It is Obvious

Chris Rick has got altogether too much to say

Archive for February, 2010

Anyone for a cut?

Posted by chrisrick13 on February 25, 2010

It is obvious: it’s all in the timing.

Is there really any difference between Labour and the Conservatives?  They have a different view on life.  But what difference can they make to fix the debts this country has?  We have a police force.  It costs 35 billion a year to run.  What can either party do about it?  Maybe trim a police dog here or a truncheon there.  There is not much more.  What about the NHS?  Close a dozen hospitals?  Sack a thousand nurses?  What about schools?  Maybe turn the heating down a notch on the central heating in all schools?  Perhaps order a couple of dozen less canes.  What about immigration and customs?  Let them in?  Drugs are good?  So maybe have one less coastguard boat?  Perhaps a couple of sniffer dogs less?

The government can certainly swerve a bit at the edges.  They can hit me with IR35 which was always about political dogma.  It destroyed a lead we had over the rest of the world eventually made no difference to most software contractors and cost more money than it got in.  But they made their point.

Certainly Labour ran up some debts, but I’m not sure that the Conservatives wouldn’t have either.  Labour will nudge the taxation in one direction and Conservatives in another, but they are both constrained by the concept of a maximum tax take.

So there is a lot of huff and puff about a very small amount of what the government does.  The rest is fixed.

One area that was clearly lined up for big cuts was the military.  We are not going to fight any more conventional wars.  We’ll never get into an Iraq or Afghanistan.  Any world war will be nuclear and over quite quickly.  If the Chinese want anything they will take it and we’ll have no impact.  We need the capacity to fight terrorists.  We don’t need aircraft carriers.  We don’t need long range transport.  We don’t need a conventional military any more.  Deep cuts here we come.

Of course we are about to start drilling for oil off the Falklands 10,000 miles away and Argentina is rattling its sabers again.

It is obvious: it is all in the timing and I’ll bet the military saw this one coming from a long way off

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4 cents a passenger mile

Posted by chrisrick13 on February 22, 2010

It is obvious: a rose by any other name would smell as sweet.

This a revist of a previous blog.  How much does it cost to run a Boing 747 a year? “4 cents a passenger mile” the Boeing salesman will say.  To you or me that is £70m a year.  Two numbers: 4 cents and £70m.  Both accurately describing the same thing

There are about 17m households in the UK.  The average income before tax is about £33,000.  On the telephone numbers in economics today the government is borrowing £180bn on our behalf this year.  That is £10,000 for every household.   The money is to be spent on us so don’t complain.  Next year the plan is to do the same.  That is £20,000 for every household.    If we treat this as an interest only loan then we will be having to find £1,000 every year to pay interest on that money provided interest rates do not rise.  Provided the government can stop spending we can work at paying this off.  How about £1000 a year each?  We’ll take 20 years to do it.  On a net income of about £27,000 we are going to pay £2,000 a year to get rid of the debt in 20 years.  Only 8% of our income.  However this 8% is at the end of your budget where you buy holidays, cars, televisions, orange juice, wine, sports channels and others.  It does not take much for it to start on the part of the budget that affects the temperature in your house, how often you can afford a shower, how much meat there is in your meal and if you replace your fridge when it breaks.

It is obvious: a rose by any other name would smell as sweet, provided it is not still in the garden with manure round its roots.

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Shattered dreams

Posted by chrisrick13 on February 21, 2010

It is obvious: invest in yourself.

I am lucky.  I have got an IQ that is above average.  There are two important things that are worth noting about being clever.  First, intelligence has no strong correlation to money.  Second, intelligence says nothing about you, it is what you make of it that matters.

I went to grammar school.  That was due to a long series of lucky events.  Consequently there was always a good chance that I would go to university.  When I went my dad said that he would make my grant up to the maximum amount.  My grant for the year came out to £270-ish and my dad made it up to £360.  It was much the same for all 3 years.  I lived in Nottingham and got a job with Boots each summer holiday.  I finished the term on the Wednesday and started work on the Monday, finishing on a Friday 12 weeks later and starting term on the following Wednesday.  I ran a motorbike and then a car and had a big stereo (instrumental in attracting my wife) and finished university with more money than I started it with.

One of my friends at junior school did not make it to grammar school and left at 16.  He became an electrician, starting as an apprentice and eventually running his own business.  He’s a lot richer than me and possibly a lot more content.

