economic situation is dire

[tonyh29]

What is a hate paper btw?

everything apart from The Mirror and Socialist Worker i assume

[ender4]

i assumed it meant The Daily Mail & The Sun - ie: papers that rant over-the-top about certain issues.

[Awol]

i assumed it meant The Daily Mail & The Sun - ie: papers that rant over-the-top about certain issues.

Gotcha, thanks. I thought it meant any publication having the temerity to constructively analyse Government policy - criticise Labour=hate paper.

[ianrobo1]

i assumed it meant The Daily Mail & The Sun - ie: papers that rant over-the-top about certain issues.

add in the express as well

broadsheets are an exception from this as they do and try present in depth rather than pander to base instincts

[LondonLax]

The idea that you get a free flat for having a baby is so bizarre IMO. The english welfare system is very unique.

[tonyh29]

add in the express as well

broadsheets are an exception from this as they do and try present in depth rather than pander to base instincts

could you give examples of some of the "hate" they are spreading ? I don't read daily papers but I'm just curious as to these messages of hate and their content

[ahamaad]

add in the express as well

broadsheets are an exception from this as they do and try present in depth rather than pander to base instincts

could you give examples of some of the "hate" they are spreading ? I don't read aily papers but I'm just curious as to these messgaes of hate and their content

And me, or is it the ianrobo defitnition of everything (ie his opinion and nothing else)

[snowychap]

teenage single mums contributerd nothing to the reasons behind our current problems no matter how the hate papers wish to portray it as facts that they do.

It is the government's welfare reform which is targetting (not wholly but certainly specifically) lone parents with young children (from the age of one upwards).

Here are some of the words of Mr Freud (the multi-millionaire merchant banker)in today's Times:

It is reasonably straightforward to spring the trap in the welfare system and today's White Paper does just that. It proposes to move everyone - existing claimants joining new ones - from incapacity benefit on to the new employment and support allowance. The bulk will be categorised in the former category “employment” and will therefore be able to start the journey into the world of work without jeopardising their benefit status.

.....

It is one thing to streamline the system. It is quite another to provide the much-enhanced level of support - the motivation and new skills - that will be needed by many to succeed in the workplace.

No mention of any medical support (especially for the huge numbers of people claiming job seeker's allowance or incapacity benefit who suffer from mental health problems).

Some of our greatest national heroes suffered from disabilities; from Nelson with his lost eye and arm, to Churchill with his “Black Dog” depression, to the physicist Stephen Hawking, bestselling author regardless of immobilisation.

I don't think that anyone would deny that these were remarkable people. I think it is a fair old leap to demand that everyone display that same level of remarkableness.

May as well chuck in Bader and tell everyone with artifical legs that they ought to be out flying 'planes otherwise they're letting the country down.

Indeed, until the past few months, the roughly 900,000 of standard unemployment claimants on jobseeker's allowance were little more than the frictional number necessary for the economy to function.

Have I read that wrong or is that an acceptance that there is a requirement for a certain level of unemployment?

In which case, is it slightly perverse to devise a system that effectively penalises the most those people who by being out of work facilitate the better functioning of the economy?

[ianrobo1]

problem with all this is the majority are geninue like the 25k from Woolies i the ext few weeks

some are not but how do you judge betwee those who are not and who are

whatever line you draw it is always going to catch some out unfairly

[snowychap]

It might be an idea not to go for some neo-thatcherite policy of a return to the ethics of the workhouse.

Just a thought.

[ianrobo1]

not sure that is the case is it ?

but the idea is to make sre people don't 'linger' it is tough because whatever you do some people will get caught, we won't protction for geninue people but to ensure that protection is not abused.

that is what we all want regardless of poltical hue

as it these proposals 90% I agree with, the 10% is the most difficult aspect

[snowychap]

not sure that is the case is it ?

Isn't it?

as it these proposals 90% I agree with

Would you like to list the proposals with which you agree, please?

[Awol]

Still convinced that trying to borrow our way out of a borrowing crisis is the best course of action?

Britain worse credit risk than McDonald's

Britain has become a worse credit risk than McDonald's and a host of other large companies, figures produced for The Independent reveal.

The collapse in Britain's credit rating has taken place over the past two and a half months, since the Government underwrote the banking system and decided to spend its way out of recession. Investing in UK government debt is now almost twice as risky as buying McDonald's corporate bonds, according to the market in credit default swaps (CDS), which provides insurance for the buyers of such debt.

The government debt of large economies such as the UK would normally be considered far more secure than corporate bonds. However, on 29 September, the cost of buying insurance against default on UK five-year government debt became more expensive than the equivalent cover for the US burger chain and has since overtaken Kellogg's and Coca-Cola, according to data from Bloomberg.

The cost of insuring British debt soared on that day, as the Government nationalised Bradford & Bingley, increasing fears that the state would have to bail out the banking system.

