Don't mock the clown

Hey Italy, I suppose it's none of my business, but haven't you done this backwards? In most countries, we elect people who claim to be politicians and only find out they're clowns once they get into office.  You've just elected a comedian, Beppe Grillo,  and now you have to wait to find out if he actually knows how to be a politician.

Here is an excellent summary of the political situation created by the Italian elections, written by someone who knows a lot more about it than I do. It's not easy to see who will end up forming the government, but who ever gets the job faces a formidable task, thanks to a uniquely toxic mix of heavy debt, low economic growth and a rapidly aging population.  Did I say "uniquely"?  Actually, Japan has been in much the same situation for years, and the bad news is that on current trends, much of the developed world will be facing the same problems as Italy in a very few years' time.

Remarkably, Italy's sovereign debt market is the third largest in the world, surpassed in size only by those of the United States and Japan. The country's debt/GDP ratio stood at 120.1% in 2012, way above the OECD average.  Interestingly enough, the debt wasn't really seen as a problem until the financial crisis hit in 2008.  For one thing, the debt/GDP ratio had been falling steadily since about 1994.  For another, Italy's current public sector deficits are under relatively good control -- the budgeted 2012 figure of 2% was much lower than in countries such as Spain and Greece, not to mention the UK, which never tires of lecturing the rest of Europe about fiscal discipline. Lastly, and in common with the Japanese, Italians are traditionally great savers, so the country has not generally relied on foreign investors to finance its deficits.

The outlook has darkened since the 2008 financial crisis, for two main reasons.  First, Italy's growth rate  has shuddered to a halt as the entire European economy has slowed, making the debt more burdensome.  Second, 2008 marked the first economic/ financial crisis to hit Italy since the country joined the single currency.   Since the advent of the Euro, the bond markets of the participating countries have tended to converge, as the perceived removal of exchange rate risk has made investors more willing to cross borders in search of higher returns.  A higher degree of foreign ownership increases the vulnerability of the Italian market to speculative activity.  Moreover, membership in the Euro deprives the Italian authorities of the option of currency depreciation, which has proven to be a path out of problems many times over the years.

Turning to the demographics: Italy's total fertility rate is only 1.4 per thousand, well below the "replacement rate" of about 2.1 that is needed to keep the population stable.  Like Japan and Russia, Italy is faced with a steady decline in its population.  In the absence of mass immigration, it will be harder and harder for the country to generate the kind of economic growth that would make the debt more bearable.  Moreover, aging populations such as Italy's regularly show themselves unwilling to contemplate the kinds of cuts in generous social programmes that might help to cut current deficits.

The situation in which Italy now finds itself provides an object lesson for why governments should never let reliance on debt financing become a way of life.  Borrowing in bad times is fine as long as you make an effort to pay back the debt when things improve.  If you just let the debt sit there, as Italy did, you find that you rapidly run out of room to manoeuvre when a crisis hits.

Unfortunately, Italy (and Japan) are just the canaries in the coalmine when it comes to sovereign debt problems.  Just about every developed country has at least two of problems those two countries face.  Among the richer countries, only the US has relatively favourable demographics, and only Germany can be said to be really in control of its debt situation.  So the message, if you're in northern Europe or North America, seems to be this: don't mock Beppe Grillo or whoever it is that has to try to solve Italy's problems, because the chances are, you're next in line.

Osborne gets Moody

This past weekend probably wasn't the most relaxing UK Chancellor George Osborne has ever had.  On Friday afternoon, after the markets closed, Moody's Investor Services cut the UK's sovereign credit rating by one notch, from AAA to AA+.  Ever since coming into office in 2010, Osborne had portrayed retention of the top rating as a key benchmark of the credibility of the Government's economic policies.  So much for that.

