Apropos Mark Carney and politics

Mark Carney seems to have glossed over his remarks prior to the the referendum which attempted to scare the electorate into backing remain - furthermore, he has persistently refused to be held accountable for his comments or to explain them in the subsequent light of the facts

The real disgrace is that at the time he used his 'trusted' position in order to influence those undecided voters to his way of thinking

Friday 13 May 2016 - Bank of England Governor Mark Carney delivering the quarterly Inflation report in London

'.. Brexit, to my mind, would have a material impact on growth and inflation. It would be likely to have a negative impact in the short term ..'

'.. I certainly think that would increase the risk of recession ..'

In short Mark Carney has never to this day provided a satisfactory response to his interference in the referendum or the following charges over his comments on the referendum

He was accused of '.. being "politically involved" and of bargaining with Chancellor George Osborne on warnings over the economic impact of Brexit ..' and furthermore, '.. he refused to publicly release notes of his private conversations with Mr Osborne, stating that MPs could see them if they wished ..'

With all this in mind his latest outburst about political interference is really rather peculiar

There has been a lot in the press lately about Mark Carney and the Bank of England railing against political interference by politicians

‘.. We are not going to take instruction on our policies from the political side ..’ 

Independent - Bank of England Governor Mark Carney Theresa May

However, Mr Carney seems to have forgotten that he was rather a political appointment in the first place by George Osborne the then Chancellor, so perhaps he should reflect on this before ‘shouting the odds’ – furthermore, if he had been half competent at his job the issue would not have arisen in the first place – and today we hear that he intends to bail-out by possibly resigning

‘Good effort’ – if only the rest of us could bailout of his legacy so easily on the same (pension / historical remuneration) terms as he will undoubtedly receive

Mark Carney may not want advice from politicians but looking back at the performance over his tenure to date, he certainly needs advice from someone because his term in office has not proved to be a resounding success and in fact has only made the whole economic climate infinitely worse than when he took office

Central Bankers as a group, apart from one notable exception Elvira Nabiullina  - Nabiullina named Euromoney Central Bank Governor of the Year 2015 - from the Russian Central Bank, have proved to be THE PROBLEM AND NOT THE SOLUTION

They have made incredibly bad decisions and persistently interfered with the global economy in one form or another over the past 8 years (and before). As a result of the actions of these Central Bankers we have been brought to the brink of a potential global systemic collapse

Throughout, Mark Carney has run with the herd of other Central Bankers by constantly cutting interest rates and printing money, instead of thinking for himself and recognising the potential future problems associated with the BoE decisions – as the saying in the past went ‘nobody was ever blamed for buying IBM’;  although, look at how they were overtaken by others as a salutary lesson for Mr Carney

In fact, for all the performance of this indecisive individual (‘unreliable boyfriend’), with rumours of interest rate cuts which never came to fruition, Mr Carney has been an unmitigated disaster – but then again so has his peer group, but blame is never allocated provided one is part of the herd when there is a collective ‘foul up’

All these failures by Central Bankers, and more, have been outlined in the Bank of International Settlements report - Bank of International Settlements (BIS)

 

Bank of International Settlements:

“Rising debt, lower productivity growth and diminishing room for policy manoeuvre have contributed to a build-up of vulnerabilities that give rise to three threats: macroeconomic instability; the adverse effects of persistently low interest rates; and a loss of confidence in policymaking”

 

All in all, not a pretty scenario and all brought about by the abject failure of Central Bankers of which Mark Carney is one.

By now interest rates should have returned to their ‘norm’ and not sunk ever lower, punishing savers, crippling pension funds and building up huge issues for future generations. The fault of the Central Bankers, those ‘wonders of the universe’, who are not really affected themselves because of huge salaries and very impressive pensions courtesy of the populations they are in the process of bankrupting!

Unfortunately Central Bankers / Governments / SEC / etc. never seem to learn from history and whereas they should have long ago broken up the big banks (too big to fail – requiring bail outs) and banned derivatives (baskets of goodness know what rubbish); instead of introducing more transparency they allowed greater leverage, destroyed the Chinese wall between commercial / investment banks (Glass-Steagall) - Glass-Steagall: aftermath of repeal - and continued with a whole raft of other mistakes 

Therefore instead of shutting down the problems before they became out of hand, everyone (SEC / Governments / Central Bankers et al) just relaxed the rules and joined the party with less regulation, banks became hedge funds, more derivatives, greater exposure, crazy bank capital rules introducing greater risk … and so on … with nobody taking any heed of warnings

Furthermore, the ratings agencies have also played their part and it is remarkable that they still retain the credibility that they do - Questionable Credibility Of the Ratings Agencies- In Aftermath of 2008 Crisis

Now we are at a point where there are only two ways out of the global debt – either actual default or default by inflation. This is why today’s solution is encouraging inflation to try and reduce the debt by once again manipulating the system. It is almost getting to the farcical situation where they should try the Governments Epiphany Over Perpetual Bonds approach - because we are now in the realms of fantasy with global debt, which under normal circumstance can never be repaid

