Revised UK GDP data for Q4/2010 were released this morning. In an unexpected and unpleasant surprise, the initial estimate of a 0.5% decline was revised to a 0.6% decline. The ONS still calculates the impact of December's bad weather as 0.5% -- and I still think that's too low; see my "Shrinking no more" posting at the start of February. Even so, the upshot of the revisions is that GDP would now have been slightly lower in the quarter even without the weather effect, as opposed to more or less flat as originally estimated. Not good.
The breakdown of the figures throws up a lot of surprises. Investment spending was weak, and the external trade sector subtracted from overall activity. Bank of England Gov. King still sees fit to blame the depreciation of Sterling (most of it 3 years ago!!) for some of the current inflationary pressure, but apparently the impact of said depreciation on actual trade flows has now faded. The dominant service sector also performed poorly.
But here's the biggest surprise of all: one of the few sources of growth in the quarter was....public sector spending, which rose 0.7%. This inconvenient fact hasn't, of course, stopped Shadow Chancellor Ed Balls from blaming the weakness in the economy on the coalition government's austerity policies. Still, it does raise very uncomfortable questions about just how poorly the economy may perform once spending cuts actually start to happen, probably in Q2/2011 and beyond.
There's enough data for January (especially the purchasing managers' indices) to suggest that the economy bounced back strongly in the month, so Q1 as a whole will probably see positive growth. This is by no means certain, however, for calculation reasons. If the weakness in Q4 was concentrated in December, a bounceback in January might do no more than bring GDP back to the Q4 average. This would mean that achieving a positive result for the quarter as a whole would depend on the economy growing in February and March, which is certainly not a done deal. In any case, even if Q1 does turn out positive, the difficulties policymakers face in trying to keep things moving in the right direction after that are becoming ever more severe.
Rising global oil prices are expected to add another 5p per litre to fuel costs within the next couple of weeks. Rising costs for fuel and food, rather than spending cuts or fear of unemployment, are the factors currently most cited by consumers when they are asked why they are becoming more cautious. This will surely persuade the Government to cancel the fuel duty hike scheduled for April, a step it can inarguably afford to take: the Treasury makes out like a bandit whenever pump prices rise, thanks to VAT, and is certainly well ahead of its expected tax take from this source, even without the looming duty increase. The fact that the public finances were better than expected in January also suggests that the Chancellor will offer just a few sweeteners in his budget next month, just to stop the public mood from souring any further.
What about monetary policy? We learned this week that three of the nine members of the Bank pf England's Monetary Policy Committee voted to raise rates at this month's meeting. Today's GDP data may, of course, result in a rethink, but the fact that inflation fears are holding down consumer spending implies that a small rate hike might actually boost confidence, rather than triggering an immediate slide back into recession. A gradual return to more normal monetary conditions, accompanied by a rather less stringent fiscal stance, still looks like the desirable policy mix.
Friday 25 February 2011
Indefensible
Well, there's a surprise. The US has announced that the contract to supply new airborne tankers to the armed forces has been awarded to Boeing, beating off a challenge from EADS, the military counterpart of the European Airbus consortium.
It's a long and frankly depressing story, well told here in The Economist's Clausewitz column. Briefly, EADS won the bidding fair and square in 2008. The aircraft it offered was more expensive than Boeing's but had greater lift capacity. It also had the not inconsiderable advantage of actually existing, whereas the Boeing offering had never been off the drawing board, let alone off the ground. EADS would have created almost as many jobs in the US as Boeing, since it had partnered with Northrop Grumman.
Boeing raised a blizzard of objections to the initial result, and with an election in the offing (as it always seems to be in the US), it succeeded in reopening the process. Northrop Grumman became discouraged and walked away, leaving EADS on its own. The bidding rules were changed to make price almost the sole criterion, and lo and behold, still offering a smaller and largely hypothetical aircraft, Boeing has now emerged as the victor. The US is adamant that the result is fair, which can only be the case if you think that a losing bettor has an inviolable right to demand "best two out of three". EADS has the right of appeal, but there would hardly seemto be any point; the fix is in.
Boeing (and US politicians) have always argued that Airbus competes unfairly because it is subsidised by European governments. Airbus in turn argues that Boeing has unfair advantages in bidding on civilian aircraft because of all the US military business it gets awarded. There's no absolute right and wrong here, but there's no denying that in the case of the tankers, Boeing, even with all its natural advantages, was only able to win through political finagling and wrapping itself in Old Glory.
"Free trade"? "Fair competition"? Sometimes, those words mean whatever politicians, following the example of Humpty Dumpty, choose them to mean.
It's a long and frankly depressing story, well told here in The Economist's Clausewitz column. Briefly, EADS won the bidding fair and square in 2008. The aircraft it offered was more expensive than Boeing's but had greater lift capacity. It also had the not inconsiderable advantage of actually existing, whereas the Boeing offering had never been off the drawing board, let alone off the ground. EADS would have created almost as many jobs in the US as Boeing, since it had partnered with Northrop Grumman.
Boeing raised a blizzard of objections to the initial result, and with an election in the offing (as it always seems to be in the US), it succeeded in reopening the process. Northrop Grumman became discouraged and walked away, leaving EADS on its own. The bidding rules were changed to make price almost the sole criterion, and lo and behold, still offering a smaller and largely hypothetical aircraft, Boeing has now emerged as the victor. The US is adamant that the result is fair, which can only be the case if you think that a losing bettor has an inviolable right to demand "best two out of three". EADS has the right of appeal, but there would hardly seemto be any point; the fix is in.
Boeing (and US politicians) have always argued that Airbus competes unfairly because it is subsidised by European governments. Airbus in turn argues that Boeing has unfair advantages in bidding on civilian aircraft because of all the US military business it gets awarded. There's no absolute right and wrong here, but there's no denying that in the case of the tankers, Boeing, even with all its natural advantages, was only able to win through political finagling and wrapping itself in Old Glory.
"Free trade"? "Fair competition"? Sometimes, those words mean whatever politicians, following the example of Humpty Dumpty, choose them to mean.