Here is the BBC's report of how Osborne fared when he faced the House of Commons on Monday morning.  To nobody's surprise, he interpreted the downgrade as a clear warning that the Government should stay on the course of austerity, lest Moody's chop the rating even further.  Under heavy fire from the Labour benches, he made a few good points and rather more very questionable ones.  Some examples:

* As he has in the past, Osborne sought to pin much of the blame for the downgrade on weak global growth, which is hampering efforts to get the British economy back on track.  That's true enough.  However, good economic policy would surely try to offset weakness from abroad, perhaps by stimulating domestic demand, rather than adding to the problem by imposing domestic austerity.

* Also as in the past, Osborne pointed to the debt burden left behind by the previous Labour government, which in his view demanded prompt action.  It's true that Labour's fiscal policy was crass, with massive, debt financed spending growth at a time when the economy was expanding smartly anyway.  Sad to relate, over the last decade UK fiscal policy has provided stimulus at the wrong time, closely followed by a switch austerity at an equally inappropriate time. No doubt the party had to end sometime:  recall that Labour's election platform in 2010 was explicit about the need to rein in spending and borrowing. However, that in no way excuses Osborne from persisting with policies that are making the situation worse rather than better.

* Osborne says it's "patently ludicrous" to think that the deficit could be eliminated overnight, and wants credit for reducing it by a quarter in just less than three years.  I don't recall anyone suggesting overnight deficit reduction was possible:  Osborne is not being measured against "ludicrous" expectations, but against the deficit reduction plans he himself set.  On that basis, his plans are far behind schedule, and austerity is now set to last until at least 2018.  Even the reduction in the deficit that has been achieved needs to be looked at with a jaundiced eye; it owes much to accounting tricks, such as the decision to take the massive Post Office pension plan under the Treasury's wing.

Labour's economic spokesman, Ed Balls, landed a few good verbal blows, but with LibDem spokesman Vince Cable dismissing Moody's action as insignificant, there's no prospect of the Government changing course any time soon.  So,  it's on the the annual budget next month, which is unlikely to bring any relief.  And then on April 1, the spending cuts that the Government has been talking about for so long really start to bite. To borrow an old Canadian political adage, "Tory times are hard times", and those times are going to last a whole lot longer yet.

Citizen Black

It's been a while since we checked in on our old friend Conrad "Lord Black of Crossharbour" Black.  After his conviction on a small number of fraud-related charges in the US, Black knuckled down and served his time in a Florida "Club Fed"-style jail. After doing his bit,  with a few months off for good behaviour,  he was expelled from the USA, as a convicted felon of foreign citizenship.  Of course, many years ago (we'll come back to this), Black renounced his Canadian citizenship in order to be able to accept a UK peerage -- that's the Crossharbour title -- so he had to get the government's special permission, as a convicted felon, to re-establish himself in Canada.  In effect, he's only living in his native land at the pleasure of the government.

So much for the entertaining backstory.  Now there are new developments.  Conrad's back to his old tricks as a serial court-botherer, and he's had a very bad week.  First off, his latest attempt to have the charges against him in the US quashed has been rejected.  Black's rather cheeky grounds for giving it another go were that the justice system had intentionally deprived him of the cash he needed to employ his first choice of lawyers.   There's no word as to how the lawyers who actually ended up representing him are taking this implied insult.  However, Judge Amy St Eve, who heard the original case and must be thoroughly fed up with the sight of Black, gave the request short shrift, noting that in all the long months of the trial, nobody had ever seen fit to mention that Black did not have his first choice of counsel by his side.

Meanwhile, back in Canada, it's come to light that Black also received a setback at the hands of the Federal Court of Appeal a few weeks ago.  An advisory panel recommended some time ago that Black should be stripped of the Order of Canada, the country's highest civilian honour.  Black went to the appeals court to try to expedite a hearing on whether he should be allowed to plead his case to keep the award, but has now been told he has to wait his turn with everyone else.

You have to wonder whether the eventual decision in this matter will take any account of Black's opinion of the award and indeed of Canada itself, eloquently expressed in his decision to renounce his citizenship and accept the peerage in Britain.  That peerage itself may effectively no longer be available to him anyway -- he would almost certainly face expulsion from the House of Lords, again on the grounds of his felony conviction,  if he ever showed up there.

