economic situation is dire

[PauloBarnesi]

very deep doodoo right now.

rather than deep doodoo...

[Awol]

very deep doodoo right now.

rather than deep doodoo...

'Zactly. We'd still have a budget deficit worse than Greece and absolutely no way out other than leaving monetary union. I couldn't really imagine the frogs and the boxheads missing the chance to lay low UK Plc and bailing us out.

Give it six months and the Euro countries will be fighting each other like ferrets in a sack. Not that devaluation is a panacea as the costs of imports (90% of all consumables in the UK) soar and inflation goes into orbit.

The old 'zanu labour' joke isn't looking so funny anymore..

[snowychap]

Can someone explain in simple terms, why the **** we are paying well over £1.10 a litre for fuel even though oil has dropped like ****.

Very simple terms, tax.

That will explain the difference in the price of petrol in one country against the price in another (say the UK v Oman) and it will go a fair way to determining the effect that the change in oil prices can have on the price of petrol (i.e. if the price of a barrel came down to $1, the minimum for a litre of petrol would still be around the 60p mark or so dependent upon the exact amount of the fixed fuel duty). It doesn't explain the fluctuations in the price of petrol versus the fluctuations in the price of oil, though.

Chris, without plotting the movement of petrol prices v the movement of oil it is difficult to be confident about how the relationship has worked and why.

You might say 'oil has dropped like ****' and it has from the extraordinary highs of $145 a barrel (or whatever it got up to) but it is back up around $77 a barrel now. It was around this level in October 2007 and the price of a litre then was about 97.5p. Fuel duty (for petrol) has increased in that time by about 2p per litre, I think, so that alone (and even including the VAT) doesn't explain the difference between the price of a litre in Oct 2007 and the price of a litre now.

If one factors in the delta in the value of sterling in that period, it might well be that things have not fallen quite how they appear at first glance (Oct 2007 £1:$2.03 and 23rd Feb £1:$1.54).

[Genie]

After 3 years in a fixed rate mortgage I about to save over £220 per month as my new mortgage rate is now 2.5% (max 2% above base rate). I'm hoping that rises in the BoE base rate are not used too much to try and control the rising inflation. I expect it to creep up over time but its got to rise by over 3% for me to be losing out compared to what I was on.

I spent 6 months of last year unemployed, I'm now back in work and finally about to benefit from the drastic cuts made to stimulate the economy.

[Gringo]

Gringo,

I think the plan is to devalue us out of the debt. If we'd gone into the Euro when Blair wanted (and on this single issue Brown deserves credit) we'd be in very deep doodoo right now.

When you say 'plan' you make it look like they've thought this through!! But yeh, inflation / devaluation is the only way out other than an outright defaulting of the debts.

[LondonLax]

Gringo,

I think the plan is to devalue us out of the debt. If we'd gone into the Euro when Blair wanted (and on this single issue Brown deserves credit) we'd be in very deep doodoo right now.

When you say 'plan' you make it look like they've thought this through!! But yeh, inflation / devaluation is the only way out other than an outright defaulting of the debts.

Yes, since this Greece debacle come out a couple of weeks ago the Euro has been dropping against the Pound. This is not what Mervyn King will want.

The latest announcement threatening to kick off QE again does the job of devaluing the pound back down again.

[Genie]

There are clearly a number on here much more in the know than I, as I mentioned a few posts earlier I am currently enjoying a 3.09% rate cut in my mortgage as I've now jumped onto their (now obsolete!) standard base rate. Is this talk of devaluation, high inflation, Greece issues likely mean a sharp increase in BoE rate anytime soon?

[Salsa Party Animal]

100.00 GBP

=

113.582 EUR

So it is not very good news for holiday makers.

[Genie]

But if you consider that last summer Travel Agents were selling less than €1 for £1 then its much better and seemingly moving up.

[leviramsey]

Can someone explain in simple terms, why the **** we are paying well over £1.10 a litre for fuel even though oil has dropped like ****.

Very simple terms, tax.

