It is Obvious

Chris Rick has got altogether too much to say

Archive for April, 2011

The beasts are out

Posted by chrisrick13 on April 27, 2011

It is obvious: I have a responsibility

The GDP figures came out today and show that the economy grew in the last quarter.  This means that over the last 3 quarters growth in this country has been flat.  That is a lovely spin.  How about non-existent or zero.  I would add a word of warning.  The growth rate is based on about 40% of the data.  It is always revised and can go up as well as down.  We may yet find ourselves sleepwalking into a technical recession.  And there is another bit of spin: what is the difference between a recession and a technical recession?

I could mention the claim that we were the nation best placed to recover from the worldwide recession of two years ago.  How I wished he was still in power and could be held to account.  How could anyone in their right mind think to appoint him to the IMF!

As usual, Shaun Richards beat me to it.  At the moment we have got inflation, not the eye-watering stuff of 20 and 30 years ago, but decent stuff.  We also have stagnation in the economy.  Is that not a definition of stagflation?

(The worst thing about it is that with the banking débacle of a couple of years ago we could have had an economy that ceased to function.  It would have been very bad, but the problem would have been resolved by now if the banks had been allowed to crash.  Instead the serious efforts of the previous government and the MPC have generated a 30 year problem.)

This leaves the economic recovery of the nation very uncertain.  The dual approach to reducing the deficit to a surplus before our debts overwhelm us is to cut expenditure and gain growth.  The cuts that the coalition are being lambasted for are, by any measure, small, and growth is simply not there.  Indeed the bold projections of growth or maybe the ludicrous, fairy-tale fingers in the air are shown to be wrong, as wrong in this government as the last, and still policy is based on them…or does policy dictate the projections?  As Dr Bartlett has shown, growth is not going to go on for much longer, and we will have to accustom ourselves to no-growth economics.  It looks as though the UK is starting early.

I find myself writing a lot less now that I am trying to turn away from the economy and talk of less depressing stuff.  I have to get back to my ideas, recipes, negotiating and jokes.  Where does a 1 ton gorilla sit…anywhere it wants to.

It is obvious: I have a responsibility not to cause too many suicides amongst readers of this blog


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A bargain – at last

Posted by chrisrick13 on April 21, 2011

It is obvious: always negotiate

I had a lesson in negotiating yesterday.  (I’ll take up my intended series on this when I have worked out how to answer one of the comments on BATNA’s.)  I have plumbing insurance.  Had it for 11 years.  I have never used it and I don’t think the policy allows of any condition where I can claim under it.  I have been going through my expenditure and eliminating stuff I don’t need.  And that is another lesson: why didn’t I do it earlier?

I decided that I would cancel the plumbing insurance.  I know where all mine is and can easily get at it to fix it if I need to.  Copper pipes just sit there and don’t often decide to play-up.  I had put myself into a position of strength.  I was going to ring up and cancel.  I mentally prepared myself.

The phone was an 0800 number.  What a rarity nowadays?  The person I spoke to had a number of telling questions and some uncomfortable scenarios for me to consider, but I had made my mind up.  I persisted, thanking him for his time.  Then he asked if I would reconsider if I had 35 sliced off an annual bill of 84.  I had made my mind up.  I was in a position of strength.  I said ‘No’ again.  what about 54 off he said?  I should have been affronted.  How many people have been caught by that first offer (remember – never accept a first offer).  How long had I been paying an extra 54?  11 years for nearly 600?

You can guess.  I took his offer.  Another year.  Put it in the diary to make sure I leave next year if it goes up.  I wonder.  Was there a third offer in there?

It is obvious: always negotiate – the other side always does

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There is no alternative

Posted by chrisrick13 on April 20, 2011

It is obvious: one man, one vote

I love the people who do not vote.  It gives my vote more weight.  If one in three people vote then my vote is worth 3 times what it would be worth if everyone voted.  I send them my thanks.  It sometimes was a struggle, but I’ve never missed a vote.

I hate the man-in-the-street interviews on the news.  I want to hear experts not idiots.  I have moaned often.  Yet I am drawn to an interview before the election.  someone was asked about their voting intentions and their response was something along the lines of “Let me see?  Who is in power at the monent?”  Remember that Labour had been in charge for 13 years at that point.

It is to people such as the one above that we are going to give the opportunity to decide how voting will be done in this country for the next thousand years.  I can mis-quote Walter Lippman: democracy is too important to be left to the people.

Do we understand AVS?  It is simple.  You vote for one person and if nobody gets an outright majority then the people who voted for the least popular person can have their votes given to another candidate.  It is repeated until someone does get a majority.  I’ll vote for X if he doesn’t get in then I’ll vote for Y, if not then I’ll vote for Z.