Monday 21 February 2011
I read the news today; oh boy!
Right now the contents of any respectable newspaper make the Book of Revelation look about as scary as Three Men in a Boat.
Front and centre is, of course, the political unravelling in the Middle East. After the relatively bloodless protests in Tunisia and Egypt, it was surprising and dismaying to find that the authorities in Bahrain resorted quickly to strong-arm tactics when demonstrations began there. It's less surprising to see the same happening, on a much more gruesome scale, in Libya, where something not far short of civil war seems to be kicking off. Last night's extraordinary broadcast by Colonel Gadhafi's son, Saif, was proof of the old adage that the apple -- or in this case, perhaps, the nut -- never falls far from the tree. If this sort of thing can happen in Libya, no regime in the region can be regarded as immune.
Iran has chosen this exact moment to send a warship through the Suez Canal into the Med, the first time it has done this since the Shah was deposed in 1979. Supposedly the vessel, a frigate, will be spending a year doing anti-piracy training with those well-known experts in the field, the Syrians. Israel has described the move as a "provocation", something that could, of course, never be said about the submarines that Israel keeps permanently on station just off the Iranian coast.
Meanwhile in Iceland, another volcano is making threatening noises. This one apparently makes our old friend from last year, Eyafjallawhatever, look like a pimple.
And in Washington, the Federal Government is set to run out of money on March 4, as the new Republican majority in the House engage in a show of strength with the Obama administration over spending cuts. A shutdown of the government, and potentially a failure to repay the country's debts as they fall due, looms ever closer, with unforeseeable effects for the global financial system.
Even the sun is getting in on the act. A massive solar flare has raised fears over disruptions to power and communications grids, and more of the same is expected through 2012 as the sun emerges from its recent period of relative dormancy.
Feel like turning to the sports pages for relief? There you'll find these extraordinary words: "Leyton Orient 1 - Arsenal 1". So not all the news is bad, then -- though come to think of it, if you wanted just one story to prove that the world has spun right off its gimbals, that might be the one to choose.
Front and centre is, of course, the political unravelling in the Middle East. After the relatively bloodless protests in Tunisia and Egypt, it was surprising and dismaying to find that the authorities in Bahrain resorted quickly to strong-arm tactics when demonstrations began there. It's less surprising to see the same happening, on a much more gruesome scale, in Libya, where something not far short of civil war seems to be kicking off. Last night's extraordinary broadcast by Colonel Gadhafi's son, Saif, was proof of the old adage that the apple -- or in this case, perhaps, the nut -- never falls far from the tree. If this sort of thing can happen in Libya, no regime in the region can be regarded as immune.
Iran has chosen this exact moment to send a warship through the Suez Canal into the Med, the first time it has done this since the Shah was deposed in 1979. Supposedly the vessel, a frigate, will be spending a year doing anti-piracy training with those well-known experts in the field, the Syrians. Israel has described the move as a "provocation", something that could, of course, never be said about the submarines that Israel keeps permanently on station just off the Iranian coast.
Meanwhile in Iceland, another volcano is making threatening noises. This one apparently makes our old friend from last year, Eyafjallawhatever, look like a pimple.
And in Washington, the Federal Government is set to run out of money on March 4, as the new Republican majority in the House engage in a show of strength with the Obama administration over spending cuts. A shutdown of the government, and potentially a failure to repay the country's debts as they fall due, looms ever closer, with unforeseeable effects for the global financial system.
Even the sun is getting in on the act. A massive solar flare has raised fears over disruptions to power and communications grids, and more of the same is expected through 2012 as the sun emerges from its recent period of relative dormancy.
Feel like turning to the sports pages for relief? There you'll find these extraordinary words: "Leyton Orient 1 - Arsenal 1". So not all the news is bad, then -- though come to think of it, if you wanted just one story to prove that the world has spun right off its gimbals, that might be the one to choose.
Thursday 17 February 2011
Can't tell the players without a programme
Typical! You wait three years for a new UK financial regulatory body to be set up, and then three come along at once!
The Treasury has released a paper detailing proposals for future financial regulation, involving a greater role for the Bank of England and the breakup of the much-derided Financial Services Authority (or Fundamentally Supine Authority as Private Eye calls it).
Within the Bank of England there's to be a new Financial Policy Committee (FPC), which will operate alongside the existing Monetary Policy Committee (MPC). The role of the FPC will be to identify systemic risks within the financial system before those risks put the stability of the whole structure at risk. For example, the FPC would presumably have been expected to blow the whistle on the inordinate expansion of home lending, and the banks' perilous reliance on wholesale sources of funding, well before the crisis hit in 2007/08. It would be hard to deny that between them, the Bank of England and FSA completely fumbled the ball on this one.
While the FPC monitors the big picture, the FSA's responsibility for overseeing the activity of individual firms will be split between two new bodies, the Financial Conduct Authority (FCA) and the Prudential Regulation Authority(PRA). Confused yet? You should be. Here's a paragraph on how it's all supposed to fit together, from Robert Peston's blog on the BBC website:
...the FPC will have powers over the PRA and FCA to make recommendations, which the PRA and FCA will either have to implement or explain publicly why not; and most importantly of all, the FPC will have powers from secondary legislation to significantly influence the behaviour of banks and other financial institutions, by directing the PRA and FCA to do certain things on its behalf.
Yeah, you just know that'll work.
The previous system, put in place (lest we forget) by Gordon Brown, failed abjectly when things got messy. (Unlike Private Eye, I see plenty of blame for the Bank of England here, rather than just for the FSA, but that's another story). However, it's hard to be confident that this complex new structure is the right solution. The three new bodies need to attract senior staff who know the kinds of things that banks and hedge funds get up to, but are not in any way beholden to the financial industry; and it needs to attract them at wages that are likely to be a fraction of what the industry itself would pay for that kind of talent. Which might not be as simple as it sounds.
The Treasury has released a paper detailing proposals for future financial regulation, involving a greater role for the Bank of England and the breakup of the much-derided Financial Services Authority (or Fundamentally Supine Authority as Private Eye calls it).
