The UK banking crisis must be over, four years ago Northern Rock experienced a run on the bank, this week, Virgin, ran off with the bank, leaving HMT with the bad bits and a near half billion pound loss on the deal. By Saturday morning, it emerged Branson had paid half the price with the Northern Rock balance sheet. So this is vendor finance? Continue reading

There is something special about Sunday morning, the Sunday Times, hot croissants with honey and butter, excellent. Headlines, the Chancellor has a £50 billion plan for growth which appears to involve other people’s money in an off balance sheet vehicle. Thus do we learn lessons from the financial crisis. It is plan A plus in a 1930s style new deal for infrastructure and housing. David Smith writes of the Euro crisis with lyrics from the Neil Sedaka classic, breaking up is hard to do, ending with a challenge to the Perry Como ditty - it is impossible. Not only is... Continue reading

There is something special about Sunday morning, the Sunday Times, hot croissants with honey and butter, excellent. Headlines, the Euro crisis could set the UK back six years according to the Ernst and Young Item club. This gloomy projection is based on Greece being forced out of the Euro along with Portugal and Ireland. David Smith has been in China all week but warns their is no such thing as an irrevocable monetary union. An orderly reduction in Euro membership with a Greek exit the best outcome he says. Jim O’Neill from Goldman Sachs, interviewed in another place, suggests the... Continue reading

This week a great chance to burn through the six hundred page Steve Jobs biography by Walter Isaacson. It is a great read and provides some detail to my Apple corporate strategy case study. Jobs was a great visionary and product champion. To work with he could be an ungrateful, ungracious character. It is best this is outed early in life post Jobs. One of the US online journals this week outlined the 16 really bad things Steve Jobs did. Yeah he did them all, storming out of a hotel, chastising suppliers. He could be really heavy on non performing... Continue reading

We have moved to johnashcroft.co.uk The move to the new web site consolidates two blog sites into one, combining four years of history in my economics blog into one big better site: Join us at johnashcroft.co.uk. Thanks to the eword for all of the help with the transition. Continue reading

Tuesday evening, it is the IOD - Bank of England dinner in Liverpool, the Governor delivers a keynote speech. I am a guest of the MPC but as QE sceptic, I am placed next to Adam Posen for assimilation into the QE collective. Posen has been calling for more asset purchases since October last year. He is a formidable character, an intellectual bulldozer when it comes to QE. I receive a one on one tutorial which develops into stern lecture, to disagree - to be dismissed as a Patrick Minford acolyte. Ouch! It is a great evening, I return home head spinning, I have been Posened but am unmoved! Continue reading

Economics news this week, production figures are flat, unemployment is rising, the trade figures for August suggest a modest improvement in the trade deficit. Fans of the J curve get excited but imports are down, as the suffocated take less oxygen. The NIESR preliminary estimate for Q3 GDP suggests growth of just 0.5% year on year. The unemployment figures suggest this is too optimistic. We are in a liquidity trap, the economy is flatlining. To offer more QE, is to throw more water on the drowning. The markets resist the banks offer to buy more gilts this week. They know something the bank does not. JKA Continue reading

a further round of asset purchases merely oils the liquidity trap, digging a deeper hole, increasing the inflationary impact and reducing growth as investment plans are reigned back and household incomes are placed under greater strain. Sometimes the correct action is to do nothing, especially when it is more of the same toxic solution. Continue reading

Watching the Osborne speech, at times the Chancellor appeared to stare at the auto cue with a fair degree of incredulity. Such is the danger of auto cue when ideas can be added at the last minute, even the Chancellor appeared bemused by some of the material. This must have been the case with the idea of credit easing. This is a new idea which no one, including the Chancellor, knows anything about. The project appears to suggest SMEs will issue long term bonds with a low coupon, packaged into a series of CDOs, AAA rated by Standard and Poors, bought by the Treasury, sold to the Bank of England and placed off balance sheet in a structured investment vehicle backed by a RMBS (Rumours of Monetary Backing Somewhere) then written off over thirty years. Continue reading

The Labour attacks on government policy were so thin that Andrew Tyrie, the formidable Chairman of the Treasury Select committee decided to help out. Tyrie is unimpressed by the Big Society and the lack of a growth strategy, suggesting economic policy is inconsistent, incoherent, contradictory and at times irrelevant. Who would have thought? Tyrie has a point, why spend billions on a Libyan adventure and then try to save millions making 1000 sailors redundant? Continue reading

QE forces up bond prices, pushes yields lower, punishes savers, places more pressure on sterling, increases import prices, leads to higher inflation, greater pressure on real incomes, a reduction in household spending, reduces demand and leads to lower growth. Ten year gilt yields have fallen to 2.4% and thirty year gilt yields have fallen to 3.5%. Policy makers assume that lower interest rates at the longer end of the curve will lead to a higher level of investment. This is not the case. Any return on investment or payback calculation is a function of cash flows from a determined demand horizon. Cost of capital does not feature in the basic model. Until the uncertainty about the forward level of demand and growth is cleared, investment plans will remain on the shelf. Continue reading