There were other peers that I knew who didn’t take the university route.  Some took jobs, some took the HND/OND route.

There was a clear set of routes that these people took and found their slots.  The system was not perfect and that is attested to by at least two of my friends getting degrees later in life.

Today, unless you are living in a hole in the ground, you don’t get a grant to get to university and you will pay £3,000 in fees, about £3,000 to rent somewhere and then a variable amount that you live on, buy books, heat your room, get to university and generally stay alive.  Maybe that will be another £3,000.  At the end when you get your degree you will have £27,000 of debt.

But that is OK.  You will get a better job and earn more money so it is reasonable that you pay.  But hang on a minute.  If you earn more then aren’t you going to pay a lot more in taxes?  Iniquitous.

When I got my degree there was only 5% of the population got degrees.  Having a degree carried kudos.  If you are a good thinker does that make you better than a good ‘doer’.  I think (sic) not, but what you get paid is not based on how good you are, it is based on what you can negotiate, and the relative rarity of those skills strengthens your negotiating hand.  I was (am) lucky.

Now, something like 50% of those finishing school go to university and get a degree.  So the value of a degree is reduced.  Everybody who is anybody has got a degree.  So why bother running up £27,000 of debt to get a degree that is just barely worth the paper it is printed on?  The answer is simple.  If you are not in the club then you are not invited to any of the events.  If a job is advertised and there are 300 applicants, then it is an easy matter to eliminate the 150 who don’t have a degree.  There is still little chance you will get the job.

So university has become 3 years of national service and a £27,000 fee to enter the club called ‘at least being in with a shout of getting a job’.

The fact that there are no jobs is neither here no there.

It is obvious: invest in yourself but develop some interesting hobbies to pass the long days.

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Export or die

Posted by chrisrick13 on February 13, 2010

It is obvious.

The world economy is a zero-sum game.  One man’s export is another’s import.  Countries like Japan and Germany have economies based on strong export earnings.  So does China.

The talk I did hear of us exporting ourselves out of trouble has subsided.  We don’t have much in the way of exports, or at least a lot less than we did.  There are not many economies that can afford to buy what we sell.  There are plenty of countries that do what we do based on labour that is paid a dollar a day.

What is going to happen to our trade gap?

It is obvious.

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What’s a Greek urn?

Posted by chrisrick13 on February 10, 2010

It is obvious.

The Greek economy has a lot of problems and with the strikes being planned is full of Turkeys voting for Christmas.  It is at the point where the national debt demands interest payments that the economy cannot generate.  Therefore a default on that debt is very likely.  The solution is for some sort of help from someone (I’m being deliberately vague) and a lot of pain for the population for a (long) while.  If I run up lots of debts then decide to get up go to work for 12 hours each day then go to bed and only eat raw vegetables and drink tapwater, if my creditors do not collect much interest I will likely pay my debts off…but it might take a long time…or it will seem like it.

The level at which this debt trap operates is at about 80% of GDP.  Japan gets away with a lot higher value because the Japanes save, which is something we don’t do.  The UK debt is at about 40% of GDP.  However our deficit is about 12% of GDP.  I don’t even need the rule of 70 to work out when we will hit problems if the graphs are smooth.  Cutting defecits at the rate proposed by the government runs things very close to the wire.

However our national debt is not just the 40% that the government owns up to.  There is the PFI.  There are also underfunded pensions.  I might add in the problems of local councils.  The numbers for those debts are not clear but the estimates I have seen are that they are 300% of GDP in total.

At a time when we should be making very large investments in energy independence, when we should be putting large amounts of money into securing food provision from our own soil and guaranteeing water supplies we are effectively broke.

What will happen to this country?

It is obvious.

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The simple question

Posted by chrisrick13 on February 9, 2010

It is obvious.

Insolvencies last year in the UK were nearly 140,000.  This is in excess of 3 times the level in 1992, the time of the last big recession.

Since then the amount of personal debt has gone from £400bn to £1,400bn.  A lot of that is on credit cards at usurious rates.

During that time salaries have not done much.  Indeed my income has gone down as it has for many others.  Therefore 3 times the debt is being supported on the same income. 

Soon taxes will rise reducing the available income to pay off debt so that the government can pay of debt it has incurred on our behalf. 

Soon interest rates will rise making the cost of that debt a lot higher.