Within the Bank of England there's to be a new Financial Policy Committee (FPC), which will operate alongside the existing Monetary Policy Committee (MPC). The role of the FPC will be to identify systemic risks within the financial system before those risks put the stability of the whole structure at risk. For example, the FPC would presumably have been expected to blow the whistle on the inordinate expansion of home lending, and the banks' perilous reliance on wholesale sources of funding, well before the crisis hit in 2007/08. It would be hard to deny that between them, the Bank of England and FSA completely fumbled the ball on this one.
While the FPC monitors the big picture, the FSA's responsibility for overseeing the activity of individual firms will be split between two new bodies, the Financial Conduct Authority (FCA) and the Prudential Regulation Authority(PRA). Confused yet? You should be. Here's a paragraph on how it's all supposed to fit together, from Robert Peston's blog on the BBC website:
...the FPC will have powers over the PRA and FCA to make recommendations, which the PRA and FCA will either have to implement or explain publicly why not; and most importantly of all, the FPC will have powers from secondary legislation to significantly influence the behaviour of banks and other financial institutions, by directing the PRA and FCA to do certain things on its behalf.
Yeah, you just know that'll work.
The previous system, put in place (lest we forget) by Gordon Brown, failed abjectly when things got messy. (Unlike Private Eye, I see plenty of blame for the Bank of England here, rather than just for the FSA, but that's another story). However, it's hard to be confident that this complex new structure is the right solution. The three new bodies need to attract senior staff who know the kinds of things that banks and hedge funds get up to, but are not in any way beholden to the financial industry; and it needs to attract them at wages that are likely to be a fraction of what the industry itself would pay for that kind of talent. Which might not be as simple as it sounds.
Wednesday 16 February 2011
Will he or won't he?
Bank of England Governor Mervyn King, that is. Will he or won't he start raising interest rates soon? Yesterday, in the wake of news that CPI rose to 4% in January, King had to pen another of his now-customary letters to the Chancellor of the Exchequer, explaining why inflation is so far above the agreed 2% target. This was the key sentence:
"The MPC's-central judgement, under the assumption that Bank Rate increases in line with market expectations, remains that inflation will fall back so that it is about as likely to be above the target as below it two to three years ahead."
The market, together with most media commentators, saw this as a subtle shift in the Bank's outlook, one that made it likely that rates would start to rise as early as May. A much less considered reaction, however, came from dear old Anatole Kaletsky, writing in today's Times (behind the paywall; sorry!) Anatole thinks that King has "panicked", and that steps to raise interest rates make a double dip recession a near-certainty.
Now, one might quibble that with inflation moving steadily above target for the past year and unlikely, in the Bank's own judgment, to fall back to the target for another 2-3 years, that the term "panicking" might be just a slight exaggeration on Anatole's part. Actually, though, it's just Anatole up to his usual trick of getting every possible forecast into print at least once. As he points out, until yesterday he did not assume a double dip was likely. Now he thinks one is probable if the Bank raises rates as much as the market is currently pricing in (a terrifying 75 bp by the end of this year), and things could get really nasty if the market keeps boosting its expectations for future rate hikes and the Bank keeps following the market's lead. I'm quite sure that last part not what King's letter means, but hey, it's allowed Kaletsky to cover all the bases, so that's OK, right?
Perhaps it's all moot anyway. Today the Bank released its Quarterly Inflation Report, and it seems, to the market at least, to be a bit less hawkish on the inflation outlook. The bit about inflation returning to target in the medium term, on the assumption that rates rise in line with market expectations, is still there. However, the message that comes out of the Report loud and clear is one of a more than customary level of uncertainty on the part of the Bank's decision makers. They're uncertain about the growth outlook, and so they're not sure about how much spare capacity there will be in the economy, and that makes them unsure to what extent and how soon weakness in the economy will help to purge current "one-time" factors (high energy prices; high commodity prices; high import prices, the VAT increase) from the CPI.
Sadly, their lack of confidence is not unwarranted. It's not that long ago that the Bank was forecasting that CPI would be around 1% in early 2011, as opposed to the current 4%. Fair enough, the Bank couldn't be expected to have forecast the VAT increase, but even the CPI measure that excludes indirect taxes rose 2.4% in January and is showing signs of accelerating. (Stephanie Flanders has done a very good job of dissecting the data in her blog on the BBC website). The Bank observes that the underlying path of inflation is higher than was forecast in its November Inflation Report as a result of higher energy prices and rising import costs.
With monetary policy in the US, UK, Japan and elsewhere remaining loose, these can hardly be said to be unpredictable developments. However, one searches the Report in vain for any recognition that worldwide inflationary pressures are in any way attributable to past policy decisions. The fiscal actions of the coalition Government -- the spending cuts, the VAT hike -- have pushed the Bank into a tight corner, but it will be playing a dangerous game if it does not raise rates "in line with market expectations".
"The MPC's-central judgement, under the assumption that Bank Rate increases in line with market expectations, remains that inflation will fall back so that it is about as likely to be above the target as below it two to three years ahead."
The market, together with most media commentators, saw this as a subtle shift in the Bank's outlook, one that made it likely that rates would start to rise as early as May. A much less considered reaction, however, came from dear old Anatole Kaletsky, writing in today's Times (behind the paywall; sorry!) Anatole thinks that King has "panicked", and that steps to raise interest rates make a double dip recession a near-certainty.
Now, one might quibble that with inflation moving steadily above target for the past year and unlikely, in the Bank's own judgment, to fall back to the target for another 2-3 years, that the term "panicking" might be just a slight exaggeration on Anatole's part. Actually, though, it's just Anatole up to his usual trick of getting every possible forecast into print at least once. As he points out, until yesterday he did not assume a double dip was likely. Now he thinks one is probable if the Bank raises rates as much as the market is currently pricing in (a terrifying 75 bp by the end of this year), and things could get really nasty if the market keeps boosting its expectations for future rate hikes and the Bank keeps following the market's lead. I'm quite sure that last part not what King's letter means, but hey, it's allowed Kaletsky to cover all the bases, so that's OK, right?
