Bank of England hits the panic button

By Jeremy Warner in The Telegraph on 7/10/11

Who was it who said that QE – printing money by another name – is the last resort of desperate governments, when all other options have failed?

As Labour's Ed Balls gleefully points out, it was indeed George Osborne, the current Chancellor. It is the sort of thing politicians say in opposition and then bitterly regret when they get into government and have to take the decisions.

Yet in a sense, his words are even truer today than they were then. You wouldn't choose further to expand the Bank of England's purchases of government debt unless you were desperate, and all other options had been exhausted. The Chancellor condemned it then; now he welcomes it.

Since nominal interest rates are already as low as they can realistically go and the Government has, rightly, ruled out easing back on deficit reduction - more QE is about the only thing left in the locker as the world slides, inexorably, towards depression.

As regular readers will know, until quite recently I've argued steadfastly against QE2, but on the never say never principle, I was always careful to add some riders. When faced by an extreme deflationary threat, almost anything can be justified, and that's precisely what we are seeing now. As the Governor of the Bank of England, Sir Mervyn King, put it on Thursday, "when the world changes, we must change our response".

Long-standing supporters of more QE will say that it has been obvious for some while that the economy was stalling anew, requiring some form of fresh stimulus.

I can't agree. No growth for nine months is not the same thing as a sudden lurch back into the abyss, a threat which thanks policy paralysis in Europe and the related upsurge of stresses in the banking system, is now only too evident. These dangers have risen markedly over the past two weeks, which explains why the Bank of England has acted both earlier than had been expected and, with £75bn of further asset purchases now sanctioned, more boldly. Sir Mervyn went further than he has ever done before on Thursday by saying that this is "the most serious financial crisis since the 1930s, if not ever". For the sake of appearances if nothing else, something had to be done.

Not that this seems to have been obvious to the European Central Bank (ECB), whose failure to cut interest rates on Thursday was almost as surprising as the Bank of England's decision to act so precipitously and pre-emptively.

At his valedictory press conference, the outgoing ECB president, Jean-Claude Trichet, announced some further "non-standard" initiatives to ease the European banking system's funding crisis, but it was small scale stuff, and frankly isn't going to make a great deal of difference.

Bizarrely, the ECB still seems to be looking in the wrong direction – ever vigilantly searching the horizon for the ghost of inflation – even as the noisy locomotive of economic catastrophe bears down on it from behind. Even for such a compromised institution, with 17 masters to answer to, the incompetence of the policy stance is quite breathtaking.

Glowing though the tributes have been to the departing Mr Trichet, I doubt the judgment of history will be kind.

There are big risks in what the Bank of England is doing, which despite its protests to the contrary, is as close to monetisation of the national debt as you can ever get without doing it outright.

By the time the new bout of asset purchases is over, the Bank of England will own nearly half of the market in three to 25-year gilts, or 32pc of the total stock of UK government bonds. Even when steeped in the economics of quantitative easing, this looks mad, and when things look mad, they generally are.

Let's get this straight. By switching on the printing presses, the Bank of England, which is 100pc owned by Her Majesty's Government, is buying up a third of the debt owed by Her Majesty's Government. The Treasury is becoming ever more in debt to itself. It's as strange as that.

To be doing this even as inflation is about to breach the 5pc mark makes the Bank of England's position more uncomfortable still. Let's not have any of this nonsense about how QE is not inflationary. By keeping the pound low, the inflationary impact is all too obvious.

Even the Bank of England's own analysis puts the inflationary effect of QE to date at between 0.75 and 1.5 percentage points. The same study finds that the addition to real GDP is just 2pc. That doesn't look a particularly good trade off to me.

Evidence from the US, moreover, is that the second bout of QE is both less powerful and shorter-lived than the first. It's like a drug; the more you take, the less potent it is. Yet most galling of all is the damage it does to savers, who are being further plundered to bail out the debtors.

If you are coming up to retirement, forget it. The price of an annuity just got a whole lot more expensive. What remains of our sadly depleted final salary pensions industry is toast. Companies will have to pay even more for the pension promises they have made, and so will the taxpayer, on the hook as he is for the unfunded pension pledges of the public sector.

The Governor says he shares the saver's pain. There is nothing he would like more than to return interest rates to "normal", and begin the process of making over-indebted Britain a nation of savers once more.
But right now you might as well do what he wants, which is spend your nest egg or blow it on higher risk assets, because with rising inflation, it will be worth less tomorrow than it is today.