Still, you can't keep a good man down, especially if he needs to put bread on the table, and Black is now reinventing himself as a chat show host.  He's landed a gig on something called Zoomer TV, whose programming is aimed at active baby boomers, a category into which Black presumably fits.  He's promised to use his contacts to land some big name guests, starting with.....Henry Kissinger.  Well, by your friends shall you know them, I guess.    

Shameless promo: my sister has written a book!

If I promise not to make a habit of it, can I just do one little promo for a new book by my sister, Pat Duckworth?  It's called "Hot women, cool solutions", and it's about non-medicinal ways for women to deal with menopause.

You can read about it here, and it's available now from both amazon.com and amazon.co.uk.  Thanks!

Populism rules UK

Unless one of the Lib/Con coalition partners kicks the props out from under their uneasy alliance, a general election in the UK should still be more that two years away.  However, the campaigning seems already to be getting under way, at least on the Tory side, and it's not looking pretty.  David Cameron and his pals seem set to try to appeal to some of the more distasteful elements of the British psyche.

The first sign of a Tory tilt towards populism may have been the surprise announcement of tougher-than-expected new banking regulations at the start of February. Having dithered on the issue for years, the Government announced that the "ringfence" designed to separate retail from investment banking in each institution would be "electrified" -- banks that declined to go along would be broken up.  The success of the City of London has always been envied across the rest of the UK, so this sort of thing plays well in the shires, even if it only serves to hasten the demise of London as a key global financial centre.

Since then the announcements have come thick and fast:

* PM Cameron delivered a major speech on the UK's future in Europe, demanding renegotiation of the relationship with the EU and promising an in/out referendum on UK membership, providing his party wins an overall majority in the next election.

* On a similarly xenophobic note, the Government is making a big fuss about trying to keep out economic migrants from Bulgaria and Romania, who will have the right under EU law to enter the UK without restriction at the end of this year.  One strategy: ads in the media in Sofia and Bucharest telling people how bad the British climate is -- something that tends not to get mentioned in the UK's normal tourism promotions. The government's tone toward immigrants already in the UK is also turning much harder.

* David Cameron is suddenly taking a much harder line on tax avoidance by multinational companies, though it's not clear that his Government can actually do very much about it, apart from "name and shame".

It all sounds as if policy is going to be made in the editorial suites of the Daily Mail and The Sun newspapers, rather than on Whitehall.  It's an impression that's only strengthened by a quite bizarre media frenzy that's erupted this week, over a speech made a few weeks back by the novelist Hilary Mantel.  Ms Mantel's theme was the way royal women have been viewed through the ages, a subject she has some knowledge of in view of the extensive research she carried out before writing her novels on Henry VIII (Wolf Hall, Bring up the bodies) and the French Revolution (A place of greater safety).  She ventured a few comments on the way the media are treating Kate Middleton, the Duchess of Cambridge, in effect stating that she is being objectified by the media and calling for a more generous and rounded approach (I'm paraphrasing here).

Needless to say, no reporters actually attended this erudite presentation, but when it appeared on the internet  a couple of weeks later, the jackals of the press pounced.  You can read the unpleasant details in this excellent piece from The Guardian.  Unsurprisingly, the sulphurous Daily Mail and the tawdry Sun have been in the forefront of the attacks on Ms Mantel.  That would be bad enough, but there's worse: David Cameron, taking part in a trade mission in India, saw fit to take time out of his schedule in order to jump into the fray with his own criticisms of the author.

Cameron's tone was more measured that that of the press, but it's clear that any politician siding with the Mail and the Sun against the greatest living writer in the English language (you can disagree if you wish, but you'll be wrong) is not chasing the intellectual vote.  Cameron is no doubt aware of the cautionary anecdote told about Adlai Stevenson, a somewhat cerebral US politician of the mid-20th century.  After one of Stevenson's speeches (he was contesting the Presidency with Dwight W. Eisenhower), an admirer rushed up to him and said breathlessly, "that was wonderful!  You'll have the vote of every thinking American".   "That's no use", replied Stevenson.  "I need a majority".