Perhaps it's all moot anyway. Today the Bank released its Quarterly Inflation Report, and it seems, to the market at least, to be a bit less hawkish on the inflation outlook. The bit about inflation returning to target in the medium term, on the assumption that rates rise in line with market expectations, is still there. However, the message that comes out of the Report loud and clear is one of a more than customary level of uncertainty on the part of the Bank's decision makers. They're uncertain about the growth outlook, and so they're not sure about how much spare capacity there will be in the economy, and that makes them unsure to what extent and how soon weakness in the economy will help to purge current "one-time" factors (high energy prices; high commodity prices; high import prices, the VAT increase) from the CPI.
Sadly, their lack of confidence is not unwarranted. It's not that long ago that the Bank was forecasting that CPI would be around 1% in early 2011, as opposed to the current 4%. Fair enough, the Bank couldn't be expected to have forecast the VAT increase, but even the CPI measure that excludes indirect taxes rose 2.4% in January and is showing signs of accelerating. (Stephanie Flanders has done a very good job of dissecting the data in her blog on the BBC website). The Bank observes that the underlying path of inflation is higher than was forecast in its November Inflation Report as a result of higher energy prices and rising import costs.
With monetary policy in the US, UK, Japan and elsewhere remaining loose, these can hardly be said to be unpredictable developments. However, one searches the Report in vain for any recognition that worldwide inflationary pressures are in any way attributable to past policy decisions. The fiscal actions of the coalition Government -- the spending cuts, the VAT hike -- have pushed the Bank into a tight corner, but it will be playing a dangerous game if it does not raise rates "in line with market expectations".
Tuesday 15 February 2011
The white elephant in the room
Prices for spectators wishing to attend events at next year's London Olympics have been confirmed today, along with the detailed schedule for the Games. £2000 for the best seats at the opening ceremony! (For goodness sake, that's not even a sporting event). £750 for the men's 100 metres -- try figuring that out as a price per hour; makes the supposedly money-grubbing Premier League look pretty cheesy.
One way or another, showing up in person to watch the Olympics and the subsequent Paralympics is going to put a sizeable dent in even the fattest wallet. But, as the late, great Captain Beefheart once asked "What about after that? What about after that?".*
Well, UK Athletics certainly won't be filling the stadium once the Games are over. Here's an extract from an article in today's Guardian:
UK Athletics has admitted it will be almost impossible to fill the Olympic Stadium when it stages meetings following the Olympics. The main event, the two-day London Diamond League Grand Prix, attracts a 17,000 capacity crowd to Crystal Palace where it is currently held and some of the lesser meetings are likely to struggle to attract spectators.
The next most prestigious events are the UK Championships, currently held at Birmingham's Alexander Stadium which has a capacity of approximately 8,000. Ed Warner, chairman of UK Athletics, a partner in West Ham United's bid, said those national championships attract a crowd "in the high single thousands".
He acknowledged that the other athletics event on the list, which includes the English Schools championships, south of England senior and junior championships, and Newham and Essex Beagles' British Athletics League meets, will be watched in a mostly empty stadium.
Do you like the "almost" in the opening sentence? If UK Athletics wanted to be even more honest (but hey, why start now?), it would maybe admit that it will also be "almost" impossible to fill the Stadium even during the Games, apart from the opening ceremony and the men's 100.
It's frankly scandalous. Having used false cost estimates to bamboozle the government of the day and the taxpayer into paying for this extravaganza, UK Athletics still feels entitled to demand that the athletics track remain in place at the stadium after the Games are over. Amazingly, and despite the fact that this will require the local council (impoverished Newham) to guarantee a further £40 million loan to assist with the conversion work, this seems likely to happen. These games are firmly on track to be the biggest financial boondoggle since the Montreal Olympiad back in 1976.
* Dropout Boogie
One way or another, showing up in person to watch the Olympics and the subsequent Paralympics is going to put a sizeable dent in even the fattest wallet. But, as the late, great Captain Beefheart once asked "What about after that? What about after that?".*
Well, UK Athletics certainly won't be filling the stadium once the Games are over. Here's an extract from an article in today's Guardian:
UK Athletics has admitted it will be almost impossible to fill the Olympic Stadium when it stages meetings following the Olympics. The main event, the two-day London Diamond League Grand Prix, attracts a 17,000 capacity crowd to Crystal Palace where it is currently held and some of the lesser meetings are likely to struggle to attract spectators.
The next most prestigious events are the UK Championships, currently held at Birmingham's Alexander Stadium which has a capacity of approximately 8,000. Ed Warner, chairman of UK Athletics, a partner in West Ham United's bid, said those national championships attract a crowd "in the high single thousands".
He acknowledged that the other athletics event on the list, which includes the English Schools championships, south of England senior and junior championships, and Newham and Essex Beagles' British Athletics League meets, will be watched in a mostly empty stadium.
Do you like the "almost" in the opening sentence? If UK Athletics wanted to be even more honest (but hey, why start now?), it would maybe admit that it will also be "almost" impossible to fill the Stadium even during the Games, apart from the opening ceremony and the men's 100.
It's frankly scandalous. Having used false cost estimates to bamboozle the government of the day and the taxpayer into paying for this extravaganza, UK Athletics still feels entitled to demand that the athletics track remain in place at the stadium after the Games are over. Amazingly, and despite the fact that this will require the local council (impoverished Newham) to guarantee a further £40 million loan to assist with the conversion work, this seems likely to happen. These games are firmly on track to be the biggest financial boondoggle since the Montreal Olympiad back in 1976.
* Dropout Boogie
Sunday 13 February 2011
The US and Egypt: dazed and confused
To be as polite about it as possible, the Obama administration hasn't had a good Egyptian Revolution. The onset of the crisis was a surprise to Washington; as events unfolded in Tahrir Square, the President and his spokespeople were torn between fear of the unknown and enthusiasm for democracy; ahead of Mubarak's third speech of the crisis, the White House was confident that he was about to resign, except he didn't; and when Mubarak finally did go, the President was en route from Detroit to DC aboard Air Force One, with the result that the US was, embarrassingly, almost the last to offer an official reaction, prompting a withering on-air reaction from AlJazeera: "you can practically hear the tumbleweeds blowing down the hallways in Washington".