At present businesses and economies in Manchester and the North West are having to react and adapt to a economic outlook which offers low growth and a higher level of inflation. One in which incomes are squeezed by higher food, energy and utility prices putting real incomes under pressure for the foreseeable future. A government policy aimed at rebalancing the economy involving the march of the makers, rebuilding the workshop of the world is a novel trope. The desire to rebalance the economy and an external deficit which has been out of synch since The Treaty of Versailles and beyond, is misplaced. A monetary policy, which undermines the exchange rate, leads to a depreciation of Sterling and generates price inflation compounds the problem, more QE will compound the problem. The private sector has to accept the challenge, of policy priorities misplaced. Continue reading

According to Vince Cable, the world is in a difficult place. Plans are afoot to relocate to another part of the Galaxy, where the gravitational pull of sovereign debt on growth is much lower. The head of the World Bank warned the world is in a dangerous zone thus ruling out relocation within the Milky Way as a short term solution. The IMF World Economic Outlook produced a down grade for growth in the world and the UK. The elegant Christine Lagarde gets the terminology right suggesting the world is in a difficult phase. Here but not forever. Continue reading

Tuesday, Gateway breakfast and the formal launch of SME club with Sir Richard Leese pressing the big red button to launch the site. Thanks to everyone who attended and helped the launch. SME club is an important development for our city, it is going to be huge. Continue reading

Recent speeches from number eleven include back from the brink of bankruptcy, the march of the makers, ahead of the curve, offering a safe haven, on a rock of stability, masters of our own destiny, executing plans designed in tough times for tough times, acting first like a tug of war team pulling in the same direction, then like a football team, playing in the right position. We will not win anything if we all charge ahead in the same direction, we would just let in goals at the back. Excellent. Continue reading

Headlines, from the Sunday Times, Gordon Brown believed the financial crisis would be over in six months, the Governor, the lender of last resort, did not really want to bail out the banks (moral hazard) and Fred Goodwin brought panettone to the Chancellor as a quid pro quo for the bail out. Now there is a deal maker. Continue reading

In the UK economics news was light on the ground, the GDP figures were unchanged, the migration figures confirm things are bad, the Poles have stopped coming to the UK. Martin Weale, new man on the MPC has called for a further round of QE just as Bernanke eschews a further round in the USA. Actually the Bank of England prefers the term asset purchases to QE. What does it achieve? Asset purchases inject liquidity into the banking system, forcing up asset prices and pushing yields down. But what else? Continue reading

David Smith explains why we are all so glum. It is the old misery index, the sum of inflation and unemployment ratios. Inflation CPI basis hit 4.4% and the unemployment rate hit 8%. Hence a misery index of over 12 compared to most of the years 2000 when the index was between 6 and 8. Are we all glum? Not me because I had two days off last week and played tennis. Continue reading

Why place so much hope in an ill equipped manufacturing sector in trend decline long before Gandhi promoted homespun? The renaissance just will not happen. Play to your strengths may sound facile in terms of strategy but it should be something even donkeys can grasp. In financial services, the reverse is true, China’s revealed competitive advantage is 0.03, compared to the UK’s 3.01. The world average is just 0.5. The UK is the strongest player in the world of exports in financial services with the highes revealed comparative advantage. So why not promote and support the sector instead of suggesting an evil imbalance exists. Continue reading

China is the second largest economy in the world growing at 9% per annum. With a population of 1.3 billion it struggles into the world top 100 in GDP per capita parameter. With $3.2 trillion of reserves, it has the financial resource to lock up the finite resource of world commodities and continues to do so at a vast rate. Almosty eight per cent of investment is into the food, energy and metals sectors. Continue reading

CPI service sector inflation has averaged 3.6% for the last sixteen years and the 2% target rate has only been achieved by an extremely flattering 1% rate of goods inflation. This of itself a function of a relatively high sterling exchange rate, an undervalued Renminbi and cheap products from the Asian block. Such facts are unhelpful in our model understanding of the way the world really works. Continue reading

The claimant count gives cause for greater alarm. The unemployment measure provides a valuable signal as a coincident indicator to trends in GDP. As the chart demonstrates, inverting the claimant count and lagging by one quarter provides a high correlation and signal of trend. If the claimant count increases at a similar rate over the third quarter, the message is clear, growth is off track, the recovery is slipping away and the UK is heading back into recession. Continue reading

Since launching the first survey of Management Tools & Trends in 1993, Bain and Company have tracked executive attitudes and behaviors through a wide range of economic cycles. In the current cycle, there is a profound fear the world has deteriorated forever. Executives are concerned the consumer spending levels won’t bounce back to pre recession levels anytime soon and revenue growth is the main challenge given the low growth economic environment. Continue reading

According to a recent paper from the Centre for Economic Policy Research, periods of austerity and budget cuts go hand in hand with social instability and violence. Thatcher knew this. One of the first acts of the Conservative administration was to increase the resources and pay of senior officers in the police force and the army. Ominous but at least there appeared to be a plan. Continue reading

Thursday, the markets crashed as fears of a double dip recession, US debt and prospects for the Southern states of Europe returned to top of mind. You know things are bad when Robert Peston appears on Newsnight. The day job, an end is nigh, sandwich board in Threadneedle street, cast aside for the evening. Markets crashed, S & P down graded the US debt below that of Guernsey and the Isle of Man. Vince Cable and the Chancellor crowed about safe havens as ten year gilts fell below 3%. Safe haven maybe but capital flows are not reflected in an undervalued currency and the exit of US funds from the UK banking sector. Continue reading