So does David Cameron, and recent events suggest he's not going to be choosy about how he gets it.

Economic illiteracy

This article in today's Toronto Star by business columnist David Olive is worth reading, as a shining example of how NOT to report complex economic issues to the public.  Quite simply, Olive doesn't seem to have any idea what he's talking about. 

Olive's topic is the G20 finance ministers' meeting that took place in Moscow earlier this week, and his contention is that it represents another missed opportunity to fix the world economy's real problems.  Which are what, exactly?  Well, in his very first sentence, Olive tells us that "the chief reason for our global economic malaise (is) the fact that there simply isn’t enough money in the system".   What???  Central banks -- the Fed, the Bank of England, the Bank of Japan -- have been printing money in an unprecedented fashion for several years.  Whatever the global economy's problems may be, a lack of fiat money surely isn't one of them.  

Actually, that's not what Olive means, even though it's what he wrote.  Still in that first sentence of the article, he tells us what he means by "not enough money in the system".  It is, he says,   "what economists call a demand or growth deficit".   Can't say I'm familiar with the term "growth deficit",  but an aggregate demand deficit is right out of the Keynesian phrasebook, and it's a good descriptor for what's going on now. Unfortunately for Olive, it has almost nothing to do with the amount of money in the system.  If money -- liquidity -- were the key to aggregate demand, there never would have been a financial crisis and recession in the first place.  

Anyway, it looks as if Olive actually wants to talk about fiscal policy, rather than monetary policy, and needless to say, he thinks it's too restrictive.  He's not necessarily wrong there, but the examples he cites simply don't support his case.  It's ridiculous to suggest that "a G.O.P. Congress put an end to U.S. President Barack Obama’s successful stimulus policies":  it might like to, but it hasn't managed to do it, and the US is continuing to rack up trillion dollar annual deficits. 

Olive is on equally shaky ground when he turns his attention to the UK.   Citing the US economist Adam Posen, who worked at the Bank of England from 2009 until last year, Olive rants that:

"Posen was seconded from 2009 to 2012 as an advisor at the Bank of England (BOE). He watched with mounting despair as the newly elected PM David Cameron and his finance minister, George Osborne, indiscriminately slashed state spending. That bone-headed policy has inflated British jobless rolls, which in turn has worsened the demand deficit as household incomes evaporated, condemning Britain to GDP growth that has been anaemic at best."

There's so much wrong with that paragraph that it's almost easier to say what's right about it: I believe the dates cited for Posen's service at the BoE may be accurate.  Apart from that, well, as I have pointed out in this blog many times before, Osborne's efforts to cut the deficit have foundered at least in part because the government has outright failed to cut spending,  let alone to "slash" it indiscriminately.  Osborne has achieved the worst possible outcome,  damaging confidence by prattling on about the fiscal situation, but not actually doing anything about it.  It's a wrong headed and unsuccessful policy all right, but not in the way that Olive portrays it.  He is also grossly exaggerating the impact of Osbornomics on UK employment, which has in fact held up much better than most forecasters predicted.  Here's a useful update on both borrowing and employment. 

This brings me to my favourite part of the article, and what may be the most inane sentence I've read since my old pal Kaletsky quit his column at The Times.  Referring to US economist Jared Bernstein, Olive writes:  "In an illuminating recent post on his blog, All About Economics, Bernstein reminds us that America was able to eradicate its federal deficit as recently the 1990s, simply by boosting GDP growth".  

Don't you just love that "simply"?  It's sad to think that the developed world has been condemned to three years of sub-par growth,  with more of the same in store , because policymakers were blind to this "simple" solution to the problem.  Strange that it takes a guy who doesn't know the difference between fiscal policy and monetary policy to point it out to us. 

Mark Carney on corporate cash piles and personal debt

Having survived last week's supposed grilling by MPs in London (he ain't seen nothing yet),  Mark Carney is back at his current job at the Bank of Canada.  On Tuesday he pitched up in front of the Commons finance committee in Ottawa to review the state of the Canadian economy.  There's an interesting summary of his appearance before the committee here.  A couple of points in his testimony are particularly worthy of comment.

