U.S. Stress-Tests Endgame (Update1) – Bloomberg.com

April 25, 2009 2 comments

Stress Test

The U.S. Treasury and financial regulators are clashing with each other over how to disclose results from the stress tests of 19 U.S. banks, with some officials concerned at potential damage to weaker institutions. (via Bank Regulators Clash Over U.S. Stress-Tests Endgame (Update1) – Bloomberg.com).

What are banking insiders saying?

Banking insiders think that all these banks are practically insolvent. How does Obama and his cohorts deal with? Mega mergers? More cash infusions. Or will the US banking also finally end up with the Big 3?

Did the stress crack them up?

Did the stress crack them up?

Public sector or oblivion

During the Great Depression, more than 19 auto companies (similar to the number of banks today) were folded into the Big 3. The Big 3 lived to fight for another 70 years. In their death throes, the US Big Auto is likely to go the way European auto sector has gone – public sector or oblivion.

Saddam lives (through his words)

The way it looks, it will mean the Mother Of All Mergers. At which point, there is no team of accountants in the world who can figure out what is where, or what condition what is in? And then the evasions, the lies the obfuscation can continue for some more decades?

Real low … real truth (seen an oxymoron like that?)

The real question – who will pay for it?

Not the Americans! No siree. Definitely not.

Will the Lilliputs manage a soft landing?

Will the Lilliputs manage a soft landing?

Neither the American super-rich or the American welfare-poor? Not the American tax payers or the American tax evaders? Not the American Whites or the American Blacks?

It is the Chinese, the Russians, Indians, Brazilians and above all the Africans will pay for this! They have done, what bankers call non-recourse lending! The Chinese, Russians, Indians, Brazilians and the Africans, have no recourse. Who will the Chinese go to, for redeeming their US$2 trillion?

The bankrupt US of A? Welcome to the real world.

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