The cost of insuring for a year against default on £10m of five-year UK debt has jumped from less than £30,000 to £120,000, compared with the current price of £77,000 to protect against a similar McDonald's default.

The cost of insuring against default on the Government's bonds spiked again in mid-October after the Government announced its unprecedented bailout of the banking system, which has already seen Royal Bank of Scotland become part-nationalised.

The extraordinary movements in the CDS market also reflect market concerns about the highly leveraged British economy, which is sliding into a recession that the International Monetary Fund has predicted may be worse than the slowdown in the US.

The CDS market has proved controversial as the financial crisis has unfolded because it has raised alarm bells about the financial strength of companies, but at the same time it is opaque and illiquid and has become a means for speculators to bet against companies. Investors also use CDS to hedge against other risks such as share prices, meaning prices can reflect other factors than the underlying risk of the debt insured.

But analysts said the dramatic change in the risk rating of the UK's debt still represents a major swing in investor sentiment towards the British economy. The cost of insuring against German default on equivalent terms is below the UK at £51,000, with France costing £61,000. Britain is deemed to be safer than Italy, at £191,000, and Russia, whose CDSs cost £784,000.

Sean Corrigan, the chief investment strategist at Diapason Commodities Management in Switzerland, said: "For the UK to have this default rating is in some ways ludicrous but the market is using these instruments to express a view about the relative standing of certain countries. This has taken off as the domestic financial situation has got worse and the steps taken by the fiscal and monetary authorities have become more irresponsible."

The Bank of England has made an about-turn since September by slashing interest rates three times to 2 per cent, the lowest since 1951, with markets speculating that rates could hit zero as the authorities try to support the economy and ward off deflation. Last month the Chancellor announced that the Government would bring forward spending and cut short-term taxes in a bid to prevent a long, deep recession.

The cash market for debt paints a different picture, with the UK deemed a safer bet than McDonald's and other companies. Analysts said that should in theory attract investors to "arbitrage" the difference between the two markets by betting on the UK in the CDS market. "It looks daft, it is daft, but that is where the buyers and sellers are and the way business is getting done in the CDS market," one analyst said.

[drat01]

Good to see the mods request being followed by all - NOT !

[Awol]

Good to see the mods request being followed by all - NOT !

Who is that directed at Ian?

[snowychap]

Banks under the cosh as £1 tumbles towards €1

The pound is on the verge of parity with the euro as concerns grow over the state of the British economy.

With sterling slumping yesterday to its lowest level yet, £1 was buying just €1.03 at a bureau de change near the Eurostar terminus in London – meaning that an €80 meal for two in Paris now costs more than £77, compared with less than £59 a year ago.

Ministers were piling pressure on the banks to increase lending before a meeting with the banking industry today. Alistair Darling, the Chancellor, held out the prospect of wider taxpayer guarantees beyond the £100 billion already subscribed, but only if there were an absolute assurance that more loans would be made available to families and businesses.

He was speaking after an angry Commons clash between Gordon Brown and David Cameron, who said that the continuing lending drought showed that the Government’s bank recapitalisation plan was not working.

Mr Cameron urged the Government to adopt Conservative plans for a national loan guarantee scheme and later published a draft Bill to implement the plan. It would provide £50 billion of guarantees for new lending to businesses of all sizes.

Mr Darling said that he had always intended to keep the October bank bailout programme under review. He said: “The banks have to understand that we have put substantial sums of public money in to support them. They, in turn, need to play their part.”

The economic situation has become so serious that last night the Treasury was not able to rule out the prospect of extraordinary measures being taken to pump billions of pounds into the economy. The Bank of England was reported to be looking at a crisis strategy known as “quantitative easing”. This would involve the Bank buying up either government or commercial debt using bonds and securities. It is the direct modern-day equivalent of printing money.

The Chancellor said that such measures would be considered only if further cuts took the base rate close to zero –the point at which the Bank of England would run out of “firepower”.

Treasury sources said that while it was prudent for the Bank to consider all options the chances of quantitative easing being used remained slight.

Earlier this week there were warnings that the economy would shrink by 1 per cent this winter. Sterling fell to just €1.1397 on foreign exchange markets at one point yesterday and closed at €1.1411 – dramatically down from its peak of more than €1.40 set only a year ago. A euro cost 87.74p.

Peer Steinbrück, the German Finance Minister, described Britain’s switch from financial prudence to heavy borrowing as crass and breath-taking. In an interview withNewsweek magazine, he criticised the decision to cut VAT. “All this will do is raise Britain’s debt to a level that will take a whole generation to work off,” he said.

British officials said that the intervention was a reflection of struggles within German politics.

