It is Obvious

Chris Rick has got altogether too much to say

Archive for December, 2009

I’m too young to die

Posted by chrisrick13 on December 21, 2009

It is obvious: we are dying.

Busy with a new contract I have not had time to comment recently.  I have a lot to write on the environment, but I’ll do that another time.  To prove there is nothing new I saw a comment on the internet last week that ties in to what I have been saying.

About a third of the UK debt is the pension commitments that are not funded.  BA has a pension deficit that is larger than the market capitalisation of the company.  All large companies have similar problems.  They have pension funds that rely on the stock market and bond prices.  As these reduce in a recession/depression and the company profits reduce, so does the value of the assets in the pension funds.  (The government pension commitment is not funded at all, needing people to pay taxes to keep it going.)

However every company (and government) is taking steps to ensure that those commitments do not continue.  In a generation those commitments (you and me) will have died and they will no longer be an unfunded liability.  Indeed a decent pandemic that kills off 10% of the population will rapidly fix the pension deficits.  For the next generation all new pensions are being done on a funded basis: you get out your share of what is in the pension when you retire and not a guaranteed amount, and what you do get is related to what your money grew to during your paying in period.  There is no such concept as under-funding, only one of not living the life you planned on living when you retired.

So one third of our national debt will have died in a generation.  Of course it can also happen a lot sooner with inflation that goes beyond guarantees in the pension funds.  Inflation also fixes all the other debt.

The only thing that is guaranteed is that the processes that ‘fix’ the problem are relentless.  The UK is bust financially and much pain is coming, even death.

It is obvious: we are dying to find out how and when the pain will come.

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Treading on egg-shells

Posted by chrisrick13 on December 13, 2009

It is obvious: I believe the government.

Along with many other people I listened to the PBR with open mouthed astonishment.  I waited to see what the bond markets were doing.  Sure enough interest rates stepped up.  That does not affect our debt today, but on the rollovers the debt comes back more expensively.

At the moment the people who buy our debt are content to keep buying at reasonable, but increasing, rates.  This might be because there are enough basket case countries around that our debt still looks reasonably attractive.  If you are running away from bears in the woods you don’t have to be faster than the bears, just not slowest in your group.

So what was the PBR all about then?  I think I have the reasoning.  The UK economy is in a position from where it is unlikely to recover.  I will be generous, it is in a position where it is unlikely to recover any time soon and without a huge amount of pain for us, the people who voted the Labour government in.  A number of very fortunate and benevolent events will have to take place for it to recover.  So the government has worked backward from a benevolent recovery, assumed those events occur and acted accordingly.  If those events don’t occur there is nothing the government can do as the economy will crash anyway.  If they do occur they will be in power for a hundred years.  They don’t even have to think about it.

I suspect that the Labour party live in fear and terror of a majority at the next election.  That would take them out of power for a hundred years when their term was done.  Cameron would have a number of years of fun taunting them from their majority of a couple of seats to then take power with a hundred or more seats.  The Liberals will not enter a coalition with Labour or anyone as they will be out for a hundred years if they do and might just get their big chance in a year or two if they don’t.  Should the Labour party retain power then they will be stuck with Brown for some longer time.

All of this is being weighed and watched by our debt financers.  (Have you noticed that when we borrow money it is credit but when the government borrows it is debt?)  At some point the trigger that I have long talked about will be pulled and our national debt will suddenly get more expensive.  At 3% we pay £60bn a year in interest.  At 6% we need to find another £60bn a year.  That is a straight 10% off government expenditure without accounting for tax-take reductions.  Will it be your hospital, your pension, the bobby on your street, your kids’ class size doubling, your bins not emptied, your prescription drug tripling in cost?

It is obvious: : I believe the government has chosen an optimal path…for itself, not for us.

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Not the economy…so I lied.

Posted by chrisrick13 on December 9, 2009

It is obvious: education is our future.

I cannot add to the debate on the budget statement.  I can say there are some I-told-you-so’s in there but I would wouldn’t I?  I can see what seems to be no brake on spending and budget deficits.  I don’t know how that can work.  I see another half trillion being added to the UK debt.

I’m not adding anything with my comments.  Wait and see what the markets say.

One of the implications of the promises made is the coming huge cuts in non-protected areas.  These include higher education – note schools are to be protected and that does not include universities.  This means university education will have a double digit cut in funds.  I have to admit being very happy about this.  The fewer people getting degrees the less competition there is for me as I try to stay in employment.  These graduates are not getting jobs anyway so why bother educating them?

Some point in the future there will be people desperate for my skills and there will be no young people with education or experience to compete with me.  Good news indeed.  I notice that there will be no reduction in police spending.  My goodness will they be needed with all these bright young adults sitting around all day with nothing to do other than work out ways to take their required funds from the rest of us.

Still there is one big plus.  We will be taking a big step on the race to the bottom.  We will be able to beat all our rivals in the rush to get to third world wage levels.  Then we’ll be competitive in world markets.  Pull out your rule of 70.  The average household income is about $45,000, it only takes 7 years on 70% inflation and that will be a dollar-a-day.  We don’t even need Zimbabwean inflation to get there.

It is obvious: education is our future and we don’t have either.

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Oh no – not the economy again!

Posted by chrisrick13 on December 8, 2009

It is obvious: this is the lull before the storm.

I wanted to talk about motorway driving but it seems pointless when there is so much economic stuff to look at.

Yesterday the PM outlined expenditure savings of a few billion.  Based upon the audit office analysis of the last round of ‘savings’ that were made some years ago, the net saving of his measures is likely to be of the order of £3bn.