That bit is simple, but what does it mean?  What are the implications?  I don’t know enough about it to determine the real effect.  However I can draw some simple examples.  Suppose that 2 parties both get 49,000 votes and a third, some extremist white supremacist candidate gets 2,000.  Your MP will be decided by those extremists.  You can draw up other scenarios where someone gets most votes but does not quite win and the second votes of a bunch of other parties eventually sum up to beat the person with the most votes.

However it will tend to clump up all the right, centre and left wing votes.  Then all the second votes will be based on hate.  If my guy cannot get in then I’ll do my best to make sure that the one furthest away from me does not get in.

It is complex.  I can’t work out the implications.  How many of us can?

It is obvious: one man, one vote…on very rare occasions.

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When I’m 64

Posted by chrisrick13 on April 19, 2011

It is obvious: I am very old

These last two weekends I have spent the time in the garden.  I am not a gardener.  I took out a tree stump, slaughtered a jungle, and dug a 30′ trench ready for a wall.  (Had a long battle with a robin over who owned the worms.)  I put my heart rate monitor on and burnt over 8,000 calories without paying a penny to the gym.  While I was in the front garden I could see all my neighbours in their gardens tending their billiard tables while I dealt with something like the battle of the Somme…the best it has been in many a year.

I wondered at what was going on and suddenly hit it.  All of my neighbours are retired or long shot of their children, whereas I have only recently got rid of mine.  They have time.  They do not have to shop for 3 extra gawping mouths.  They are no longer running a taxi service late into the night.  There are no ‘family days out’.  There is no need to be all over the country watching sports events.  The house never needs tidying and the top is always on the toothpaste.  The washing machine does not run twice a day and need emptying and then everything drying and ironing.  They have time and so do I.

There is a pattern.  It might take a little while but I soon will own a billiard table.  Keeping it like that will be trivial.  I don’t decorate my house much but when I do now, it will stay decorated.  I put things in places and when I go back they are still there.  My life has changed.

But I’ve become dangerous.  I walked down an alley last week where there were brambles and other stuff growing into it that had been catching me for months and making me wet over the winter.  I took secateurs with me and fixed the problem.  The owner was not happy, came out and threatened me with his cutters.  He threatened to come and prune my plants…I rather took the wind out of his sails when I gave him my address and asked if I could book him for next week.  He threatened me with ringing up the police but I said I had a better idea – I’d ring them.  That is only the surface though.

I don’t have a mortgage in common with a lot of people my age.  My food bills are less than a quarter of what they were.  I don’t have life insurance.  There is only one car out the front of my house and not four.  I’m still making pension payments even if I’m not sure why.  I am still part owner of a shoe mountain, the handbag foothills, the strategic perfume lake, and the jewellery mine.  However the t-shirt and jean savannah has gone and no longer needs upkeep.  When I go and buy a £1 ice-cream that is what it costs me – not £5 as it has for the last 20 years.  My phone bill is now miniscule.  I foolishly married a significant money earner and then took her out the job market for 20+ years…but she’s back now.

In short I am not as rich as I want to be…but I’m rich enough because I don’t spend anything.  I still need to work…I’d like a Ferrari and a serious drugs habit.  I’ve had time to go through my expenditure.  Time to wander the internet comparing tariffs for phones, broadband, tv, car insurance, electricity, gas, house insurance and a whole load of other stuff that in earlier times I just paid for.

I could get by without working again ever…but I want to do a little more than get by.  So I am still working…just.  I’m taking up a job that some 24 year-old ought really to have.  Indeed I want him to have it because it is his taxes and NICs that are going to pay for my pension and healthcare.  He’s also going to be driven by his genes to find a mate, procreate and buy my house off me for far more than its worth so that I can actually stop working at some point.

It is worse than that at work though.  Usually I’m quite useful.  I’m ahead of most people under 30: I can start a sentence with a capital letter and end it with a full stop, I know things like my 9-times table, I can spell more words correctly than incorrectly.  I can ask stupid questions because I don’t care what anyone thinks of me.  If asked my opinion I give it and not some politically correct version.  When I’m asked how long something will take I answer with an estimate and don’t echo back the answer that is wanted.  If I’m out of work for a month or sixty my finances will not collapse.  So in all my dealings I am consistently dealing in the truth.  I don’t know how to build software correctly every time but I have tried out a lot of the wrong ways so I know a lot of what not to do.  In short the managers around me grind their teeth and try to find ways to get rid of me, but only if that improves things.  So far so good.  There is a downside to this.  I’m not hungry anymore.  It is the famous story of bacon and eggs for breakfast: the hen is involved, the pig is committed.  The trouble is that we oldies are going to be around a lot longer.