[ianrobo1]

as usual snowy the source o these stories is importnat the times runs the story as the BBC has done but the BBC for balance hassaid

While Mr Steinbruck has accused the UK of over-spending on the economic recovery, the German government has put 480bn euros (£370.4bn; $645bn) into a rescue package for its banks.

Most other European government's have also increased public spending to try to ease the impact of the economic downturn.

France recently announced plans to spend 26bn euros, and the European Commission wants to spend 200bn euros across the European Union.

so in fact the story as usual is not simple ad for this recession one which no one was even prepared for we are actually testing things out because lets face no one has an answer at all

[snowychap]

I didn't think that the German finance minister and his comments (though I'm afraid I share his sentiments about a VAT cut not having had much direct impact upon spending - it pales into insignificance besides the sales that I saw in virtually every shop into which I went today) was the important part of the story that I quoted.

I thought that the potential need for printing money was of much more significance.

[ianrobo1]

yes thats because lowering interest rates are not working, that is the monetary answer, we have the fiscal answer as well and will have much more when Obama takes over

because lets be honest few know the answer

[snowychap]

Will the VAT cut work?

Ever since Alistair Darling's pre-budget report, the Treasury has been trying to sell the 2.5% cut in VAT as an important way of mitigating the real effects of the credit crunch. Signals from the retail sector following the first week of post-cut sales have been mixed: while Marks & Spencer says it hasn't worked, John Lewis says it has. Overall, the data doesn't look encouraging, but we cannot be certain; statisticians are having difficulty untangling the effect of the cut from that of early sales.

David Cameron told the London School of Economics that the VAT cut was unequivocally a bad idea. I believe it is still far too early to tell. It remains a useful exercise, however, to determine under which conditions the cut could dampen the downturn and have a net positive impact on welfare. Identifying these conditions tells us what to watch out for when judging the policy's success.

The Institute of Fiscal Studies reckons that the VAT cut will result in a positive change in net income next year, ranging between 2.4% for the poorest households and 1.4% for the richest. But what really matters is the cut's effect on spending behaviour. The marginal propensity to consume (MPC) is a measure of the increase in spending that that occurs following an increase in income. Darling's big gamble is that the MPC on a temporary income hike is substantially greater than zero.

Cameron reckons that the MPC is equal to zero because of the temporary nature of the VAT cut. Although he is probably unaware of it, he invokes the ideas of David Ricardo. In his 1846 Essay on the Funding System, Ricardo posits that the two ways in which a state can raise funds (tax and debt) are equivalent to one another. In short, if taxes are reduced, then government borrowing must increase to compensate. This borrowing must be financed by a future tax increase. Taxpayers recognise this so-called Ricardian equivalence and therefore will not alter their spending habits, instead saving their tax windfalls to pay for higher taxes in the future.

Future tax increases are indeed likely, but – like Gavyn Davies – I do not think taxpayers will hang on to their cash. There are two approaches to explaining why Cameron is wrong. The first relies on branding consumers as being collectively naive. It goes that consumers will not make the tax-debt trade-off calculation and will react irrationally by increasing their spending.

Whilst communal naivety is a sufficient condition for the temporary tax cut to work, it is not a necessary one. There is a second and far more attractive explanation which relies on the presence of failures in the credit market. Let me explain.

The true value of the MPC is likely to be higher than zero, even for temporary income spikes resulting from a VAT cut, because the UK government is able to get a much lower interest rate on borrowing than are individuals. This is especially true under present market conditions, where banks are technically able yet on the whole unwilling to lend to individuals. The VAT cut is the economic equivalent to consumers of getting a temporary loan at below-market interest rates. A low interest rate makes spending now more attractive than spending in the future and will therefore bring forward spending decisions. Although the VAT cut is only temporary, it may also have a net positive effect on lifetime spending, as individuals will probably never be able to borrow at rates equal to those of the UK government, even when things are back to normal.

But there are a number of additional conditions that must be met before the VAT cut will work. First, the cut must be passed on. Whilst this may happen for big-ticket items such as TVs and cars, it isn't as easy for small items such as my morning cup of tea due to the proportionally higher re-pricing costs (so-called menu costs). Secondly, consumers must buy domestically-produced goods, not imports. (Alternatively, other countries must simultaneously cut their VAT rates affecting their imports from Britain. Gordon Brown has been big on coordinated tax cuts, so this may happen.) Lastly, demand for British goods must be price elastic. This means that consumers will actually want to buy more of them if prices fall (unlike potatoes, say, for which we have a finite consumption capacity). So the VAT cut will therefore affect different sectors in very different ways.

Empirical estimates of the MPC vary greatly, but are likely to be small and less than the effect of temporary tax cuts. Christopher D Carroll at John Hopkins University does a nice job (pdf) reviewing some of the economics profession's estimates. In all, I think that the odds are probably in Darling's favour. The effect will be small, but it may be enough. His big gamble may just pay off.