I'm not saying the Bank of England is wrong to be doing this. There are no good choices left to policymakers. Europe's failure to resolve its debt crisis is creating a vicious downward spiral of contracting credit and economic activity. The Bank does indeed have little option but to react in the way it has. The almost suicidal, depression economics of the eurozone leaves it no choice.

When half the country is up to its neck in debt, and therefore cannot provide the demand necessary to get the economy growing again, the least worst option is to force-march those with the balance sheet strength to withstand it into the shops and the unknown returns of business investment.

If the Bank can drive yields on "riskless" gilts even lower, then those with the money might be more inclined to spend it or invest it, rather than lending to the Government. Even just leaving the cash on deposit with the bank ought to help ease credit conditions a little. That's the idea, anyway.

Whether QE2 works out that way is another matter. All too likely, it will merely end up feeding another investment banking bonus bonanza. Hey ho.

Osborne, cut these items to reduce deficit

Bins, roads, unwinnable wars: this is a chancellor with money to burn

While the poor struggle to survive the crisis, George Osborne is happy to run a welfare state for corporations and billionaires

• 
• • George Monbiot
  • guardian.co.uk, Monday 3 October 2011 20.30 BST
  • larger | smaller

Illustration by Daniel Pudles

Crisis, what crisis? There must be one: George Osborne, chancellor of the exchequer, said so 12 times in Monday's speech. But if it really is as bad as he says, why is he squandering what remains of our money like an aristocratic gambler in a Russian novel?

This column is about the cuts the government has failed to make. It's about the profligate, pointless spending that has not been slashed, and the money Osborne could have raised but has instead decided to fritter away. For the sake of argument it accepts his estimate of the amount that will need to be saved. But it will show that over half of it could be found with much less pain.
Let us begin with the easiest cut of all: one that would hurt no one except a few grasping corporations.
By cancelling its planned re-organisation of the National Health Service, the government would save £2bn. That would allow it to drop three-quarters of the cuts to the NHS's capital spending budget planned for the next four years.

To show how reasonable I mean to be, I won't adopt Simon Jenkins's arresting proposal that we cut the entire armed forces' budget. I'll suggest we drop only the military projects of such withering pointlessness that even the government can't decide what they are for.

The strategic purpose of the war in Afghanistan changes by the week. Its prospects of achieving any of its fluctuating aims recede by the day. Pulling out would save us £4.5bn a year. That's equivalent to the entire cut in the government grant to local authorities, plus the entire cut to the housing budget, which will raise social rents to impossible levels. So here's the choice: Sure Start centres, libraries, Citizens Advice bureaux, affordable housing, all the other services that give the poor a chance of a decent life; or an unwinnable war likely to sow further conflict.

Whatever else the Ministry of Defence gets wrong, however, you can't fault it for innovation. It's spending £6.2bn on a pair of aircraft carriers with a unique feature: they won't carry any aircraft. The jets they were to have supported won't be ready in time, or perhaps at all. They will drift around the oceans like the Flying Dutchman, the embodied ghosts of our imperial pretensions. Because of the commitments already made, cancelling them now would save only £1.2bn. But that's enough to avert all but £200m of the government's cuts to early intervention programmes for families that might otherwise run into trouble.

While we're on the subject of pointless foreign intervention, could someone in government please explain the survival of the export credit guarantee department? Its purpose is to subsidise multinational companies by underwriting their business in other countries: such as drilling for oil in fragile environments or selling weapons to dodgy regimes. It costs the government £20m a year. This money could have saved the Sustainable Development Commission and the Royal Commission on Environmental Pollution four times over.

The road schemes the government wants to fund would have been pointless and destructive in the boom years. In a time of crisis and contraction, they are a refined form of madness. A report by the Campaign for Better Transport analyses the local authority transport schemes listed as the "best and final bids" for new money by the government, which will decide in December. You have until 14 October to respond.

Though it generates the least employment, does the greatest damage to the environment and creates the fewest social benefits, road building is in line for the greatest share of the new transport spending: £897m. Some of the schemes being proposed, such as the £86m Bexhill to Hastings link road (all of 6km) or the £108m Kingskerswell bypass (also 6km) have been fought by local people for years. Like the useless new roads the last Tory government built, they will simply bump the traffic problem along to the next bottleneck. The same money would have kept the education maintenance allowance afloat for 18 months – or, as we're talking about transport, provided mobility for disabled people in residential care (one of the cruellest of the proposed cuts) for 300 years.

The Beast of Brentwood, known to his mother as Eric Pickles, has insisted – on the expert advice of the leader writers of the Daily Mail – that councils reinstate weekly bin collections, at a cost of £250m. This spending, unlike some of the examples I'm listing, will do no harm. But a government that believes it's a higher priority than, say, legal aid for people with no representation (now cut by £300m a year) is a government that's lost all sense of proportion.