President Obama's eloquent statement to the press when he finally got back to Washington may have repaired some of the damage (and his inability to master the aspirated "H" sound in Tahrir may have helped to dispel the suspicion that he is a secret Muslim!). Even so, the US remains unsure how to react and who to deal with in post-revolutionary Cairo, and still gives the impression of being more concerned about the impact on Israel and the "peace" process than about the fate of the Egyptians themselves.
Over on the US right, the confusion is even greater. Attempts to paint Obama as "the man who lost Egypt" seem to have died down for now, and there are even some attempts by Republicans to portray themselves as the country's liberators. Former Defense Secretary William Cohen (a GOP man even though he served under President Clinton) came right out and told Wolf Blitzer on CNN that the 2003 invasion of Iraq had set the ball rolling for democracy in the Middle East -- a gratuitous insult to the millions rallying all across Egypt, one might think. However, it seems unlikely that many other Republicans will want to take any of the credit just yet, because it's far to soon to be sure whether Hosni Mubarak will be replaced by a pro-Western democracy, or by something much more inimical to US interests. The precedent of Palestine, where the introduction of democracy in response to US pressure resulted in a Hamas government in Gaza, is not comforting for those who think foreigners should vote for what suits the US rather than for what they themselves really want.
Out on the further reaches of the US right, among the media rabble-rousers who do so much to form public opinion, some people have had no hesitation in rushing to judgment: the fall of Mubarak is a disaster. See, for example, this astoundingly mean-spirited piece by Mark Steyn. As often happens with Steyn, it's impossible to tell what he would prefer to see happening, but he leaves little doubt that he'd be content to see Egyptians living under a dictator for countless millenia if that was in the interests of the United States. (It's often hard to believe that Steyn himself is in fact Canadian). Steyn thinks it's significant that the popular uprisings are taking place only in countries that might be considered friendly to the US; Messrs Gadhafi and Assad, he suggests, are sleeping soundly in their beds. Does Steyn sees any causal connection there, and can he suggest any changes in US policy to address it? Maybe he's saving those topics for another article.
President Obama's eloquent statement to the press when he finally got back to Washington may have repaired some of the damage (and his inability to master the aspirated "H" sound in Tahrir may have helped to dispel the suspicion that he is a secret Muslim!). Even so, the US remains unsure how to react and who to deal with in post-revolutionary Cairo, and still gives the impression of being more concerned about the impact on Israel and the "peace" process than about the fate of the Egyptians themselves.
Over on the US right, the confusion is even greater. Attempts to paint Obama as "the man who lost Egypt" seem to have died down for now, and there are even some attempts by Republicans to portray themselves as the country's liberators. Former Defense Secretary William Cohen (a GOP man even though he served under President Clinton) came right out and told Wolf Blitzer on CNN that the 2003 invasion of Iraq had set the ball rolling for democracy in the Middle East -- a gratuitous insult to the millions rallying all across Egypt, one might think. However, it seems unlikely that many other Republicans will want to take any of the credit just yet, because it's far to soon to be sure whether Hosni Mubarak will be replaced by a pro-Western democracy, or by something much more inimical to US interests. The precedent of Palestine, where the introduction of democracy in response to US pressure resulted in a Hamas government in Gaza, is not comforting for those who think foreigners should vote for what suits the US rather than for what they themselves really want.
Out on the further reaches of the US right, among the media rabble-rousers who do so much to form public opinion, some people have had no hesitation in rushing to judgment: the fall of Mubarak is a disaster. See, for example, this astoundingly mean-spirited piece by Mark Steyn. As often happens with Steyn, it's impossible to tell what he would prefer to see happening, but he leaves little doubt that he'd be content to see Egyptians living under a dictator for countless millenia if that was in the interests of the United States. (It's often hard to believe that Steyn himself is in fact Canadian). Steyn thinks it's significant that the popular uprisings are taking place only in countries that might be considered friendly to the US; Messrs Gadhafi and Assad, he suggests, are sleeping soundly in their beds. Does Steyn sees any causal connection there, and can he suggest any changes in US policy to address it? Maybe he's saving those topics for another article.
Thursday 10 February 2011
Bank of England: behind the curve
Today's decision by the Bank of England to keep bank rate at its historical low of 0.5% was not much of a surprise, given Governor Mervyn King's defence of the Bank's dovish stance in his recent speech in Newcastle. However, the vote on the nine-person MPC may have been a close-run thing -- two members voted for a rate rise in January, and the inflation picture has only worsened since then.
Worryingly for the Bank, more and more commentators are expressing concern that the Bank's hard-won credibility as an inflation fighter is being put at risk. Trade organisations like the CBI have welcomed today's decision, but media commentators are becoming a lot less confident that the Bank knows what it is doing. A quick look at the Bloomberg ticker suggests that the only acceptable adjective to describe UK inflation is now "soaring".
This particular Bloomberg story, written after the rate decision, is especially interesting. Bloomberg has sought out reactions from two former MPC members, DeAnne Julius and Ruth Barker -- and both think the Bank is getting it wrong:
Julius said yesterday that the Bank of England must raise its rate “sooner rather than later” to prevent rising price expectations from getting entrenched in the economy, and said an increase in May is likely. Barker said last week the bank’s tolerance of a prolonged bout of above-target price gains has cost it a “modest loss of credibility.”
It's a while since either of these worthies was on the MPC, but if memory serves, they were always among the more dovish members of the Committee, which adds to the significance of their present views.
The Bank argues that it is "looking through" a seemingly endless string of "one-off" inflationary shocks: soaring commodity prices, rising energy prices, food crop failures, the VAT increase. It's by no means alone in this. The US Federal Reserve is doing much the same thing. That doesn't make it right, though. The logic of "looking through" shocks like this is that they represent relative price adjustments rather than true inflation, which is an upward ratcheting of the overall price level. The Bank (and the Fed) are assuming that as these shocks pass through the system (or at least pass out of the CPI calculation, in the case of the VAT increase), inflation will quickly retreat to more comfortable levels.
