by David Steven | Nov 29, 2011 | UK
“It is disappointing that the country cannot liberate itself from the desire to subsidise borrowing to finance house purchases,” complains Martin Wolf in his review of George Osborne’s autumn statement. “Why should the government subsidise people to speculate on property prices?”
Wolf fails to understand the logic of the new policy. It’s not the first time buyer who is really being subsidised by mortgages backed by the British government. They are simply entering an overpriced market, and taking on debt that will strangle some of them in what Wolf expects to be a ‘lost decade’.
Instead, it is those who are exiting the market who will benefit if the Chancellor’s largesse succeeds in propping up prices – that’s the elderly who are dying and passing on the proceeds from a house sale to their children (who tend to be in late middle age), or the baby boomers themselves as they downsize in preparation for retirement.
Any government policy that keeps house prices artificially high benefits the old not the young. Of course, banks will do quite nicely from government-backed 95% mortgages as well – they can relax lending standards and we all know where that leads.
by David Steven | Nov 29, 2011 | Economics and development, UK
I remember being astonished by the rose-tinted specs donned by the UK’s Office of Budget Responsibility (“independent and authoritative analysis of the UK’s public finances”) as as it was created in the run up to the 2010 budget:
We expect the economic recovery to strengthen in 2010 and beyond, as private sector demand continues to pick up. We estimate that trend output will grow at just over 2¼ per cent over the next three years…
From 2011 onwards, GDP is expected to grow at an above-trend rate as the economy rebalances away from consumption towards investment and net exports.
That worked out well, didn’t it? Here’s a graphic showing how badly the OBR got it wrong (Datablog has an interactive version).
Each of the OBR’s forecasts – including the one released today for George Osborne’s autumn statement – has been markedly less optimistic about the near term than its predecessor, while continuing to be sure things will look a lot better in just a few years’ time.
Initially, I put the OBR’s eagerness to please the government down to weak leadership and expected things to improve when the fearsome Robert Chote took charge of the new body. But, if anything, they have got worse. Here’s the OBR’s latest fan chart which shows how bad (good) things could be fir the UK economy, based on errors in previous Treasury forecasts. Looking at it and you’d conclude that – worst case – the UK might lose 2% of GDP next year (dreadful, but nothing like as bad as 2008):
The OBR also makes a big deal of how important it is to “recognise uncertainty” and to “stress test” its assumptions. One stress is (surprise, surprise) further turbulence in the eurozone:
Our central forecast is predicated on the euro area finding a way through its current difficulties, with the effect on confidence, credit conditions and economic activity taking some time to unwind, but with the financial sector returning to a stable position by the start of 2014. In this scenario we consider the implications of the financial sector taking longer to normalise (for reasons either to do with events in the euro area or with domestic factors).
The central prediction, then, is for a two-year quick fix for the euro, which seems highly implausible to me. What about the downside? All we get is a scenario that models “persistent tight credit conditions… for reasons either to do with events in the euro area or with domestic factors.” And that leads to… a blip. Growth is totally unaffected next year (GDP up 0.9%) and is only very slightly lower in the next two years (GDP up 1.6% and 2.3%). After that, life is back to normal.
At a time of maximum danger for the UK economy, we have a fiscal watchdog whose ‘stress’ tests are ludicrously unstressful, because anything harsher “is impossible to quantify in a meaningful way.” It’s like a doctor who suspects her patient is dying of cancer, but focuses on his ingrowing toenail because it’s “easier to see.”
George Osborne promised us a body that would reassure the public. Instead, the OBR has persistently failed to model the forces tearing the British economy apart. His new creation risks becoming a laughing stock if it doesn’t quickly mend its ways.
by Jules Evans | Nov 28, 2011 | Europe and Central Asia
I was dismayed to read the Telegraph’s account of the Foreign Office’s forward planning for the collapse of the eurozone. Apparently, ministers are telling embassies to expect riots on the continent, and a flood of British citizens heading home for Blighty, in tubs and dinghies and pedalos. There was cheeriness from the FT’s Wolfgang Munchau as well, who wrote on Monday, in an upbeat piece called ‘The Eurozone only has days to avoid a collapse’:
If the European summit could reach a deal on December 9, its next scheduled meeting, the eurozone will survive. If not, it risks a violent collapse. Even then, there is still a risk of a long recession, possibly a depression.
The Guardian’s political blog tells me the Treasury is already ‘hard at work’ on a contingency plan:
They are losing sleep over fears of a run on the banks in Italy and some of the other troubled eurozone members. This is what one Treasury source told me: “The five to midnight scenario will be a run on the banks in Greece, Italy and Portugal. Spain is fine. There is already a drawdown from banks. But we haven’t got to a run on the banks yet.” [Why is this official so confident that ‘Spain is fine’?]
So what will happen if the unthinkable occurs and the eurozone does collapse? I’d like YOU, the well-informed Global Dashboard community, to tell me, so I can prepare in my London bunker.
Here are my rash predictions:
1) The further rise of far-right nationalist political parties and xenophobia towards immigrants. You’re already seeing this happen in Greece.
2) The Russian government exploits the power vacuum. I’m not saying Russian tanks will be rolling down the Champs Elysees anytime soon. But one of the main ‘points’ of Europe, it seemed to me, was to act as a collective bargaining bloc with Russia, and as a collective buffer against Russia’s imperialist ambitions. What happens when that buffer disintegrates? Keep an eye on the EU’s eastern border next year, particularly Ukraine, Belarus and Georgia.
Any other predictions?
by David Steven | Nov 27, 2011 | UK
Back in 2007, Paul Dacre – editor of the Daily Mail – told a House of Lords Select Committee “in the editorial line and in terms of the leader column, we are consistently against the Human Rights Act.” I think we’ll all agree that Dacre has been true to his word – the paper’s opposition has been remorseless and unyielding ever since.
Apart, that is, from when it wants to bully the Leveson Inquiry – and those witnesses who suspect (quite rightly) that they will be hunted down for all eternity if they testify against the tabloid press. Then human rights – for newspapers, at least – are fine and dandy:
Associated Newspapers is seeking a judicial review of Lord Justice Leveson’s decision to allow witnesses including journalists to give anonymous evidence to his inquiry into media standards.
The Daily Mail publisher wants to reverse a decision Leveson made following approaches from a number of individuals who claimed they wanted to give evidence anonymously without fear of reprisal.
In a claim form issued to the high court, Associated cites four legal reasons to overturn the anonymity ruling.
The publisher said it “fails to give effect to the principle of open justice”; that it would “contravene the principles of natural justice”; and that it infringes the rights of the newspaper group and others under article 10 of the Human Rights Act, which gives the right to free expression. It also argues that Leveson fails to identify a public interest to justify his decision.
Good, also, to see the Mail’s owners ticking off Leveson for not acting in the public interest – which Dacre defines as the freedom for newspapers to “publish what they believe is best for their markets” and “the freedom to identify those who have offended public standards of decency… and hold the transgressors up to public condemnation.”
So let us all join in defending Dacre’s human right to pillory us miserable sinners. After all, it’s good for us and it sells newspapers.
by David Steven | Nov 23, 2011 | Cooperation and coherence, Influence and networks, North America
Under President Romney, 310m Americans won’t have any shared interests with any of the 6.7bn other people who insist on living in less exceptional countries:
I believe America is an exceptional and unique nation. President Obama feels that we’re going to be a nation which has multipolar balancing militaries. I believe that American military superiority is the right course.
President Obama says that we have people throughout the world with common interests. I just don’t agree with him.
Mitt – the man who would say anything to be President.