Efficiency is a good tack.  Nobody will lose out.  Simply, we will get the same as before, but done better.  Nobody seems willing to say that as a result of what has happened over the last few years there will have to be painful cuts in the standard of living for all of us.  Policing will be reduced and criminals will, literally, get away with murder.  Health service will be reduced and people will die sooner than they might otherwise.  Roads will not be maintained and our cars will die sooner than they might otherwise.  Food safety inspections will be reduced and we will get more illnesses from our food than we otherwise might have.  You get the general idea.

Why am I so sure of this?  The estimates of the budget deficit for this year stand at £200bn or more.  At 3% the interest bill on the UK’s total borrowings (PFI, pension underfund, and actual visible debt) will be £60bn.  Therefore in order to stand still on our debts, not reduce them one jot, we have to save £260bn on expenditure…CUT.  This has to be done at a time of reducing government income.  Don’t forget that we are probably already at the point of maximum tax take, or close to it.  Don’t forget that any cut in expenditure involves a balancing cost and will likely reduce economic activity, thereby reducing the tax take.  Don’t forget we have little industry to export ourselves out of trouble.

The world markets are standing by waiting for the election.  At this point we might get a new government that can open the books, throw their hands up in mock horror and then carry through the cuts needed.  If that does not happen then the storm starts in a very short time at full intensity.  If the cuts are made then we will be on a boat in a storm being sailed properly.  Not at all pleasant but survivable…and, I believe, not very likely.

There are a lot of people amongst our 60 million population who are making these realisations.  They are not persuaded one bit by politicians’ words and are taking action to protect their position.  They are having a bad effect on the economy, just making the problems worse.

It is obvious: this is the lull before the storm, but for many people it has started already.

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Another day, another promise

Posted by chrisrick13 on December 7, 2009

It is obvious: nothing has changed since yesterday.

Today the PM has announced that he is to cut waste in the public sector:  reduce costs, cut Quango’s, freeze senior civil servants’ pay and other measures.  This is after the chancellor indicated that the expensive, new, NH computer system, in development, will be put on hold.

These are good measures that will save a lot of money…and cause much of it to be spent elsewhere.  The government will be climbing up a slippery slope sliding down a pace for every two made up the slope.

That leaves two unasked questions:

1.  You have told us the headline savings, what will be the net savings?
2.  You have been in power for 12 years.  Why did you spend this money, our money,  so poorly in the first place?

A free press is essential for a democracy.  One that does not do its job is a danger.  Let’s hope that the PM gets some meaningful questions today.  At least I see many other people asking the same questions via the internet on the news programmes.  Perhaps a proper accounting will be had this time?

It is obvious: a day could be a long time in politics.

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The Rule of 70 (1)

Posted by chrisrick13 on December 6, 2009

It is obvious: politicians should be carefully listened to.

Today the Chancellor said that his aim was for “long term sustainable growth”.  The questioner left it at that.

The chancellor had also just said that he expected growth to be 1.5% next year.

Pull out your rule of 70 and discover that 1.5% growth doubles the economy in 47 years.  Is that sustainable?  Is that long term?  Will anyone believe that growth will do that over 47 years?  It will take 4 years to get to where we were before the recession, yet the government has a bill to halve the deficit in 4 years.  Is that believable?  Pull out the prostitute joke and ask what growth will be achieved if doubling is not possible?

In 10 years the economy will have grown by a net 10% if 1.5% growth is achieved over all those years.  This means there will be 4 million more jobs than we have today.  What will they be doing?  Steel production in Redcar?  Car production in Oxford?  Shipbuilding on Teeside?  Making silicon ships in Scotland?  Pulling oil out the North Sea?  Doing anything for a dollar a day as they do in China, India and Brazil.

Yet we have a generation of people just out of education unlikely to get a job, unlikely to be a first time buyer and unlikely to have a family.  This is just at a time when we baby-boomers are starting to die in serious numbers, the survivors demanding that our children pay our pensions.

Suppose then that sustainable growth is 0.5%.  Then GDP will take 10 years to get where it was 2 years ago.  This does not solve our deficit problems.

Suppose that we achieved 4% growth.  Then the economy will double in 17 years…ho ho ho ho ho ho.

It is obvious: politicians should be carefully listened to, and then equally carefully questioned.

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Horror films

Posted by chrisrick13 on December 1, 2009

It is obvious: there are a lot of horror films around.

I have just watched an hour long film that is the most terrifying thing I have ever watched:

I stumbled across it while converting my erroneous rule of 72 to a rule of 70 in my previous blog entry.

It talks about exponential growth.  Don’t let that word frighten you there is no maths in it.  It uses the rule of 70.  You can see how compound interest works, where your pension is going, what is happening to oil reserves, what is happening to population.  Dr Bartlett gives an absorbing talk.

The most frightening thing is that his numbers carry authority.  But even if he is, say, 100% out in a value for the year 2020 of some feature, due to exponential growth he will be right just 1 year later.

From his talk I have made some simple deductions:  We are rapidly moving our world from one that can support the current world population poorly, to one that will be capable of supporting a much lower population.  At the same time we are increasing population at a rate that will double it in 35 years.  I have no idea what a sustainable population is, but our rate of consumption is continuously reducing that sustainable level.  Population increase is bringing the crunch point forward and making the sustainable population count much lower.

Dr Bartlett’s trick is not to get involved in deductions he just shows some very simple stuff.  The simplicity of it is what is so scary.  Plenty of people have made the deduction that I made a long time ago.  This video shows very simply how it must be right.

It is obvious: there are a lot of horror films around and I’m not talking fiction.

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