There are two possible problems here. The first and simplest is that the Bank has been expressing that hope for quite some time, and it hasn't happened yet. CPI was supposed to move back to the 2% target this year. It's currently at 3.7% and heading higher, with the Bank now forecasting (or maybe praying for) a return to target in 2012. The second and more profound point is that the whole notion of looking through one-off shocks may soon be tested to breaking point. It's one thing to expect price shocks to subside when monetary conditions are in some sense normal; it's quite another to count on it happening when monetary conditions, both in the UK and globally, are extremely loose. It's far from clear that the economy is anything like weak enough to stop inflation expectations and wage demands from getting out of hand, at which point the Bank would have a big problem on its hands.
I realise that as a retiree, I'm talking my own book here, but it seems to me that the UK economy would be better served by a slightly tighter monetary stance and a slighly looser fiscal stance than is currently on the cards. Under current arragmenets, though, there's no obvious way of making that change. It almost makes you pine for the pre-1997 days when the Chancellor had the last word on interest rates as well as fiscal policy.
Worryingly for the Bank, more and more commentators are expressing concern that the Bank's hard-won credibility as an inflation fighter is being put at risk. Trade organisations like the CBI have welcomed today's decision, but media commentators are becoming a lot less confident that the Bank knows what it is doing. A quick look at the Bloomberg ticker suggests that the only acceptable adjective to describe UK inflation is now "soaring".
This particular Bloomberg story, written after the rate decision, is especially interesting. Bloomberg has sought out reactions from two former MPC members, DeAnne Julius and Ruth Barker -- and both think the Bank is getting it wrong:
Julius said yesterday that the Bank of England must raise its rate “sooner rather than later” to prevent rising price expectations from getting entrenched in the economy, and said an increase in May is likely. Barker said last week the bank’s tolerance of a prolonged bout of above-target price gains has cost it a “modest loss of credibility.”
It's a while since either of these worthies was on the MPC, but if memory serves, they were always among the more dovish members of the Committee, which adds to the significance of their present views.
The Bank argues that it is "looking through" a seemingly endless string of "one-off" inflationary shocks: soaring commodity prices, rising energy prices, food crop failures, the VAT increase. It's by no means alone in this. The US Federal Reserve is doing much the same thing. That doesn't make it right, though. The logic of "looking through" shocks like this is that they represent relative price adjustments rather than true inflation, which is an upward ratcheting of the overall price level. The Bank (and the Fed) are assuming that as these shocks pass through the system (or at least pass out of the CPI calculation, in the case of the VAT increase), inflation will quickly retreat to more comfortable levels.
There are two possible problems here. The first and simplest is that the Bank has been expressing that hope for quite some time, and it hasn't happened yet. CPI was supposed to move back to the 2% target this year. It's currently at 3.7% and heading higher, with the Bank now forecasting (or maybe praying for) a return to target in 2012. The second and more profound point is that the whole notion of looking through one-off shocks may soon be tested to breaking point. It's one thing to expect price shocks to subside when monetary conditions are in some sense normal; it's quite another to count on it happening when monetary conditions, both in the UK and globally, are extremely loose. It's far from clear that the economy is anything like weak enough to stop inflation expectations and wage demands from getting out of hand, at which point the Bank would have a big problem on its hands.
I realise that as a retiree, I'm talking my own book here, but it seems to me that the UK economy would be better served by a slightly tighter monetary stance and a slighly looser fiscal stance than is currently on the cards. Under current arragmenets, though, there's no obvious way of making that change. It almost makes you pine for the pre-1997 days when the Chancellor had the last word on interest rates as well as fiscal policy.
Sunday 6 February 2011
Some races more equal than others: official
You may have seen where Jeremy Clarkson* and his oafish Top Gear colleagues got in trouble for insulting Mexico and Mexicans. They're flatulent, overweight and lazy, apparently. (The Mexicans, that is, not Jeremy et al). The Mexican ambassador in London, who possibly needs to get out more, happened to be watching Top Gear, and was unsurprisingly a bit narked. He complained to the BBC, who have duly apologised.
But what's this? Apparently the head of the Equality and Human Rights Commission, Trevor Phillips, is about to spring to Clarkson's defence. In a speech this coming week Phillips, who has never before shown even the slightest sign of having a sense of humour, "will say that while “the Top Gear Tendency” might appear to some as juvenile and vulgar, Clarkson and his fellow presenters are “brilliant” talents whose jokes entertain millions. Rather than suing Top Gear, the “PC lobby” should focus on the real causes of discrimination".
This remarkable intervention raises several important questions:
- Do we all get to decide which groups it's OK to insult and which it isn't, or do we have to let Trevor Phillips make those decisions? Would he be so cavalier about insulting Mexicans if some of them wore suicide vests?
- Do we all get to decide who's "brilliant" and who isn't, or once again, do we have to let Trevor do that? After all, Roy "Chubby" Brown and Jim Davidson are loathsomely misogynistic and racist, but some people think they're funny, so does that make it all right?
And the most obvious question of all:
- If the Government is so assiduously chasing cost savings, how come Trevor Phillips and his pals are still on the public payroll? Because it seems to me that he's just blown the whistle on his whole fraudulent enterprise.
(* You could be forgiven for assuming Clarkson was the Antichrist, except that we all know that's James Blunt).
But what's this? Apparently the head of the Equality and Human Rights Commission, Trevor Phillips, is about to spring to Clarkson's defence. In a speech this coming week Phillips, who has never before shown even the slightest sign of having a sense of humour, "will say that while “the Top Gear Tendency” might appear to some as juvenile and vulgar, Clarkson and his fellow presenters are “brilliant” talents whose jokes entertain millions. Rather than suing Top Gear, the “PC lobby” should focus on the real causes of discrimination".