That will explain the difference in the price of petrol in one country against the price in another (say the UK v Oman) and it will go a fair way to determining the effect that the change in oil prices can have on the price of petrol (i.e. if the price of a barrel came down to $1, the minimum for a litre of petrol would still be around the 60p mark or so dependent upon the exact amount of the fixed fuel duty). It doesn't explain the fluctuations in the price of petrol versus the fluctuations in the price of oil, though.

Chris, without plotting the movement of petrol prices v the movement of oil it is difficult to be confident about how the relationship has worked and why.

You might say 'oil has dropped like ****' and it has from the extraordinary highs of $145 a barrel (or whatever it got up to) but it is back up around $77 a barrel now. It was around this level in October 2007 and the price of a litre then was about 97.5p. Fuel duty (for petrol) has increased in that time by about 2p per litre, I think, so that alone (and even including the VAT) doesn't explain the difference between the price of a litre in Oct 2007 and the price of a litre now.

If one factors in the delta in the value of sterling in that period, it might well be that things have not fallen quite how they appear at first glance (Oct 2007 £1:$2.03 and 23rd Feb £1:$1.54).

I suspect that currency fluctuations account for most of that... I don't remember prices in late '07 over here being much if any lower ($2.50-ish per gallon, so that's $0.66 per liter or 43p per litre)... of course, this is gasoline that wouldn't be saleable in Europe (North American premium is, even allowing for the different methods of computing the octane rating, the same octane as European regular), but the point that price movement in the USA from late '07 to today is net flat still stands.

[leviramsey]

Gringo,

I think the plan is to devalue us out of the debt. If we'd gone into the Euro when Blair wanted (and on this single issue Brown deserves credit) we'd be in very deep doodoo right now.

When you say 'plan' you make it look like they've thought this through!! But yeh, inflation / devaluation is the only way out other than an outright defaulting of the debts.

Ultimately, it's a case of:

* an extensive welfare state

* a stable currency

* a secular culture

Pick two

The Maastricht Treaty requires countries in the eurozone not to exceed a public debt of 60% of GDP. Well, now almost all of them have an official debt exceeding that ceiling. But the situation is immensely worse because European states also have huge, and largely hidden, unfunded liabilities arising from their pension and health systems. According to a 2009 study by my colleague Jagadeesh Gokhale, the true debt of the 25 European countries is, on average, 434% of GDP. And the treaties that underpin European integration do not say a word about such debt.

Greece’s true debt is 875% of GDP and its current problems are just the first act of the coming fiscal bankruptcy of Europe. In my 2004 essay “Will the Pension Time Bomb Sink the Euro?”, I concluded that Europe would end up facing a critical crossroads: either leave the Euro or abandon the Bismarckian welfare state paradigm. As it turns out, the DNA of the pay-as-you-go system allows for political manipulation and the consequent inflation of pension and health “rights.” This, exacerbated by falling fertility rates and increasing life expectancy, will lead to increasing fiscal deficits, unpayable debt, state insolvency, defaults, covert age wars, and the failure of the Eurozone project.

The welfare state has really become an arbitrary “entitlement state,” where everyone uses the state to rob someone else, and politicians from the right and the left play the transfer game to win elections. This crisis may serve to reveal the true nature and enormous flaws of the welfare state. Sooner or later, Europe will have to dismantle it and move toward a paradigm of personal [responsibility] — that is, a system of personal accounts for pensions, health and unemployment benefits.

I add the third option, since if you can continue to attract immigrants (who, in the case of most European countries, are at least as likely as not to be Muslim...) then you can mitigate falling fertility rates and keep the Ponzi scheme going... indeed, the fact that by and large people from all over the world are still and are likely to continue to wanting to come to North America will keep enough growth in the USA to avert disaster (though Canada will have the same benefits without anywhere near the risk of disaster).

[snowychap]

For anyone who might be interested, it appears that the pound is currently on one hell of a slide - down 4.2 cents against the dollar in the last two hours (that's down 2.75%).

[thetrees]

100.00 GBP

=

113.582 EUR

So it is not very good news for holiday makers.

If only they could buy at that today.