Carney repeated a view he expressed loudly late in 2012, that Canadian companies sitting on piles of "dead cash",  rather than investing it, are holding back the economy.  This is certainly true -- indeed, growing piles of cash on corporate balance sheets are in effect a mirror image of government deficits: if companies would invest in more productive capacity and thereby generate more economic activity, government finances would quickly improve.

Carney notes that the increase in business investment in the current cycle is in line with past periods of recovery from recession, but he wants companies to do more because "we're not in average circumstances". Indeed we're not, but it's those differences from the average that explain why the current cash hoarding propensity of corporations, frustrating as it may be for policymakers, is very far from irrational behaviour.

Companies saw how quickly financing dried up when the financial crisis hit. They know that banks are still trying to rebuild their balance sheets.  And they know that the entire financial sector is still facing the possibility of more draconian regulation, though this is admittedly much less of a concern in Canada than in the rest of the developed world.  They also know, if only by dint of constant reminders in the media and from policymakers,  that the economic recovery remains a fragile thing.  Companies therefore fear that at any time, they may find themselves facing another sudden fall in revenues, and they know they may not be able to rely on banks to provide financial assistance to see them through. In these circumstances, hoarding your cashflow is the smart thing to do, and it's a behaviour that's unlikely to be altered by blasts from the Carney bully pulpit.

Carney also suggested some contrasts between the situation in Canada and the one he will be facing in the UK after mid-year:

“Here in Canada we are in a very different position than that in the United Kingdom,” Carney explained. “We don’t have large public and private indebtedness, we are not at zero (interest rates), we don’t have the problems in the financial sector that exist over there.”

It's true enough that the Canadian fiscal situation is better than the disaster unfolding in the UK,  for all the concerns currently being heard out of Ottawa, Toronto, Edmonton and elsewhere.  On the question of private indebtedness, however, things are less clear cut.  Households' debt  to annual income ratio recently hit a record of more than 160%, in line with the levels seen in the US just before the financial crisis hit.  Historically low interest rates have induced Canadians to continue borrowing, which has helped to sustain aggregate demand but is surely storing up problems for the future,  specifically, that moment in the future when rates start to rise.

Carney told the MPs that he sees signs that Canadians are heeding his warnings about excessive debt, and as a result he expects the debt/income ratio to stabilise this year.  It's not at all clear what signs he's seeing here. The proliferation of payday loan ads on radio and TV suggests that, far from reining themselves in, Canadians may be resorting to more desperate measures to keep feeding the great god of consumption. Finding a way to defuse the household debt bomb without undermining the entire economy will be one of the biggest challenges for Carney's successor at the Bank of Canada.

Ave atque vale. Papa Benedict

Popes just don't resign.  It hasn't happened in six centuries.  Therefore there must be more to it than ill-health -- some scandal yet to emerge.

If that's the way you're looking at today's news, you're certainly in tune with the zeitgeist.  No less an expert that Piers Morgan was quick to tweet that he didn't "buy it".  (Well, Piers is Catholic, though that fact somehow doesn't make me feel any better on a day like this).  What a depressing sign of the times, when taking someone's word regarding their motives is simply not considered an option by most people.

The most plausible explanation of the Pope's motives that I've seen so far appeared in the not especially pro-Catholic Guardian.  In essence, the writer believes that having seen at first hand the damage caused to the Church by the long illness of his predecessor, John Paul II, Benedict was determined not to allow the same to happen again.  He also reveals that Rowan Williams,  the Archbishop of Canterbury who has since also left his post, knew about the Pope's intentions before Christmas -- which appears not to have been the case for most of the senior figures in the Catholic Church itself.

The Pope maybe didn't help himself in fighting off the conspiracy theorists with his final Twitter posting, written only hours before he resigned:

We must trust in the mighty power of God’s mercy. We are all sinners, but His grace transforms us and makes us new.