Soon a lot of people with no debts will lose their jobs and try to survive on their savings.

What will happen?

It is obvious.

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Don’t pull the trigger

Posted by chrisrick13 on February 8, 2010

It is obvious:  things don’t change.

Arthur C Clarke wrote a series of books on the Foundation.  In them a man called Hari Seldon (I think) formalized the science of predicting events based on the actions of larger numbers of people.  (Economics?)  He created a foundation and recorded advice about what to do that was released at key moments to the Foundation.  All was well for 500 years he got it right each time and guided whole civilisations.  Then at one showing he talked about predicted events that just did not happen.  Chaos reigned.  The reason he got it wrong was that a man called ‘The Mule’ was born who could make people follow him unthinkingly.  He had a vision and converted key people to his way of thinking.  The Mule was a single event that could not be modeled by Seldon mass population techniques.

I have already written about the danger of just projecting curves.  I have already written about trigger points (The Mule being one).  Economists build models that predict the future.  They are good and accurate…providing nothing changes.  But things do change.  They can never build the trigger points into their models because they don’t know what they are!

So why do economists predict and why do we listen?  At the individual level you can live from day to day or you can take a long view on where you want to be and what you have to do to get there in the current environment.

If you are a day-to-day person you are possibly very happy.  At each moment you do whatever it is that makes you most happy.  There is no thought for the future and you always do the thing that causes you to be happiest next.

If you think for the future then you have to think about where the world is going and where you might aim to be in that world.  A lot to consider and economists can give comforting words that enable you to maximize your life in that prediction.

Except that economists will get things right until something happens that they have not considered.  The increasing frequency of trigger events reduces the length of time that their predictions are accurate and useful.  This then leaves a lot of people acting according to their own thoughts and reducing the accuracy of Seldon like predictions in a nice tight spiral.

Where does this leave the government trying to direct the course of a national economy?  It leaves them with no real idea of what to do.  Just one general rule is probably all that can be applied: live close to your means and spend money to the best result for your population (voters) without harming others.  Pity we haven’t done that in the UK.

It is obvious: things don’t change…until they do.

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I’ve got two cars

Posted by chrisrick13 on February 7, 2010

It is obvious: the signs are there.

I’m looking out on to my garden.  I’ve been in this house 20+ years.  I’ve seen a lot of change but never noticed it.  I remember a time when there was always a sparrow in the garden and mostly a hundred.  Flocks of starlings would invade 20 times a day and startle themselves into flight to somewhere else.  There were no Magpies and no foxes.  Also looking out I was unaware of any houses.  I could not see any, even in winter.

Now I have not seen a sparrow in years.  I can see all the neighbours’ houses all the time.  Foxes wander the garden even in daytime.  Magpies are the most frequent bird.  I only really realised all of this a couple of years ago.  It grows on you (or rather dies on you), it creeps up.  Then you realize it.  You might then also start to wonder why?

I started running the roads in this area some 30+ years ago.  I’m slower now and I am not noticed as much because there are other runners out there.  I have noticed that the traffic travels a lot faster.  Get out on the roads a lot and you can soon tell relative speeds even if you don’t know the absolute speed.  Give it a little longer and you can start to judge absolute speeds.

The other thing that I noticed is the number of parked cars.  I can think of 3 stretches of road on one of my routes where there are cars parked on both sides.  Wide roads which now, like many in London, are effectively single track.  A side benefit is that traffic speeds are a lot slower.  This is much safer and probably fuel efficient.  When I started running they were two and nearly three lane roads with no parked cars.  Instead of crossing where I wanted to I now have to pick gaps between parked cars.  It crept up on me.  I didn’t notice it.  I notice it now.  However the reason I have noticed is because gaps have started appearing.

I wonder if this is a good indicator.  There are others around.  They are better than ‘official’ figures.  They cannot be manipulated.  Have you heard of the Mars bar exchange rate?  How much does a Mars bar cost in the UK and US?  It provides a good measure of the effective exchange rate, better than the number you read in the tourist rates section of the newspaper.  The Times economic commentator (David Smith) had his skip indicator.  The number of skips on his street is a good indicator of the state of the economy.

I would like to find a good forward indicator, something that would tell me what is going to happen, but for now I’ll settle for any indicator that tells me what is actually happening.

