Saturday, May 30, 2009

The thoughts of Chairman Vince Cable

I went to Bristol today to listen to Vince Cable speaking at the end of Bristol University's excellent Festival of Ideas. He was OK; steady, efficient, clear, but non-ground-breaking imo.

My notes:

Two views: the economic crisis might be nearly over, or it might be just beginning. 4 elements to it:
  1. Common or garden recession
  2. Asset value collapse. Commercial property (to which pensions are tied, unfortunately) down 50%, private property down 20%. There is a definite 19-year cycle in property prices (so Brown was culpable in ignoring it - RL)
  3. International dimension - nobody immune. Commodities are down.
  4. Banking collapse: we were 24 hours from a meltdown in October, 5 out of 10 UK banks were at risk, 3 of the 5 biggest banks in the world are british, RBS is worth (?) twice as much as the UK economy.
UK and US economies will fall by 5% this year, not as much as in the Great Depression when they fell by 30% in a year. (because Govts did not pump money in then. Cameron has not learned this lesson, therefore he is to be feared - RL)

Govt borrowing is at 13% of GDP, highest ever in peacetime.

Banks are inherently unstable - they lend long and borrow short (and they create money out of nothing - RL)

Cleverness is no defence against being taken in by bubbles. Isaac Newton got burned in the South Sea Bubble. Lloyds got burned in Argentina. JS Mill gives an account of a credit crunch.

Derivatives forgot where their assets were. Our guarantee to banks are v much at risk.

Vince says nobody has any firm solutions. These are the problems to be tackled:
  1. Are we deflating or inflating? Retail prices are falling, but consumer prices are rising. Government borrowing could crowd out private borrowing.
  2. The Budget Deficit is normal for a recession, but HMG is borrowing from world markets and the markets could turn against Sterling. We need to borrow to keep people in work, but not borrow to avoid a run on Sterling.
  3. When will the Banks recover? Soon? HMG, bankers and Tories expect early normality, and then sell the buggers off. On the other hand, the Scandinavian recovery took 10 years.
  4. We need to separate out bad debts, clean up bonuses and tax avoidance, do major surgery on the banks, and
  5. Look at the deeper issues. Greed. Keynes said capitalism is the worst system apart from all the others.
Reponding to questions, he said total economic collapse risks nationalist rusurgence and econmic nationalism (protectionism).

I wanted to ask about Ponzi-type derivatives, and how likely they were to implode, and why Govt had not tried to ringfence them in some way, but was in balcony to chairman's left and was missed.

The audience - packed, all ages, middle class-ish, applauded only once during the talk - when he mentioned that Trident was to expensive to keep.

Oil - Vince used to work in oil industry. Brazil has found huge deposits, as big as Saudi, but v expensive as it is in v. deep water. (he did not mention Peak Oil and was sotto voce about Climate change - RL)

Oh - and, like a lot of people, it seems he does not understand where money comes from. He thinks the stork brings it. Vince, the banks make it by making debt. That's why there is such a lot of debt about, me dear.

1 comment:

Green Curmudgeon said...

Richard -

Vince Cable is one of those rare politicians I wish we could pull over to our side of the line. He speaks with sanity and clarity, for the most part. I think the fact that his message was so straightforward only enhances its credibility: yes, things may get worse, or they may get better - we need to address the problem at source, namely greed.

All in all, sounds like it was a good event.

Best Regards, GC