Aha, he must be talking about himself and his own transgressions, right?  He himself would be the first to admit it -- the Church and the Papacy believe that they are there for the benefit of sinners, not of saints, who are very thin on the ground.  No doubt the conspiracy  theories will continue to fester for weeks.  I'm quite happy to believe an 85-year-old man when he says he's tired and needs a rest.

Krugman, Bellan and Greenspan

A couple of decades ago, one of the more prominent economic commentators in the Canadian media was a University of Manitoba prof by the name of Ruben Bellan.  Professor Bellan, who passed away in 2005, was by all accounts the nicest of men, but I have to admit that his economic views would regularly drive me crazy.  In essence his main argument, which he repeated tirelessly, was that government debts and deficits don't matter, because in effect we owe each other the money. (IOU = UOMe, but as I = Me, QED!).

This has always struck me as fallacious on a number of grounds.  Borrowing is an intergenerational transfer -- we are passing on a financial burden to our children and grandchildren without ever giving them a choice in the matter.  There are times when this is appropriate, as Keynes demonstrated to almost everyone's satisfaction, but it's not an acceptable way to proceed year in and year out.  Borrowing is also a transfer from the general population (who will eventually have to pay taxes in order to repay the debts) to the wealthy, who will also have to help repay the debt but get to earn interest in the meantime, as they're the ones who buy the bonds.

I'm starting to wonder if Paul Krugman, in his regular and repetitive rants in the op-ed pages of the NYT, is turning into a latter-day Ruben Bellan -- a man who never saw a deficit he didn't like.  Krugman sincerely believes that US economic policy can and should be even more stimulative than it already is.  He argues that the fact that financial markets are not punishing the US for its profligacy is evidence that the bond vigilantes have no serious concerns over the deteriorating fiscal situation.

Interestingly, though, this wasn't the way he looked at things when he contemplated the Bush tax cuts a few years ago.  Here's a quote from a piece he wrote in 2003:

Last week I switched to a fixed-rate mortgage. It means higher monthly payments, but I'm terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits...my prediction is that politicians will eventually be tempted to resolve the crisis the way irresponsible governments usually do: by printing money, both to pay current bills and to inflate away debt.

And as that temptation becomes obvious, interest rates will soar. It won't happen right away... But unless we slide into Japanese-style deflation, there are much higher interest rates in our future.

Evidently not a good prediction, as Krugman himself was honest enough to recognise in a confessional column in 2010:

I wrongly believed that markets would look at [the Bush tax cuts, war efforts and Medicare drug expansion, and]... lose faith in American governance, driving up interest rates on our debt. Instead, bond investors discounted the politics, and acted as if they believed that America would eventually pull itself together and start behaving responsibly. The jury's still out on that, but clearly my short-run prediction proved wrong.

If anything, Krugman's views have evolved further since then.  His more recent columns show no inclination at all even to start speculating about when and how fiscal and monetary stimulus might need to be removed.  Moreover, his assertion that the bond vigilantes are not exacting a price seems to take little notice of the fact that a large proportion of new US debt is being hoovered up by the Fed.  The vigilantes are hardly getting a look-in.

All in all, I think I was mistaken to see Krugman as a man who never saw a deficit he didn't like.  It all depends whose deficit it is -- Republican = bad; Democrat = good -- the exact mirror image, in fact of the positions taken by Alan Greenspan.

Looking back over these few paragraphs, I feel a bit queasy, because in general I think Krugman is right.  Fiscal stimulus and monetary ease were essential back in 2008 and it's probably a bit soon to be reversing course.  But by staking out his position in such shrill terms, by failing to spell out how and when he thinks it may be appropriate to start phasing out the stimulus, Krugman is playing into the hands of the neanderthals on the other side of the argument, who find it all too easy to portray his positions as politically motivated and irresponsible.

If you want to read further, the Krugman quotes above are from this interesting piece on the PBS website. The reader comments at the end are also interesting, but keep in mind this is PBS, Krugman's natural constituency.  He wouldn't get such an easy ride over at Fox News.