Which is where we are today – global debt has ballooned from the last financial crisis - and when the next meltdown arrives the Central Bankers will have already expended their armoury after being totally incompetent over the past few years by adopting reckless policies and never learning

The only difference next time around will be size of the problem, which will be far greater than in the past and reflect the magnitude of the oversight of Central Bankers / Governments / etc. in failing to address all these issues long ago when they had the opportunity

And what of the bankers / hedgies / politicians that brought about the problems – they will be long gone – but even if they are still here NOTHING WILL THEIR FAULT and they will once again be underwritten by the rest of us

 

Reference

Bank of International Settlements

 

Tags: | Categories: Bank of England | Economics

The trouble with Government & Central Bank interference in markets is the law of unexpected / unknown consequences and this has been a situation repeated over history

Recessions are the markets way of weeding out potential issues. Inevitably some businesses go to the wall but in theory a severe downturn does leave a stronger more vibrant market with more opportunities, for those who can weather the storm

However, once Central Banks get involved in their misguided attempts to influence markets, a short sharp recession can drag on for years or decades whilst ‘zombie’ businesses are propped up and can keep going despite the fact that they should have been wound up years before

This is where we are today – a global foul up by Central Bankers, who, for some reason, seem to believe they know better than anyone else and continue to implement damaging policies in attempts to bolster consumer spending and all manner of other remedies to avoid a recession. Most of which only make the situation worse by kicking the problem into the 'long grass' for the future

  • Unfortunately they never seem to take on board the resulting fall out
  • Why are houses so expensive that the UK younger generation cannot afford to get a foothold on the housing ladder? - could it be because the knock on effect of low interest rates is increased property prices 
  • Is it really a good thing to encourage consumer spending at all costs – and ignoring the individual debt cost - generally incurred by those who can least afford it?
  • What happens when pensioners who were able to live on the interest from their capital can no longer do this with zero interest rates - inevitably they will go to the State for support to supplement their non-existent interest receipts - so this backfires on the State. After all we are now being told that within 8 years 20% of the population will be over 65 year old - so how many of these have been let down by the BOE decisions & how are they to make up for their shortfall in their income as a direct result of Central Bankers?

Therefore, how does a race to the bottom by Central Bankers benefit anyone with ever lower interest rates, whilst each country tries to 'steal a march' on others by reducing their rates even further?

Furthermore, why is there such a disparity between Credit Card interest rates and the BOE rate? – and what, if anything, has been done about the usury rates charged by Credit Card providers. How about policies such as making Credit Card interest rates no greater than say the Bank Rate plus 10%

And now these 'Masters of the Universal' have hit upon negative interest rates, helicopter money and all sorts of ideas that will only exacerbate the current situation in an attempt to ensure short term fixes at the expense of future problems

Enter Perpetual Bonds – Wow, here is a winner! 

We all know that global debt is pretty much beyond counting so this could be the answer to Government dreams

Essentially Perpetual Bonds - aka Consols but potentially ex coupon - have no maturity date, and when one couples this with zero or negative interest rates, Governments around the world suddenly have an epiphany

Why don’t we issue ‘perps’ combined with zero/negative interest – which would solve the global debt problem. After all if one can get enough ‘suckers’ to buy these bonds then:

  • It is very cheap money (borrowing) – bond holders are paying you interest to hold your paper
  • Here is the kicker, you never have to pay the money back (perpetual bond) and over time the debt will erode to nothing anyway

So why not load up these bonds with the entire global debt and just move on - problem solved

OR SO THEY THINK!

Tags: | Categories: Bank of England | Economics | UK Government

The argument put forward by many in the remain camp is that it would be better to stay within the EU and change it from the inside

However, one only has to look at history & more recently David Camerons attempt only a few months ago to negotiate with the EU on the topic of change from within - we have all seen how well that went, so why should their stance change in the future?

Based upon the EU's track record why on earth does anyone think that the EU is either willing or able to change - even assuming there is a wish to do so - which clearly does not curently exist

Quite frankly those 'in charge' in the EU are set upon an all-encompassing Federalist agenda and anyone who believes otherwise is deluded

Therefore, why should the UK be shackled to an EU, run by an elite whose ideology is totally alien to our own, purely for the benefit of other countries & the rest of the world?

Furthermore, this magnanimity expected of the UK does not come cheap, with an increasing expectation that the UK will provide ever more funding and help solve all the EU's self inflicted problems, where the UK had no say in the original decision (witness Germany unilateral recent open-door policy over migrants) - sometimes to the detriment of our own population as in the case of many decisions by the ECJ (European Court of Justice)

How interesting that according to all the 'remain' pundits the UK is deemed to have little global influence or power to go it alone, and yet at the same time, there seems to be a huge worldwide attempt to prevent the UK population from exercising their vote in favour of Brexit - something simply does not add up!

Does this concerted effort of bullying, threats and persuasion by the 'remain' lobby, by drawing in all manor of supporters from the entire spectrum of ghastly celebrities right through 'captains' of industry and culminating with ex US Secretaries of State, really make any sense?