Commercial rate is EUR1.10, which probably puts the tourist rate perilously close to 1 for 1

[johnvillan]

The independent

Election 2010: Debt - A conspiracy of silence

Britain is in a far worse financial crisis than many realise. Drastic action is needed, says venture capitalist Jon Moulton in the first of a series unpicking the issues The IoS believes matter most

Sunday, 11 April 2010

In the past week our politicians have put on their most serious faces and addressed the economy. They have got into a wrangle about National Insurance contributions. Labour wants to increase them; the Tories don't. A lot of heat has been generated, much ink spilt. What it suits none of them to tell you, though, is that such talk is tinkering at the margins. The debt that Britain faces is monstrous, and neither Tories nor Labour will admit it. They prefer to quibble about the small change than admit that they are taking part in, in effect, a conspiracy on the British people. To make it worse, much of the media is allowing them to get away with it, presumably because they think – as the politicians seem to believe – that the public doesn't want to hear the bad news. In short, we are complicit in a con.

Let me take you back to the terrible old days of the mid-1970s. The poor country was in a shocking way and we had to be rescued by the International Monetary Fund (IMF). The UK government was told what it had to do and the population suffered. You will have some mental pictures of industrial strife and large-scale job losses in those bad old times.

Thank goodness, it couldn't happen now – or could it?

In 1975 the UK had government interest-bearing debt of about 45 per cent of the total economy (GDP) and the debt was rising at about 8 per cent per year. We then had to crawl to the IMF in 1976.

Today, that interest-bearing debt is about 65 per cent of GDP, rising nearly 13 per cent a year. A degree in economics will not be necessary to spot that things are a lot worse than in 1975.

Actually, quite a few other things were better in the mid-1970s: unemployment was half of today's level. The 1975 decline in the economy was only one-seventh of what happened to us last year. And the UK had much less of the largely unmentioned other debt – mostly, the pensions promises that will have to be paid by future generations, which now represents perhaps 125 per cent of GDP but was near 20 per cent in the 1976 time frame. Not a reassuring background.

The mid-1970s IMF crisis was triggered largely by the fact that foreign buyers of government debt were so nervous of the UK's ability to repay debt that interest rates roared into the teens.

Inflation was a much bigger issue then than now, and foreigners and Brits alike also feared we intended to "repay" our debt with relatively worthless scraps of paper.

So there was a buyers' strike on government debt and we had to be bailed out. Rationally, the currency collapsed in value, and as the cost of importing oil and the like rose, so did inflation. The observant reader may have seen some of this starting to happen in the past few weeks.

Should overseas buyers of UK debt worry about our ability to repay? Well, probably not – we have now come up with a new term, quantitative easing, to replace less attractive phrases like printing money or debasement. So last year the UK government did £200bn (20 per cent of GDP) of this latter-day version of slipping lead into the silver coins to buy roughly as much debt as it issued. So we can always repay with something – it might not be worth a lot, though.

So it really does feel as if the pound in your pocket will dwindle in value as the Government tries to drive interest rates down. Trying to destroy our national debt by letting inflation rip is quite attractive.

At some point the fear is that the debt markets will move their focus from Greece. Horrible but true – we have quite a lot of economic statistics worse than Greece. We might be one of the next to suffer, rather like the big banks a couple of years ago when they many found themselves with too much debt. The markets will probably attack one after another in a loss of confidence.

So here we are spending madly. Put simply, in the past year for every pound of receipts the Government spent £1.36p. And the gap is filled by borrowing. That gap is roughly £180bn a year. Wow.

The last Budget shows borrowing continuing to rise for the next five years. Beyond doubt, there will therefore be an ongoing risk of a market panic with high interest rates and considerable economic effects throughout that period. However, you should not pay too much attention to budget forecasts – the 2008 Budget forecast that last year the Government would spend 99p for every pound it raised. Honest.

As debt rises, the cost of paying interest and making repayments obviously rises, too. To the extent this money is paid overseas, this is money leaving our economy and weakening it. At some point that cost will mean our economy cannot grow – even the Budget predicted a drop in government investment to one-third of last year's level over the next five years, which will not be good for growth.

So how can we get out of this financial hole before our creditors get to us? There are three ways to reduce our national debt: let inflation rip to destroy the debt; increased tax revenues from higher taxes and economic growth; cut government spending.