A winter's tale of two cities

Snowing and blowing hard here today -- probably going to be 25 cm* of snow on the ground here by the time it lets up, and we're getting off lightly compared to the good folk over in New England.

The storm has led me to ponder some of the differences between the way the UK and Canada cope with messy winter weather.  In the UK, there's an almost childlike excitement about the potential arrival of snow, but not much is done to prepare for it.  When the snow duly arrives -- and keep in mind,  in the UK anything above a couple of centimeters is classed as heavy snow by most of the media -- people expect to go about their daily business as if nothing was happening, and get righteously angry when they can't.  Then the cry goes up: "How come this country comes to a standstill at the first whiff of snow, when other cities around the world cope so much better?"

Ah, but do they? Over in Boston they closed the city's transit system in anticipation of today's storm -- I can't remember that happening in the years I lived in London.  Across the lake from us in Toronto, train schedules were trashed, several hundred flights were cancelled and the roads (and ditches) are littered with crashed vehicles.

And it's not as if people don't try to prepare; in Toronto there are over 1100 vehicles (street ploughs, sidewalk ploughs and salters) out trying to keep things moving -- and that's not counting all the private ploughs and blowers working on store parking lots.  That's just in Toronto.  Here in little Niagara,  the small plough that does the side streets has already made two passes, and the three-bladed monster that does the wider streets has been by once.

When the weather's bad enough, things seize up a little. It's part of winter, and if you turn on the TV or radio here, you won't hear many people complaining about it, the way they inevitably do in the UK.  It's a completely different set of attitudes: in the UK, fail to prepare or to adjust your behaviour, then bitch bitterly.  In Canada and the US northeast, prepare assiduously, but accept that if the weather is really bad, it might be a bit inconvenient for a while, and just get on with things.

Speaking of snow, there was an interesting piece in the Toronto Star today about big snowfalls.  I was surprised to learn that Toronto has only had ten single-day snowfalls of more than 20 cm in the last 50 years.  People are fond of saying "we don't get winters like we used to" -- in fact, I had that very conversation with my neighbour earlier in the week as we cleared the last snowfall -- but at least by this very imperfect measure, that may not be true: we never did get winters like we think we used to.  I blame global warming.

* UPDATE, Feb 10 -- turned out to be more than 40 cm, a one-day record for the area.

Mark Carney heads into the maelstrom

It's still less than six months since we returned from the UK to Canada, but already the old country is starting to look very unfamiliar.

*  The British economy shrank 0.3% in the final quarter of 2012, which has inevitably sparked fears of a triple-dip recession.  Most of the recent data suggest that's unlikely, but one thing that is quite clear is that the UK is at risk of underperforming the much-derided Eurozone in growth terms.  George Osborne's austerity gamble seems to be a clear failure -- as I've noted here before, he has contrived to miss all of his fiscal targets,  while putting the frighteners on the entire country with his supposedly tough talk.  You can't shrink your way out of debt, but if anyone's telling George that, he doesn't seem to be listening.

* There have been reports that some Tories are starting to agitate for Osborne to be removed because of the harm he's doing to the party's electoral chances, though there's no sign that PM David Cameron is paying attention.  Tories have never been squeamish about putting the economy through the wringer.  However,  they're anxious to win a clear majority in the next general election -- no more dickering with the LibDems -- so that they can have the in/out referendum on EU membership that David Cameron has pledged to hold in 2017,  provided the Tories win the election outright.

* This whole surge in anti-Europeanism is one of the most bizarre trends to emerge in the months since we left.  It's always been a significant undercurrent in British politics, but now it's come right to the surface and is sweeping all before it.  It's amazing to see how many people have managed to convince themselves that if the UK decides to pull the plug on the EU as it stands, the country will be allowed to redefine the relationship on its own terms.  The idea that the rest of the EU will happily accommodate the UK in any way the latter chooses, and that withdrawal will not have any impact on key sectors of the economy -- indeed, that the economy will actually benefit from getting out -- is completely preposterous.