After all bearing in mind the claims that the UK is a spent power, why should anyone outside the UK care - unless of course there is more to this than meets the eye?

Everyone wants the UK to remain in the EU as a stabilising/moderating influence - but at what price to the UK in terms of Sovereignty, migration and additional financial contributions to a failing EU. Moreover we have an EU that has no intention or will to change despite having had the 'writing on the wall' for a number of years already. The EU simply produces one 'fudge' after another to provide stop-gap solutions, rather than addressing the issues properly with a view to permanent solutions. This must surely the result of woefully inadequate leadership, paralysed by the concept of decision making - i.e. not one statesman amongst the lot of them!

Perhaps a more pertinent question should be - how long will the EU last if the UK does leave and other countries decide to follow suit?

Naturally if Brexit should come about, then the UK will remain willing to step in and help the Europe in times of trouble, as we have done in the past with previous conflicts - but there is really no need for the UK to be part of the unfolding train-wreck of the EU, just to demonstrate commitment to world peace

As for America - clearly they have short memories because they seem to have forgotten the reasons behind their own War of Independence (1775–1783). Why is the wish for Brexit any different?

Anyway does the UK really care about all the US threats over the 'special relationship' because quite frankly we all know that this is a very one-sided arrangement to serve the US only and any assistance to the UK always comes at a price. Let us not forget history and the Anglo-American Loan Agreement, the USA Cash & Carry policy (WWII) or Lend-Lease because the USA refused to enter the war and only engaged after Pearl Harbor, on December 7, 1941. Preferring instead for their 'allies' to do the fighting for them. All this seems rather like deja-vu with the European migrant crisis - America distances itself & Europe picks up the pieces

Whilst we are on the subject of the US, could someone please explain what their contribution has been towards solving the European refugee/migration problems currently being encountered. This is especially poignant bearing in mind that the US were instrumental in being one of the root causes of these issues in the middle east in the first place and now seem to have 'ducked' responsibility

So guys, before standing on the sidelines telling the UK what to do, any advice you offer would probably have more credibility if you started taking your fair share of Syrians, Iraquis, Afghanis and other displaced people that you have helped make refugees in the first place

However, what is hugely disappointing with this entire episode, is the manner in which David Cameron has conducted himself over the referendum, by displaying nothing more than privileged 'bully boy' tactics in an attempt to get his own way.

Considering the office he holds, his obsession and kowtowing to celebrities has always been rather demeaning to the British people, especially as this was not what he was elected to do. Neither is his coterie of Chipping Norton cronies particularly edifying and only brings him into disrepute when favours are handed out

Tags: , | Categories: Economics | European Union

The UK downgrade by Moodies has been on the cards for some time and some would say was inevitable given the UK’s current situation

Nevertheless it has always struck one as being slightly incongruous that the ratings agencies (Moodies, S&P, Fitch et al) are given as much credence as they are in the light of their woefully inadequate performance assessing the 2007/08 situation; in fact I am slightly confused why they have not been sued into extinction over that episode

The collapse in 2008 had been on the cards for a considerable length of time with a number of warning signs and yet not only did the rating agencies totally fail to identify the impending problems, they totally underestimated the dimensions of the crisis when it materialised.

To all accounts they were working with economic models that ignored real world drivers and what was even worse was, that they had absolutely no idea that they were operating with flawed models in the first place. Even to the layman, it was obvious that these models failed to accommodate the evolution of real-world events or economy

In other words, a systemic failure of economic interpretation by that profession; placing theory above potentially known outcomes and giving greater weight to the wrong areas. A ‘black swan’ event may have occurred, but it is worth noting that there is no such concept as ‘systemic failure’ in the world of economic models. Surely this in itself is a fundamental flaw in approach, because it does not even recognise the possibility of a total breakdown?

Therefore, because of these flaws the rating agencies (regulator SEC) were, by dint of their influence, themselves a contributory factor in the whole crisis such as:

  • Offering the highest ratings to financial instruments that were far riskier than advertised. Mislabelling some bonds as triple-A, thereby encouraging investors to place their money in incorrectly identified low risk investments i.e. CDO (collateralised debt obligations), RMBS (residential mortgage backed securities) etc.

Don’t forget that some institutions are prohibited from holding low rated securities and the very fact that the ratings agencies incorrectly classified CDO’s etc. placed these investors at greater risk than they were allowed to take on. Furthermore, once these instruments were reclassified correctly, the institutions had to dump them because they were in breach of the rules

Now we come to a conflict of interest by the ratings agencies. After all they are paid by the very firms whose assets there were recommending/rating and giving a low rating was potentially bad for business. So we culminate in a situation of ignoring high-risk packaged loans (fraudulent mortgages) and assigning them with a quality rating status

With all this in mind, it is quite extraordinary how these ratings organisations have managed to survive and maintain their credibility in rating corporate/public debt

The following springs to mind

There are known knowns.
These are things we know that we know.
There are known unknowns.
That is to say, there are things that we know we don't know.
But there are also unknown unknowns.
There are things we don't know we don't know.

(Donald Rumsfeld)

Tags: | Categories: Economics