I wonder how long it will be before there is compulsory retirement at 60 but pensions won’t start until 70.  Increasing the retirement age is not forcing people to work longer, it is forcing people to wait longer for their pension and then to take it for a shorter time.

It is obvious: I am very old and I’ll have my revenge by living forever.

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Lend me the price of a cup of tea

Posted by chrisrick13 on April 18, 2011

It is obvious: the world runs on debt

I don’t know the provenance but the world debt clock is an interesting page:  (It’s sister, the US debt clock is a scary one.)  It is simple.

The rule of thumb is that with a debt of about 85% of GDP a debt-default spiral starts.  This is when the country cannot afford to maintain the loans to it.  There is a desperate scramble to cut spending and increase taxes while maintaining economic activity to generate the money to pay loan interest and reduce the debt.  Below 85% it can be done provided that there is an economy that does useful stuff and can generate income.  Above that a default is almost inevitable.

There is an exception to this which is Japan.  It borrows nearly all its money from its own population and can therefore run a much bigger debt.

Beware the provenance of this page.  Also beware debt that the country is hiding.  Greece did it…but got found out.  The UK is doing it, everyone knows it is, few seem to care – at the moment.

Going down the list and Canada looks perilous at 82%, but watch the clock, it is slowly reducing.

Passing quickly over China at 17% and reducing you arrive at UK at 78% and rising very nicely.  Cuts?  What cuts?

Then comes France at 85%.  Hold on there.  When eurozone finance is mentioned France is never proposed as a basket case, but on this measure it sure looks like one.

Germany is at 75% and not moving.

Ireland 114% – yawn, but going up very fast.  Italy 118% and edging up.  Portugal 85%.  Spain 66%.

The US 71% and rising fast.

These numbers do not tell the whole story, how can they, but they do indicate.

On my measure, apart from mosquitoes, Canada looks pretty good.

Totalitarian states and third world countries also look good bets.

It is obvious: the world runs on debt, I wonder where everyone is getting their money from?

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The end of the world is nigh.

Posted by chrisrick13 on April 15, 2011

It is obvious: we are all doomed.

In ‘The Restaurant at the End of the Universe’ everyone is eating and watching the universe come to an end.  They have got there by time travel, having first gone back in time to deposit $1 and then roll forward millions of years to close the account and pick up gazillions of dollars of compound interest to pay for the last meal.  What a wonderfully ridiculous idea.  What use are dollars at the end of the universe?

What?  You mean that there is nowhere to spend those dollars and no time anyway?  No I don’t.  How ridiculous to think that you can get compound interest on your money and have more in real terms than when you started.

It is a complex business describing how wealth is created and more complex understanding it.  From the individual’s perspective they have to have taken part in a process and have added some value that someone is prepared to pay for.  They are then in the same position you were earlier.

It is then all down to the situation where I have pounds and you have shoes (say).  At some point I would rather have shoes than pounds and you would rather have pounds than shoes.  At that point an exchange can take place.

Am I describing a market where stuff has a value determined by what buyers are prepared to pay for it?

Are we at the end of the universe?  Another week goes by, many portents of disaster…but nothing yet.  I could name a few:

Greek default iminent.
(and Portugese, Irish)
Spanish unemployment and house prices.
US economy massive deficit and debt.
Bankrupt US states (eg. California).
China inflation on the run.
UK with un-fixable deficit.
Euro being stretched in many directions.
Oil price and production.

I could go on.  But nothing has happened.  So why worry?

Notayesmanseconomics and, now, many others are talking of ‘kicking the can down the road’.  This is a way of expressing one of several situations.  First the problem has been pushed into the future.  What has been done does not fix the problem, just delays the point at which it explodes (implodes).  Why do it?  For a start if you have a strong enough kick then you won’t be in charge and faced with fixing it.  Second something might come along and solve the problem for you.  (And I don’t want to discount at all the ingenuity of humanity in general – there is always this possibility.)  Third everyone might be wrong and there was no problems there really.

But supposing that some sort of armageddon comes along?  Maybe it is financial, maybe ‘natural’.  What will happen?  It all boils down to us suffering a lower standard of living.  Some of us will suffer but for most of us life will still be pretty good.  It will probably be better than when I was a child.  I was alive when there was rationing

So keep a close eye on world events, think about what you want to do and how you might secure doing it, have some fun.