This remarkable intervention raises several important questions:
- Do we all get to decide which groups it's OK to insult and which it isn't, or do we have to let Trevor Phillips make those decisions? Would he be so cavalier about insulting Mexicans if some of them wore suicide vests?
- Do we all get to decide who's "brilliant" and who isn't, or once again, do we have to let Trevor do that? After all, Roy "Chubby" Brown and Jim Davidson are loathsomely misogynistic and racist, but some people think they're funny, so does that make it all right?
And the most obvious question of all:
- If the Government is so assiduously chasing cost savings, how come Trevor Phillips and his pals are still on the public payroll? Because it seems to me that he's just blown the whistle on his whole fraudulent enterprise.
(* You could be forgiven for assuming Clarkson was the Antichrist, except that we all know that's James Blunt).
Thursday 3 February 2011
Super Bowl versus super rich
This week has brought the paradoxical contrast between US major league sports (operated on a quasi-socialistic franchise basis) and the UK's Premier Lague soccer (a mad free-for-all) into the sharpest possible focus.
Let's start in the Premier League, where the bizarre ritual known as the January trading window has just concluded. Chelsea FC, having just announced a £75 million loss for 2010, spent a UK record £50 million on striker Fernando "el Nino" Torres from Liverpool, plus another £20 million plus on a player from Portugal. Chelsea is owned by the Russian megabillionaire Roman Abramovich. Liverpool promptly turned around and paid £35 million for striker Andy "Asbo" Carroll from Newcastle United, and also spent a further £23 million on a Portuguese player of their own. Liverpool are owned by the megabucks US owners of the Boston Red Sox, whereas poor old Newcastle are saddled with an owner, Mike Ashley, who is almost certainly a billionaire but is seen as a bit of a cheapskate. Any suggestion that all this might not be healthy for the competitive order of the national game is shrugged off. Never mind the quality -- count the money!
Meanwhile in the US, Super Bowl XLV (or XXXXV if you like your Roman numerals more prolix) will be contested by the Green Bay Packers and the Pittsburgh Steelers. Green Bay? Population 100,000! If you want to find it on a map, start at Chicago and head north. (Keep going!) The team is owned by the city's residents. Pittsburgh? Once the Steel City, now the epitome of the Rust Belt. Declining economy, falling population. At the unfashionable end of Pennsylvania, if that's possible. The equivalent in English soccer would be something like Norwich City and Sheffield Wednesday fighting it out for the Premier League title, which is simply inconceivable. The NFL, alongside the other major leagues, long ago realised that keeping the product competitive would be in everyone's interest. The Premier League, bolstered by TV rights money, couldn't care less.
That's supposed to change soon, as Europe-wide "financial fair play" rules start to come into force next year. The Chelseas and Liverpools (and Man City/Man Us and Arsenals) of the league swear they will abide by them, but I'd risk a small bet that even now they've got lawyers working on some sort of restraint of trade challenge.
I won't be risking even a small bet on Super Bowl XLV, but in the interests of sticking up for the little guy, let's go for the Pack by a converted TD.
Let's start in the Premier League, where the bizarre ritual known as the January trading window has just concluded. Chelsea FC, having just announced a £75 million loss for 2010, spent a UK record £50 million on striker Fernando "el Nino" Torres from Liverpool, plus another £20 million plus on a player from Portugal. Chelsea is owned by the Russian megabillionaire Roman Abramovich. Liverpool promptly turned around and paid £35 million for striker Andy "Asbo" Carroll from Newcastle United, and also spent a further £23 million on a Portuguese player of their own. Liverpool are owned by the megabucks US owners of the Boston Red Sox, whereas poor old Newcastle are saddled with an owner, Mike Ashley, who is almost certainly a billionaire but is seen as a bit of a cheapskate. Any suggestion that all this might not be healthy for the competitive order of the national game is shrugged off. Never mind the quality -- count the money!
Meanwhile in the US, Super Bowl XLV (or XXXXV if you like your Roman numerals more prolix) will be contested by the Green Bay Packers and the Pittsburgh Steelers. Green Bay? Population 100,000! If you want to find it on a map, start at Chicago and head north. (Keep going!) The team is owned by the city's residents. Pittsburgh? Once the Steel City, now the epitome of the Rust Belt. Declining economy, falling population. At the unfashionable end of Pennsylvania, if that's possible. The equivalent in English soccer would be something like Norwich City and Sheffield Wednesday fighting it out for the Premier League title, which is simply inconceivable. The NFL, alongside the other major leagues, long ago realised that keeping the product competitive would be in everyone's interest. The Premier League, bolstered by TV rights money, couldn't care less.
That's supposed to change soon, as Europe-wide "financial fair play" rules start to come into force next year. The Chelseas and Liverpools (and Man City/Man Us and Arsenals) of the league swear they will abide by them, but I'd risk a small bet that even now they've got lawyers working on some sort of restraint of trade challenge.
I won't be risking even a small bet on Super Bowl XLV, but in the interests of sticking up for the little guy, let's go for the Pack by a converted TD.
Shrinking no more
The British media are always quick to wheel out entirely false headlines such as "Rail strike costing economy £500 million a day!". So it was a teensy bit inconsistent when they all rushed to pooh-pooh data that suggested that the worst December weather in a century had caused the reported 0.5% fall in GDP. No, no no, said the media, egged on by Shadow Chancellor Ed Balls -- this is the start of the dreaded double dip. We're doomed to fall behind even as the rest of the world merrily expands.
Well, this week we have seen the release of some of the earliest data for the month of January -- the Markit/CIPS purchasing managers' indices (PMIs). Guess what? The manufacturing PMI rose to 62, its strongest level in 19 years, and the construction PMI also rebounded. No huge surprises there, perhaps: manufacturing has been doing nicely thanks to the weak exchange rate (even in December the reading was a strongly-expansionary 58), while construction was certainly the sector worst affected by the weather and hence the likeliest to bounce back. But what's this?? Today we learn that the dominant service sector, which has had the last rites recited over it regularly since about mid-2010, saw its PMI bounce back to 54.5 in January, the strongest reading since last May.