What of parked cars?  They are a good indicator of the state of our finances.  If people are cutting back then the second car is a good indicator as it is a step function.  You can buy value items in the supermarket.  You can turn the heating down a degree.  These and many others are small changes that you introduce and barely notice if you are not as wealthy as you once were.  They are imperceptible like my garden.  Altogether they might add up to a lot of saving with little pain or pain that you get used to.  Giving up a second car (or a third) is a huge change it is a big thing, a big cost with big fixed costs that bite you regularly.  It is a change that you notice and affects you in noticeable and painful ways.  So it is a lagging indicator.  It indicates that things have got serious for your personal finances and the finances of 30 or so people on my run.

It is obvious: the signs are there, you just have to look for them.

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Work with me not against me

Posted by chrisrick13 on February 7, 2010

It is obvious: I know what I am doing.

I like to watch American Football.  I also like baseball, but I have a life so don’t watch it much.  I subscribed to Sky Sports 1 and 2 many years ago and happily watched the football.  Then Sky Sports 3 came along and some games were put on that channel.  So I increased my subscription.  All was well for a while.  Then Sky Sports Extra came along, and guess what…some of the games were put there so I increased my subscription again.

Then along came NASN (North American Sports Network) that showed college football, baseball, basketball NASCAR and other sports from the US.  I said goodbye to NFL and switched to college football.  All was well at a reduced cost.  Then after 3 years NASN was merged with SETANTA.  This meant I could watch Gaelic Football, horse racing, Scottish Premiership football, tennis, golf and a whole load of other stuff not related to North American Sports.  For all this extra viewing I only had to double my subscription.  I rang them up and promised only to watch College football if I could stay on my original payment.  They refused and I cancelled.

I now spend my subscription money on a long weekend with friends and son in the US watching a few live games and later the Superbowl on BBC.

It is obvious: I know what I am doing, but so do the television companies…

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The sound of silence

Posted by chrisrick13 on February 2, 2010

It is obvious: change happens all the time.

I am noticing a sense of realism pervading the information I am getting.  I almost said ‘the media’ but I think that is now a devalued term if not a cliche.  Most of my information does come from journalists talking on television and radio, journalists writing in the newspapers, and from the internet not from journalists at all.  The internet element is now sufficiently large that ‘media’ is no longer accurate enough.

Whatever the source, I sense realism.  Most recent was the ‘end of the recession’.  I don’t understand why two quarters of negative growth signifies the start and only one positive signifies the end.  Still I expected to turn to my information sources (OK the media) and hear Brown/Darling screaming from the rooftops: “WE DID IT!”.  What I did hear was nothing other than the small voices of those who cared to comment, being very cautious.

The most frequent comment I heard was that we got growth last quarter by people bringing forward expenditure because of the end of the VAT reduction.  We got growth because people were scrapping cars and buying new ones.  (This smacks of siege mentality: let’s get a new car at a good rate so that we’ll have reliable transport for the next 10 years to see us out the back end of what is coming.)  We got growth because of QE: printing money whatever name you care to give to it.

So nobody spoke much about the end of the recession.  Nobody wanted to even claim credit for it.  Perhaps that was because they would become associated with GDP data and be thought responsible for the next set.
The general perception is that there will be a revision and it will be up.  That might be likely but not guaranteed (if you want a guarantee, buy a toaster).  What has come close to getting a consensus is that the next quarter will see a reversion to shrinkage of the economy.  Not only do we have the ending of growth measures we are also heading into the possibility of the purchasers of UK debt demanding a better return on their money.  A drift up in interest rates has already happened and could well be accelerating.  It remains to be seen how the gilt auctions fare over the coming weeks.  The pound is unlikely to rise against other currencies.  We have much reduced exports to take advantage of this and a lot of imports that will suck money abroad and reduce economic activity in this country.

A reduction in GDP in the next quarter assuming we don’t get an Armageddon inducing revision down of the last quarter’s figures is the best bet.  (It might have been better to keep going with recession than to get one quarter of growth and then two quarters of shrinkage.  At least then a double dip would have been avoided.)  Then we are into an election and everyone stands around holding their breath to see who the victors are, what they do, and what the rest of the world makes of it.  At least we will have the fun to come of Labour and Conservatives trying to do enough to have a respectable performance but not get a majority and Liberals hoping and praying they don’t become king-makers.

It is obvious: change happens all the time, for the economy the route is not predictable but the destination is.

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