It is obvious: we are all doomed, only some of us are more doomed than others.

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Watch out – here comes a number

Posted by chrisrick13 on April 12, 2011

It is obvious: words can have more than one meaning

I have held back from acidic comment and predicting the end of the world.  It is not good for my health…I am told.  Trouble is I have seen Dr Bartlett’s lecture and am forever tainted.

Today I got angry at the media again.  “Surprise fall in inflation” was the headline, and then “The drop was…”  So inflation is going down.  All our worries were misplaced!  How about: Inflation still double the level the government wants it to be?  Or maybe: Inflation still at unacceptable levels.  How about the more dangerous: the rate at which the rate of inflation is increasing slows?  What about: Inflation still higher than any return on any ISA.  Then there is: The much more accurate 3-month moving average of the rate of inflation still shows it increasing.  Finally how about: The two measures of inflation diverge – which is right?

There is a world of difference between the absolute size of something and the rate at which it is increasing (or decreasing).

Another, hardly reported, set of numbers came out today.  One of the number watchers updated their figure for total UK indebtedness.  This is the actual debt of the government, the unfunded pension liabilities, the PFI, money lent to banks, and private debt.  I have mentioned it once or twice before.  Their new estimate is £3.6tn.  This is the reverse of ‘4 cents a passenger mile’.  It is £130,000 per household.  Luckily we have some good assets in there.  If the government can tread the fine line between being seen to punish the banks and letting them make profits then £1.2tn will be recovered from their disposal.  Then it will only be £83,000 per household.

I am pessimistic about house prices.  It seems that I have been all my life.  I have a very local test running at the moment.  3 years ago the lady next door died and (eventually) her house was sold at auction.  Two guys bought it for £250,000.  They spent 8 months working on it.  A new roof, rendered outside, all internal walls re-plastered, new central heating, new bathroom, new kitchen, new floors throughout.  It has been up for sale for 14 months.  They want £340,000 for it.  Given their labour and the materials and external contractors, I reckon that it must come to £50,000 what they have spent on it.  They have buying and selling costs, interest on the money tied up, and running costs for the house (insurance, council tax, heating and lighting).  Say another £10,000?  This gives them £30,000 profit.  Less CGT, if they sell for £340,000 then they will have £21,000 in their pockets.  Given that my numbers have precious little in them for their labour costs, I can think of better ways to earn a living.  I also suspect that they are following the market down.  Six months ago they advertised it at £360,000.  If they had put it on at £320,000 then they likely would have sold it.  Now they are looking at £300,000.  I would offer them £250,000 but I don’t like seeing grown men cry or getting thumped in the nose.  I am predicting a distressed sale this year or next.  I might well go along to that auction.

It is obvious: words can have more than one meaning.  Numbers are just as tricky.

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My home is my castle

Posted by chrisrick13 on April 4, 2011

It is obvious: we borrowed a lot in a rush.

In the 10 years before the credit crunch there was £328bn of what is called equity withdrawal.  This is people taking money out of the part of the house that they own (rather than the bank) and spending it.  This is a boost of 9% after tax to household incomes.

No more boom and bust eh?  That must have been obvious to everyone…including the chancellor of the Exchequer.  This spending level had to stop, in the worst case, when all the equity had been withdrawn, or earlier if the we collectively saw the error of our ways sooner.  It is the very definition of a boom and bust.

I know it is a deep topic, but the value of the house you live in is actually only what someone is prepared to pay for it.  There are not many around now can afford to pay the prices that we all believe our houses are worth, let alone want to.

This last year though, we have been paying our mortgages off – the reverse of equity withdrawal.  This is not because we feel that houses are good things to put our money into.  It is because we are collectively scared witless that we won’t be able to afford the mortgage soon, either through the loss of a job, or the rise in the cost of the mortgage.  We are doing that at the rate 2.7% of our income.

So we borrow for 10 years and look like taking 30 years to pay it off.  By any estimate I have seen, that is going to run into the peak oil problem at the very least, when we will be under a lot of pressures of a different kind.

However those numbers can be viewed in another simplistic light.  The money borrowed was about £30bn a year.  The money being paid back is about £25bn a year.  That means about £55bn a year not slopping around in the economy.  That is in excess of 3% of GDP…so where is the growth going to come from that we need and has been promised?  Or, with my cup half full, it is amazing the recession is not a lot worse.

It is obvious: we borrowed a lot in a rush and we are planning on paying back at our leisure…or leaving it to someone else.

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Posted by chrisrick13 on April 4, 2011

It is obvious: the Chinese are inscrutable.