So whaddaya know? The ONS (and George Osborne) may well have been right all along, and the media wrong. In fact, I'd be tempted to go further. Think about it. Simple arithmetic suggests that each day of a quarter accounts, om average, for about 1.1% of that quarter's GDP. Let's call it 1% for simplicity's sake. So if the economy shut down completely for a day during a quarter, GDP for that quarter would be 1% lower. The ONS's estimate, then, implies that almost a month of very widespread disruption caused the loss of only half a day's output. Although such losses are almost always recouped once conditions return to normal, the fact that the worst of the disruption took place just before Christmas means that this rebound could not have taken place during Q4. The bottom line is that underlying growth in Q4 was probably stronger than estimated, which implies that the recovery evidently under way in the current quarter is starting from a slightly higher base.
The Q4 GDP data attracted screaming headlines on the front pages of the papers. Let's see whether this better news gets the same treatment. Holding your breath is not advised.
Well, this week we have seen the release of some of the earliest data for the month of January -- the Markit/CIPS purchasing managers' indices (PMIs). Guess what? The manufacturing PMI rose to 62, its strongest level in 19 years, and the construction PMI also rebounded. No huge surprises there, perhaps: manufacturing has been doing nicely thanks to the weak exchange rate (even in December the reading was a strongly-expansionary 58), while construction was certainly the sector worst affected by the weather and hence the likeliest to bounce back. But what's this?? Today we learn that the dominant service sector, which has had the last rites recited over it regularly since about mid-2010, saw its PMI bounce back to 54.5 in January, the strongest reading since last May.
So whaddaya know? The ONS (and George Osborne) may well have been right all along, and the media wrong. In fact, I'd be tempted to go further. Think about it. Simple arithmetic suggests that each day of a quarter accounts, om average, for about 1.1% of that quarter's GDP. Let's call it 1% for simplicity's sake. So if the economy shut down completely for a day during a quarter, GDP for that quarter would be 1% lower. The ONS's estimate, then, implies that almost a month of very widespread disruption caused the loss of only half a day's output. Although such losses are almost always recouped once conditions return to normal, the fact that the worst of the disruption took place just before Christmas means that this rebound could not have taken place during Q4. The bottom line is that underlying growth in Q4 was probably stronger than estimated, which implies that the recovery evidently under way in the current quarter is starting from a slightly higher base.
The Q4 GDP data attracted screaming headlines on the front pages of the papers. Let's see whether this better news gets the same treatment. Holding your breath is not advised.
Tuesday 1 February 2011
Son of a Pharaoh
US support for sundry dictators around the world has generally relied on the so-called "son-of-a-bitch" theory: President X may be a son-of-a-bitch, but at least he's our SOB. It's only when President X comes under pressure at home that the flipside of the theory becomes apparent: he may be ours, but as far as his people are concerned, he's a US-sponsored SOB and they want him gone.
Hosni Mubarak is hardly the worst SOB in today's world -- heck, he's not even the worst in his own neighbourhood. But he's clearly on his way out now, and as ever the US State Department is panicking because it seems to have no good options in dealing with the crisis. That's the thing with the SOB theory, of course. Because your guy is an SOB, and because you're encouraging him, he tends to get rid of all possible competitors. When he takes the inevitable fall, you can't even find another biddable SOB to replace him with. This means that the "Iran-II" scenario that the Obama administration is now terrified of in Egypt has in fact been made much more likely by Washington's decades-long support of Mubarak. When the Shah was forced out of Iran, the only opposition group ready to fill the vacuum turned out to be the Islamists; in Cairo, it may turn out to be the Moslem Brotherhood, even if that's not what most of the crowds protesting in Tahrir Square want.
There really is no gratitude in the world, is there? Egypt is the second-largest recipient of US military aid, behind only.....Israel, of course! In the event that those two countries had gone to war in the past twenty years, they would have been pelting each other with US-made, US taxpayer-funded ordnance (though it has to be said that the Israelis always got the fanciest stuff). And if the Moslem Brotherhood really does emerge on top in Cairo, that's the weaponry that they'll be brandishing across the Sinai peninsula. Result!
The Republicans are already positioning themselves to brand President Obama as "the man who lost Egypt", just as Jimmy Carter was "the man who lost Iran". That mud may stick, but the sad truth is that the son-of-a-bitch approach to foreign policy is one of the few things that has commanded bipartisan support in Washington through the years, even though it always seems to end up the same way.
Hosni Mubarak is hardly the worst SOB in today's world -- heck, he's not even the worst in his own neighbourhood. But he's clearly on his way out now, and as ever the US State Department is panicking because it seems to have no good options in dealing with the crisis. That's the thing with the SOB theory, of course. Because your guy is an SOB, and because you're encouraging him, he tends to get rid of all possible competitors. When he takes the inevitable fall, you can't even find another biddable SOB to replace him with. This means that the "Iran-II" scenario that the Obama administration is now terrified of in Egypt has in fact been made much more likely by Washington's decades-long support of Mubarak. When the Shah was forced out of Iran, the only opposition group ready to fill the vacuum turned out to be the Islamists; in Cairo, it may turn out to be the Moslem Brotherhood, even if that's not what most of the crowds protesting in Tahrir Square want.
There really is no gratitude in the world, is there? Egypt is the second-largest recipient of US military aid, behind only.....Israel, of course! In the event that those two countries had gone to war in the past twenty years, they would have been pelting each other with US-made, US taxpayer-funded ordnance (though it has to be said that the Israelis always got the fanciest stuff). And if the Moslem Brotherhood really does emerge on top in Cairo, that's the weaponry that they'll be brandishing across the Sinai peninsula. Result!
The Republicans are already positioning themselves to brand President Obama as "the man who lost Egypt", just as Jimmy Carter was "the man who lost Iran". That mud may stick, but the sad truth is that the son-of-a-bitch approach to foreign policy is one of the few things that has commanded bipartisan support in Washington through the years, even though it always seems to end up the same way.
Subscribe to:
Posts (Atom)