YELLEN APPOINTMENT MEANS MORE OF THE SAME.

While the appointment of Janet Yellen as head of the US Federal Reserve appears to be a foregone conclusion and stock markets have welcomed the news, the long term outcome for the real world may well be more pain.

 

Yellen comes from a coterie of 'born again Keynesians' who all believe that the answer to our recent woes is to borrow and spend still more. They are believers in state intervention in every aspect of our financial lives and believe that simply making the money revolve around the system ever-faster is the way to ever-greater prosperity. More recently, they've discovered a new wheeze which is the creation of large amounts of money for injection into the economy via the mechanism of 'Quantitative Easing'; what the ultimate effects of this will be are wholly unknown.

 

I don't claim to be an economist of any sort, and I know a lot less than the likes of Yellen and her Keynesian colleagues (2 of whom are Nobel Prize winners) but I still think they're wrong. When the major western economies, not least the USA, are labouring under vast mountains of debt, the way to salvation cannot be to borrow more. If I, as a private citizen, get into debt, I may try to borrow my way out of trouble but I'll eventually go bankrupt; so it is with countries. The current crisis over the existing 'Debt Ceiling' in the US tells us that there are many who are already very unhappy with the state of play and Yellen is unlikely to tighten any belts for a long time yet. It's even reported that her stance may be even more lax than that of her predecessor, Ben Bernanke.

 

There is one difference between a private bankruptcy and a state one; the state bankruptcy takes longer to arrive but is ultimately much worse. Keynesians of the world should all take note - when you're in a hole, stop digging.

BUDGET IS A DAMP SQUIB.

Well, that's it for another year unless 'Boy George' decides to continue with the recent pattern by having a second Budget in November.

 

Given the economic state in which our country finds itself, it was hardly going to be a Budget that would appeal to many people. In the event, it was pretty much a non-event, and all we can expect is more of the same; the important figures really involve Government borrowing and the accumulated deficit, which is forecast to rise to an eye-watering 85% of GDP within the next few years. That this is a totally unsustainable level of debt is something that no politician ever mentions; it's equivalent to a houseowner having debts of £425,000 to set against a house valued at £500,000. Unless the real value of the property increases, in the case of the Government it's national GDP, the debt can never be resolved.

 

George did talk about cutting back on Government expenditure and very kindly promised that huge sums of money would be ear-marked to try to boost housebuilding and home ownership, but this is all a bit peripheral; if these measures have any effect, the effects are likely to be limited and a long way in the future. There was very little that would help the economy today. Things that he could have done, such as making real cuts in Government expenditure by abolishing whole departments and QUANGOs, are far too sensitive to  even consider and yet that is one of the places where real savings exist. Why do we need a Department of International Development or a Department of Culture, Media and Sport ? Why do we need a bloated 'Cabinet Office' which was only invented in recent years ? How many QUANGOs do we have ? There are bodies of which most of us have never heard that monitor and report on anything and everything - WHY ?

 

The social security budget, inflated out of all control by the Blair-Brown coalition, hands out vast sums of money to all and sundry, often in such a away that there is no point for recipients of this largesse to bother going to work. While the Government has some plans to change this system, it's been effectively hamstrung by the horrible complexity introduced by Gordon Brown and the expectations that he allowed individuals to have. Any Government that now tries to make real cuts to welfare spending will be most unlikely to win any subsequent election, making trying to deal with the situation virtually impossible and politically catastrophic.

WHAT IS A TRILLION, ANYWAY ?

Eurozone leaders meet to discuss how to resolve their ongoing financial crisis and the commentators throw around numbers that are simply mind-boggling - not mere billions any more, but we are now into trillions of Euros, pounds, dollars, or anything else you care to mention. Does any of it make sense or even really matter ?

What we have is a crisis caused by governments and economists. Forget all the ire aimed at 'bankers', other than the entirely incompetent ones like Fred Goodwin and Eric Daniels, they've done no more than apply the rules that applied to their businesses, rules that were set by governments. Additionally, they responded to the pleas of their governments to lend, lend, lend, as much as possible so as to 'stimulate the economy', in pursuit of an economic theory that has now been shown to have been rather flawed, to ever greater growth. That they didn't really have the money to lend and that most of the loans were unsupported by sound business cases was of minor importance.

In the Eurozone, we have the scenario outlined above multipled by a factor of billions as a result of the utterly impossible Euro project. Anyone with a brain cell knew that trying to cram together many nations with disparate economies under a single currency was doomed to failure, and so it has proven. Perhaps those that chose this path actually did so knowing that it would fail and that they would then have an opportunity to propose even closer union as the only logical step - this has only just occurred to me as an option but it makes terrifying sense.

Thinking more about this, it's bloody obvious that the original perpetrators of the Euro knew full-well that 'stage 1' was doomed to failure; they also knew that the only realistic solution to that failure was a 'stage 2' that involved even greater union between the member nations. What they didn't, and couldn't include in their calculations, was the financial crisis that has occurred quite independently of the inevitable Euro mess. When both crises are put together, the result is a total melt-down of the Euro, which is exactly what has happened.

It is now being reported that the Eurozone leaders have been discussing a potential change to the European Treaty as part of the resolution to their problems, something that should automatically lead to a referendum in this country; being a cynic, I wonder if this is a manufactured move designed to 'head off' Monday's debate and vote in the house of Commons. Of course, DC has said that any change would be in our interest, no doubt another attempt at a Monday bypass; one also wonders whether his words may be a precursor to an attempt to say that a referendum is unnecessary as we won't be affected by any consequent change.

We all know what a bunch of prevaricating and disingenous crooks and liars our politicians are. We also know that whatever they come up with, it's us, the people, who will pay. Is it any coincidence that the country currently doing best in Europe is Belgium, and they've been without an effective government for months.

To answer my original question, "Yes, it does make sense, even if the numbers are beyond our comprehension and it matters far more than the vast majority realise or even care."