Such sums are trifling by comparison with the money the government has selflessly foregone. Wherever it has spotted a relatively painless means of plugging the spending gap, it has hurried away to find an excruciating alternative. It continues to hold out against a Robin Hood tax on financial transactions. Levied at just 0.05%, this would raise around £20bn a year from the people who brought us the crisis. That's equivalent to one quarter of all the cuts the government is making.
When he slapped new charges on the North Sea companies making tanker-loads of money from a mineral resource that belongs to the nation, Osborne could have banked the £2bn he raised. He could have used the oil revenues to cancel almost all the cuts to disability living allowance. Instead he gave it, as a tax rebate, to a group some way from the top of the priority list: motorists. When he struck a deal with Switzerland, and British tax evaders stashing their ill-gotten gains in its banks, Osborne could have held out for £25bn. Instead he settled for £5bn, all malfeasance forgotten. He threw away the equivalent of another quarter of this year's cuts.

Then there are the straight giveaways: acts of profligacy at any time, of Bullingdonian debauchery today. The government's cuts to corporation tax will cost us £1bn a year by 2014. Changes to controlled foreign company rules, capital gains tax, capital allowances, inheritance tax and similar levies (all of which reward only corporations or the ultra-rich) will deprive the exchequer of a further £1.5bn a year by 2015 – almost enough to reverse the fiscally destructive cuts to the tax collection service: a net £2.3bn. The freezing of air passenger duty, excise duty for lorries and the aggregates levy – which in all cases, like the spending on new roads, damages the environment as much as they damage the economy – will cost us another £175m.

Far from running out of funds, this looks like a government with money to burn. While the poor and middle struggle to survive the crisis that George Osborne bewails, he's giving away our money to those who need it least. So let's support him when he calls for cuts, but demand that he directs them at the welfare state he's running for corporations and billionaires, which is turning this crisis into a calamity.

Everybody Hurts - aka Weltschmertz

By Pritish Nandy in the Times of India

We all live with weltschmerz in these difficult times. There's no exact translation of this charming word coined by Jean Paul Richter in 1810. What it suggests is a kind of world weariness that has entered our lives. What you can call a universal pain. Everyone lives with it and yet everyone is in denial of it. That's why we have this great love affair with the entertainment business. Movies. Broadway. Vegas. The IPL. Formula One. We are living in the greatest era of escapism simply because we live in the greatest era of pain.

This pain is not always personal. It's not just about you and me and those who we love. You see it in the eyes of the urchin who comes begging to you at a street corner. She has lost her childhood, her innocence. You see it in the eyes of those who work for you at home, cooking, cleaning, washing your clothes, or taking your well groomed dogs out for a walk. Each one of them, however well you may take care of them, dreams that one day they will walk away to be their own master. You see it in the eyes of your colleagues at work, however enthusiastic they may be about what they do. The long travel to work, the pitiable condition of public transportation, the missing footpaths, the growing pollution, the problems with putting kids through school and college, the frequent confrontations over rent, power, water, tax: everything contributes to this weltschmerz. It's everywhere.

I see it in parties and film premieres too. There's something very tragic in watching middle aged men and women dressed in absurd designer togs, their hair dyed and faces botoxed, prancing around like teenagers and pretending to have a great time. There are more sad-eyed drunks and dope heads there than in the dance bars of suburban Mumbai or the glitzy discotheques of five star hotels. While the real youngsters of this generation, equally sad-eyed, shot and lonely, are racing down empty Mumbai roads late at night on rented souped up bikes trying to prove their machismo. They challenge danger because they find it tougher to challenge life. They hide their pain by escaping it. So do their parents who helplessly watch them suffer, knowing that sermons don't help.

The day we all realise this, that the rich is in as much pain as the poor, that the employer is having as tough a time as the employee, that the cop who asks you for a bribe lives as sad a life as you, the pickpocket you catch has risked being lynched because he has no other alternative means of livelihood, that the movie star you idolise is as lonely as you are, that the one who brutalises you is perhaps as brutalised by life as you are, the less we will seek to blame others for our fate. You will feel less anger against that guy in the tax office who asks you for a bribe when you realise he is still paying back, after ten years on his job, his father's debt for getting him the job. We are lucky. The Americans are consuming today what their next 13 generations will have to pay for. The Greeks will be lucky if their next generation can survive their current crisis.