The inflation route was explored a lot in the 1970s and 1980s; it's chaos and permanently weakens the economy.

Increasing taxes is not going to get there. We need to get £50bn plus in each year to stop the debt from rising in five years' time. Look at the bickering about National Insurance rises – try 10 per cent on VAT as a political idea to make a good dent in the budgetary hole. It's inconceivable that our current politicians would have the stomach to do this. In any case, the tax load would probably become counterproductive with businesses and people moving overseas to less taxing environments.

Will growth get us there? Well, very short-term growth will probably return as the economy restarts. But the fact is that over the past 10 years the economy's ability to grow has reduced – largely because we have moved from 40 per cent of the economy being public sector to 50 per cent.

Civil servants do not really generate growth, so a smaller private sector has to support a larger public sector. We have casually added about a million people to the public payrolls. No one actually knows what the economy's growth potential is and our government merely hopes for the best. However, it does not seem feasible that growth will be enough to plug the gap over the next few years.

Now that really leaves the only route to stability, which is to cut the public proportion of our economy, which means reducing spending, increasing the ability of the economy to grow and reducing the number of civil servants, and probably their pay and pensions. And the numbers are large: we need to take out several hundred thousand public sector jobs. We need to reduce the vast liability for public pensions that clouds our future. The politics – and human costs – of this are not palatable. Tough choices have to be made as to what we can afford.

But, actually, we have to do this. Only the timing is uncertain, because either we work up the stomach to do it ourselves or the debt markets will at some point stop buying UK debt; interest rates will rise, probably rapidly and a lot, and we will be forced into doing it by the IMF and the debt markets on their terms.

A short moral section. Essentially, by enjoying today while stacking up government debt we are simply leaving the cost for our kids and grandkids to repay. Our growth will be their lack of growth. Or perhaps we intend to rob our creditors by inflating the debt away. Either way, we have no grounds for pride in our actions.

As I say, none of our political parties appears to trust the electorate to grasp the dreadful state we are in. The Government has actually increased public spending in more than 20 new commitments this year. The Conservatives talk of no public sector compulsory redundancies and efficiency gains which will at best be just measurable.

Our senior politicians know the reality. They fear that being the first party to say it will kill their electoral prospects.

The political debate talks of a few hundred million here and there – it needs to be about tens and scores of billions. Neither party has plans to deploy actions for the economy remotely commensurate with the size of the problem. Is it possible that it is time for some serious political leadership to emerge? We need radical treatment – not cosmetics.

link

The Telegraph

Don't let the voters know we face bankruptcy

Britain's truly momentous challenges will not even appear in the election campaign, says Christopher Booker

By Christopher Booker

Published: 7:37PM BST 10 Apr 2010

Comments 215 | Comment on this article

Gordon Brown has money worries: a national debt that grows by half a billion pounds a day Photo: REUTERS Four huge shadows hang over this claustrophobic election, about which the three main parties will be trying to say as little as possible. The first, obviously, as part of the catastrophic legacy of 13 years of Labour misrule, is the barely imaginable scale of the deficit in public spending.

This is now growing so fast that it is difficult to find ways of bringing home how stupendous it has become. The Taxpayers' Alliance has tried to do it by pointing out that public debt is rising by £447,575,342 – virtually half a billion pounds – every day. With the Government's own projections showing that within four years the National Debt will have doubled to £1.4 trillion, I recently used figures from the Institute for Fiscal Studies to show that by 2014, in only four years' time, it will be costing us the equivalent of £60 a week for every household in the land just to pay the interest on the debt - let alone paying off the debt itself.

Gordon Brown to warn Barack Obama over protectionismThe implications of Gordon Brown's doubling of public spending in the past decade are so hard to grasp that it is hardly surprising the parties don't want to talk about it, because none of them really has the faintest idea what to do about it. The utter unreality of this debate was illustrated last week by the Tories' claim that they could cut spending by £12 billion, when it is now rising by that figure every month. Meanwhile Labours boasts that, having trebled spending on the NHS, to no great effect, it could save half a billion a year by cutting out NHS waste – when our public debt is now increasing by that amount every day.