China is big and ugly, but is a long way away.  Hence I know little about it and certainly not enough.

It is a totalitarian state that gives not a jot for the human rights of its citizens or the environment.  In common with all states where it is ruled by the minority with the majority having no say, it is scared silly of the internet.  It has the world’s largest population (1.2bn?): certainly a fifth but nearly a quarter of the world’s population.  It is run by some astute people…shackled by dogma.  It has spent a lot of its resources in recent times running around the world, and particularly in Africa buying scarce resources.  It is moving from an agrarian third world country to a ‘modern’ industrial society.

It is late to the party of growth and increased quality of life for its citizens.  Indeed it is almost certainly too late.  At the moment it has 9% economic growth which means it will double its GDP in (rule of 70) 8 years…well that ain’t gonna happen.  So what will happen?

China is not one country but many.  It does not have the nice straight line borders drawn by colonial conquerors that so many countries have, where often two or more countries were arbitrarily slammed together and given a new name.  A good example is Libya which is two countries.  Iraq, which was an agglomeration of many, is another and there are many more.  There are regular revolts in China.  These are easily handled by moving troops from the south to handle the north.  They have been enemies for several millenia so have no compunction in shooting fellow Chinese.   (We hear little of them.)  If you doubt me then ask a Tibetan or a Mongolian which country they live in.  So China is an agglomeration that is not easily held together.

What of the move from the country to the large cities where people work the factories rather than the land?  Unlike peasant farming this is not sustainable.  China is not as profligate with its oil as say the US or Europe so that diminishing resources will not have such a large effect on the country.  It builds coal fired power stations at a phenomenal rate, as I said, with scant regard for the economy.

As a totalitarian state China will do what it needs to survive.  If that means marching troops from the south to shoot half the population in the north then that will be done.  Will China be able to respond as it needs to over coming years?  The answer is no.  The population is becoming educated and is seeing what is happening in the rest of the world, uncensored by the ruling elite.  China will suffer more and more internal strife and once again become inward looking.  As the world gets poorer there will be no one to buy its products and it will be poorly placed to feed itself having got to that state just when it needs not to be there.

When a giant dies and thrashes about in its death throes it might crush onlookers.  Indeed there might be many giants all thrashing at the same time, but China will not harm anyone.  It will die without any public shows of emotion or damage to others.

When will it die?  Well it certainly won’t double in size over the next 8 years…

It is obvious: the Chinese are inscrutable, and not always right.

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Find me an economist

Posted by chrisrick13 on April 3, 2011

It is obvious: logic in inescapable

I know very little about economics, in common with the MPC members.  I advertise this fact less publicly than them but at greater length.  What I do a little better is logic.

The MPC and the government have a problem.  Inflation is rising.  I know it has only been temporary for the last two and a half years.  I know it is only 1% now according to the BoE predictions.  I know that government and BoE policy is based on these accurate predictions.  The way to cure inflation is to raise interest rates.  However there are problems.  Everyone seems to think that raising interest rates will stop the recovery.  I would first ask what recovery?  Then I would ask how this ‘everyone’ knows this.  The recovery is based on people spending money.  It they are paying more for the money they have borrowed then a ‘recovery’ will not take place.  However there are two sides to this.  People in debt will reduce spending…what about those with savings?  People in debt are not spending anyway.   It is not that clear cut.  It never is.

Perhaps the biggest factor that is causing the BoE to keep interest rates low, rather than do the one thing they are mandated to do, is to prevent people who have no spare cash each month and large mortgages from going bankrupt with increased mortgage payments.  Just a one percent rise will put a lot more households in trouble and case a lot of people to lose their homes.  House prices would decrease.  We would all be a lot poorer as our assets (houses) decrease in value.  It could be the start of a spiral down in house prices.  That would mean that the banks would have a lot of loans on their books that were none-performing and a lot of houses would be sold at prices below the loans secured on them as people defaulted, realising debts that the banks would have to admit to.  Banks might need rescuing again.

In short, interest rate rises would cause a major problem and this is why the MPC has done nothing for such a long time much as it might like to and jolly well should have done.

So why have the markets, economists, economical commentators in the press and just about anyone you might talk to, factored in a rise in interest rates during this year?  They will have the same effect on households next month as they would have done last month and the month before, and the month before…

Raising interest rates would be a disaster for the UK…so why is it going to happen this year, why did it not happen sooner?  It looks like we are going to have the disaster it is just a matter of timing.  Perhaps, crucially, at the point where interest rates do go up what conditions will exist that did not exist in the months leading up to the increase?

It is obvious: logic in inescapable – except when there is none.

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