We have, all of us, mortgaged our futures to pay for being around. No, I am not saying this. Ask anyone who understands economics or the environment and they will tell you this. Yet man bravely strides ahead. As we flirt with more pain, more danger, we discover more and more ways to seek gratification, more technology to flaunt, more entertainment to excite us and, most important, more dreams to chase. So we pursue new ways to earn more money, grow more food, hunt down more pleasures, seek to extend our life spans. British scientists recently declared that by 2050 we will find a way to overcome mortality.
This is the miracle of our times. Even as most things go wrong, man's ingenuity to seek hope and happiness keeps improving. But where we fail most is in sustaining relationships. The best companies collapse, as do the best marriages, the best rock groups, the most intense relationships because our weltschmerz makes us lonely islands of pain. That's why last week, when R.E.M broke up after 31 years, I remembered their most popular song, which became the anthem of our times. Everybody hurts. Yes, everybody hurts. And that is why we hurt each other so much.

Is this a scam?

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Journalist opens a Public Register of income. I wish all others follow.

A register of journalists' interests would help readers to spot astroturfing

Pieces paid for by lobby groups would become apparent if, like me, other writers opened a public registry of their interests

• 
• • George Monbiot
  • guardian.co.uk, Thursday 29 September 2011 21.00 BST  

Expenses submitted by David Heathcoat-Amory MP for horse manure.
 
Journalists are good are dishing it out, less good at taking it. We demand from others standards we would never dream of applying to ourselves. Tabloid newsrooms fuelled by cocaine excoriate celebrity drug-takers. Hacks who have made a lifetime's study of abusing expense accounts lambast MPs for fiddling theirs. Columnists demand accountability, but demonstrate none themselves. Should we be surprised that the public place us somewhere on the narrow spectrum between derivatives traders and sewer rats?

No one will be shocked to discover hypocrisy among hacks, but there's also a more substantial issue here. A good deal of reporting looks almost indistinguishable from corporate press releases. Often that's because it is corporate press releases, mindlessly recycled by overstretched staff: a process Nick Davies has christened churnalism. Or it could be because the reporters work for people who see themselves, as Max Hastings said of his employer Conrad Black, as "members of the rich men's trade union", whose mission is to defend the proprietorial class to which they belong.

But there are sometimes other influences at play, which are even less visible to the public. From time to time a payola scandal surfaces, in which journalists are shown to have received money from people whose interests they write or talk about. For example, two columnists in the US, Doug Bandow and Peter Ferrara, were exposed for taking undisclosed payments from the disgraced corporate lobbyist Jack Abramoff. On top of the payments he received from the newspapers he worked for, Bandow was given $2,000 for every column he wrote which favoured Abramoff's clients.

Armstrong Williams, a TV host, secretly signed a $240,000 contract with George W Bush's Department of Education to promote Bush's education bill and ensure that the education secretary was offered slots on his programme. In the UK, a leaked email revealed that Professor Roger Scruton, a columnist for the Financial Times and a contributor to other newspapers, was being paid £4,500 a month by Japan Tobacco International to write on "major topics of current concern" to the industry.

These revelations were accidental. For all we know, such deals could be commonplace. While journalists are not subject to the accountability they demand of others, their powerful position – helping to shape public opinion – is wide open to abuse.

The question of who pays for public advocacy has become an obsession of mine. I've seen how groups purporting to be spontaneous gatherings of grassroots activists, fighting the regulation of tobacco or demanding that governments should take no action on climate change, have in fact been created and paid for by corporations: a practice known as astroturfing. I've asked the bodies which call themselves free-market thinktanks, yet spend much of their time promoting corporate talking-points, to tell me who funds them. All but one have refused.

But if I'm to subject other people to this scrutiny, I should also be prepared to expose myself to it. So I have done something which might be foolhardy, but which I feel is necessary: I've opened a registry of my interests on my website, in which I will detail all the payments, gifts and hospitality (except from family and friends) I receive, as well as the investments I've made. I hope it will encourage other journalists to do the same. In fact I urge you, their readers, to demand it of them.

Like many British people, I feel embarrassed talking about money, and publishing the amounts I receive from the Guardian and other employers makes me feel naked. I fear I will be attacked by some people for earning so much and mocked by others for earning so little. Even so, the more I think about it, the more I wonder why it didn't occur to me to do this before.

A voluntary register is a small step towards transparency. What I would really like to see is a mandatory list of journalists' financial interests, similar to the House of Commons registry. I believe that everyone who steps into public life should be obliged to show who is paying them, and how much. Publishing this register could be one of the duties of whatever replaces the discredited Press Complaints Commission.

Journalists would still wield influence without responsibility. That's written into the job description. But at least we would then have some idea of whether it's the organ-grinder talking or his monkey.

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