* After faffing around interminably over bank reform,  Osborne has suddenly toughened up and announced that banks that fail to separate their investment banking and retail banking operations will be broken up.  This is being referred to as "electrifying the ring fence".  He's also told RBS that the fines it has to pay in relation to the LIBOR-rigging scandal should come out of its bonus pool rather than out of the hides of its shareholders (who are, of course, mainly the UK taxpayers who rescued the bank when it was on the verge of collapse).  This is good populist politics and arguably no more than the banks deserve.  However, with the London financial sector starting to shrink, and all the uncertainty over a possible EU withdrawal, it can't fail to do further damage to the UK's economic prospects, and to Osborne's tattered fiscal plans.

Into this remarkable mess, later this week, steps Mark Carney, soon to take over as Governor of the Bank of England.  Carney is to appear before a committee of MPs, in a sort of UK version of a US Senate confirmation hearing.  Even at the best of times, this would be a tough gig for a non-Brit, but as the preceding paragraphs suggest, these are not the best of times. Carney is, of course, on a hiding to nothing in his new job.  If he performs strongly, well, that's what we pay him all that money for, so he can't expect much praise.  And if he does badly, the xenophobic British tabloids will have an absolute field day.

Groundhog daze

As you are no doubt aware, the two ranking groundhogs, Punxsutawney Phil in Pennsylvania and Wiarton Willie here in Ontario, have decreed that we will have an early spring.  Second-rater Shubenacadie Sam in Nova Scotia disagrees, but who's ever heard of him (or her)?

Yesterday evening on our local "superstation" CHCH, the newsreader was ribbing the weather guy over the fact that a majority of people trust the rodents more than they trust meteorologists, even though the success rate for Phil and Willie's annual prognostications is only about 37%.

"Thirty-seven percent?" sneered the meteorologist.  "That's hardly better than random!"

Well actually, weather guru, it's quite a lot worse than random.  The outcome here is purely binary -- either the ugly critter* is right or he's wrong.  Over a long enough run (and Phil has been in business down at Gobbler's Knob for well over a century) a random outcome would produce a success rate of very close to 50%.

Scientific weather forecasting is largely about precedents and probabilities, so the meteorologist's ignorance is a bit surprising -- but it may help to explain why most people would rather trust the groundhogs.

* The groundhog, that is, rather than the CHCH weather guy. 

Dow 14000: let's be careful out there

Before you read on, please take a glance at the disclaimer-ette in the top right corner of the page.  I'm not in the business of giving investment advice.  However,  I am an investor (only with my own dough) and I'm amazed by the lack of perspective in some of the media comments I'm seeing on the current state of the equity markets.

This morning the likes of CNN et al were all in a lather about the DJIA hitting 14000 -- a historic level, they called it.  Last time the index hit these heady levels was February 2007.  Remember what happened not long after that?  That's right, the biggest financial crisis since the Great Depression.  In fact, at the very time that investors were pushing the market to previously unseen heights, the savvy money was strapping on all kinds of shorts in anticipation of a nasty correction.  Just read any of Michael Lewis's recent books for the gory details.

That very recent experience should tell you all you need to know about the predictive powers of the stock market, and it should also condition the way that you look at this current bull market.  There are plenty of pundits out there urging caution, and they're right to do so.  Sure, the US economy is in much better shape than the Republicans were alleging during the election campaign, but it's hardly robust.  Any strength it does have is largely due to the extraordinary amounts of stimulus still being supplied by the Federal government and the Federal Reserve.

Investors are awash with cash and returns on fixed income instruments are still lower than Sarah Palin's IQ.  There are tentative signs of recovery in property markets, but you wouldn't want to get too extended there just yet.  So where else can investors turn except the equity markets?  The current strength is driven by excess liquidity rather than well-founded confidence in the future of the economy.  That's not the basis for sustainable gains.  There's no irrational exuberance out there that I can see, but it's all looking a bit frothy.  Stay alert, stay solvent!