The second shadow over this election is the unprecedented damage done to our politics by the expenses scandal, which has degraded the standing of Parliament to its lowest point in history. More than anything, these revelations have reinforced the realisation that we are ruled by a political class in which the three main parties are blurred indistinguishably together, almost wholly divorced from the concerns of the rest of us. Never have MPs or peers been so diminished in stature, at the very time when the bloated apparatus of the state has been intruding on our lives more obviously than at any time before.

A third, closely related shadow which the political class has been only too keen to hide away has been the still barely understood extent to which it has handed over the running of our country and the making of our laws to that vast and mysterious new system of government centred on Brussels and Strasbourg. Nothing better exemplified how our politicians are caught by this system, like flies in a spider's web, than the shifty means whereby each of the three main parties weaselled its way out of keeping the manifesto promises of the last election that it would give us a referendum on the EU constitution, otherwise known as the Lisbon "reform treaty". Here was another great surrender of Parliament's power to decide how our country is run, and the MPs of all parties were not only happy to agree to it, but treated us all with contempt as they lied about it.

As I have often observed before, one of the consequences of this abdication of their responsibilities by our politicians has been the way in which vast tranches of policy-making which used to be the stuff of debate have simply passed into a limbo, where they are no longer properly discussed or even explained. Farming and the countryside, the fate of our fishing industry, our immigration rules, our laws on employment and how businesses are run, on the environment, on food safety, the regulating of our financial services, including the operations of the City of London – the key decisions in all these areas, and many more, have been handed over to a form of government which is unconcerned with our national interests and almost wholly unaccountable, with consequences which in almost every case have proved disastrous for Britain.

Yet on all these hugely important issues our political class remains virtually silent, because it no longer has any power to decide what happens. All our political nonentities are left to bicker over at election time is that ever shrinking area of policy-making still under our national control: schools and hospitals, crime… that's about it.

Few issues have given rise to more bafflement and grief since the last election than the utter shambles we have made of our once efficient system for disposing of our rubbish. Yet because this is essentially driven by the EU's landfill directive, the political class prattle about "recycling", which is largely a cynical farce, and mutter about "bin taxes", but otherwise have stepped aside from a process they scarcely understand. We are left having to put up with a mess which is soon going to cost us hundreds of millions of pounds a year, for failing to meet EU targets far more damaging to us than to any other country in Europe.

A final huge shadow which will barely be discussed at this election, because the main parties are all but unanimous on it, is the way our politics has become permeated by everything which can be related to global warming, from soaring taxes to the propaganda dished out in our schools, from the wishful thinking that we can spend £100 billion on building thousands more useless wind turbines, to the disastrous distortion of our national energy policy by the "green" obsessions of both the EU and our own political class, which threaten within a few years to turn Britain's lights out. (Although next week I hope to reveal an unexpected way in which this might be averted.)

This flight from reality was never better exemplified than by the 2008 Climate Change Act, committing Britain, uniquely in the world, to reducing its carbon emissions by more than four fifths. Even the Government admits that this will cost us up to £18 billion every year for four decades, making it by far the most costly law in our history. Though its target could only be met by virtually closing down our economy, such is the bubble of unreality in which our political class lives that our MPs voted for this insane law almost unanimously, without having any idea of its practical implications.

The real tragedy of what has happened to Britain in the past 20 years is that we no longer have an opposition worthy of the name. It is almost impossible to measure the damage done by 13 years of rule by Blair and Brown. They have left the country effectively bankrupt, its manufacturing industry halved, the City tottering and under threat. They have allowed the United Kingdom to splinter, debauched the House of Lords and brought politics into contempt. They have done irreparable damage to our Armed Forces (not least through the humilating fiasco which led to our being thrown out of Iraq). Our country's standing on the world stage has never been lower.

Yet, as the worst Government in our history has presided over this catastrophe, we have had an Opposition so hypnotised by the devilry of the "Blair revolution" that in fundamental respects it has scarcely been an opposition at all. Having had the stuffing knocked out of it by the way it got rid of Mrs Thatcher, the Tory party has never really recovered its identity, leaving millions of voters in effect disfranchised. Three virtually indistinguishable parties squabble over trivia, leaving the electorate without any clear alternative – so that on May 6 almost half the voters may well stay apathetically or sullenly at home.

By the time of the next election the scale of the disaster which has befallen us will be apparent. This election, meanwhile, is little more than a painfully empty charade – while our national debt continues to increase by half a billion pounds a day.

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[snowychap]

UK inflation rate rises to 3.4%

The UK inflation rate rose sharply to 3.4% in March from 3% the month before, official figures have shown.

The rise in the Consumer Prices Index (CPI) inflation rate was greater than analysts had expected.

Retail Prices Index (RPI) inflation, which includes housing costs, also rose sharply to 4.4% in March from 3.7%.

The CPI inflation rate is the measure targeted by Bank of England interest-rate setters, while RPI is often used as a benchmark in wage negotiations.

Increasing petrol prices were an important factor in rising consumer prices, the Office for National Statistics said.

Petrol prices have been rising because of the relative strength of the dollar and higher refining costs, as well as the increasing price of oil.

The continuing impact of the rise in VAT, which went back up to 17.5% in January, and the effect of flat gas bills relative to this time last year, when they fell sharply, also contributed to the spike in inflation.

Analysts expect the rise in prices to be temporary.

However, if the CPI inflation rate remains above 3% in April, the governor of the Bank of England, Mervyn King, will have to write another letter of explanation to the chancellor.

Why on earth would one trust what 'analysts' expect?

[tonyh29]

Why on earth would one trust what 'analysts' expect?

depends if you stand to make a shit load of money out of what they say I guess

[snowychap]

Why on earth would one trust what 'analysts' expect?

depends if you stand to make a shit load of money out of what they say I guess

Surely the money is to be made by going against their expectations?

[Gringo]

Why on earth would one trust what 'analysts' expect?

depends if you stand to make a shit load of money out of what they say I guess

Surely the money is to be made by going against their expectations?

Maybe they're advising the public one thing, and goldman sachs another completely opposite thing.

[snowychap]

Why on earth would one trust what 'analysts' expect?

depends if you stand to make a shit load of money out of what they say I guess

Surely the money is to be made by going against their expectations?

Maybe they're advising the public one thing, and goldman sachs another completely opposite thing.

Ah, good point.

[johnvillan]

Daily Mail

'Dear Chief Secretary... there's no money left': Outgoing minister's letter of warning to new government

By Daily Mail Reporter

Last updated at 12:00 PM on 17th May 2010

Comments (17) Add to My Stories

The new coalition Government may be accusing Labour of cooking the books but one ex-minister made no effort to hide the state of the economy, it was revealed today.

In a stark message left in a Treasury desk for his successor, outgoing chief secretary to the Treasury Liam Byrne wrote simply: 'I'm afraid to tell you there's no money left.'

His pithy summary of the serious challenges facing the new power-sharing administration was revealed by Liberal Democrat David Laws, who has taken on the role.

No money left: Liam Byrne (left) wrote the letter of warning to new Chief Secretary to the Treasury David Laws (right)

Speaking at a press conference at the Treasury, he told reporters: 'When I arrived at my desk on the very first day as Chief Secretary, I found a letter from the previous chief secretary to give me some advice, I assumed, on how I conduct myself over the months ahead.

'Unfortunately, when I opened it, it was a one-sentence letter which simply said "Dear Chief Secretary, I'm afraid to tell you there's no money left", which was honest but slightly less helpful advice than I had been expecting.'

More...Osborne to deliver emergency Budget on June 22 as coalition sets out plans for £6bn in cuts

Don't hammer middle classes on taxes, Dave... and that's the advice from Cameron's OWN tax guru

Combine the PM, his new best chum and, hey presto, Cleggeron!

Cameron's failed campaign: Tory leader and his inner circle as they realise they have no outright majority

Mr Byrne insisted the message was meant as a private joke.

'My letter was a joke, from one Chief Secretary to another,' he said.

'I do hope David Laws' sense of humour wasn't another casualty of the coalition deal.'

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