The great interest rate rip off part 1

[interestrateripoff]

Bleak Outlook for Small Businesses and Job Creation; Where Obama Went Wrong, and What to do About It

 

 

 

There will be no recovery without jobs, and there will be no net job creation if small businesses, especially startups, do not lead the way.

 

Please consider The Importance of Startups in Job Creation and Job Destruction by Tim Kane, PhD, and Senior Fellow in Research and Policy at the Kauffman Foundation.

A relatively new dataset from the U.S. government called Business Dynamics Statistics (BDS) confirms that startups aren’t everything when it comes to job growth. They’re the only thing.

 

Put simply, this paper shows that without startups, there would be no net job growth in the U.S. economy. This fact is true on average, but also is true for all but seven years for which the United States has data going back to 1977.

 

Figure 1 presents summary data from the BDS,1 showing that firms in their first year of existence add an average of 3 million jobs per year. By construction, the BDS defines an existing firm—age one up to age twenty-six and beyond—such that it can both create and lose jobs. In contrast, a startup, or age zero firm, only creates jobs because it experiences no gross job destruction. We might anticipate that the net job gain also would be positive at existing firms, but that is decisively not the case during most years on record. Notably, the figure shows that, during recessionary years, job creation at startups remains stable, while net job losses at existing firms are highly sensitive to the business cycle.

 

 

On balance, existing firms lose more jobs than they create. But once Deaths are set aside, Survivors usually create more net jobs than startups do. Among Survivors, so-called gazelle firms are certainly more important still.

 

In sum, the new firm-level summary data in Figure 1 reveal that startup firms are responsible for all net job creation during most years, while existing firms (aged one year and older) are usually net job losers. To be fair, startups have a definitional advantage because they can’t lose jobs, and some of their created jobs will surely be lost by next year’s age one firms.

 

More at the link.

[interestrateripoff]

Building societies call for new way to raise crucial capital | Business | The Guardian

 

Building societies were tonight urging the government to protect their special status after one, Kent Reliance, prepared to quit the sector in a groundbreaking £50m deal with private equity house JC Flowers.

 

Adrian Coles, director general of the Building Societies Association, called on the government to grasp the initiative in ongoing talks with international regulatory bodies. The building societies want to create a new financial instrument that would allow them to raise crucial capital without having to give up their building society status.

 

As building societies do not have shareholders and are mutually owned by their members, they cannot boost their core tier one capital – the toughest layer of support that is the last to be eaten up in the event the institution runs into trouble – by issuing shares as banks are able to.

 

This has forced building societies to either merge with each other – as with Nationwide taking over the Derbyshire and Cheshire – or to try to use new capital tools, as West Bromwich did with profit participating deferred shares (PPDS).

 

The issue is becoming more urgent as Kent Reliance Building Society puts the finishing touches to a £50m deal to cast off its building society status and become an industrial and provident society to form a banking joint venture with JC Flowers that could eventually take over other building societies.

 

Coles said: "This government could take a strong lead in the discussions in Europe and in Basle to get across the need for a capital instrument that is good for building societies".

 

"[The instrument] has to be a permanent and loss absorbing instrument and variable in return," he added.

 

The BSA's own attempt at creating such an instrument – mutual ordinary deferred shares – has not met the hurdles set by regulators, while the PPDSs used by West Bromwich have not proved as popular with other societies as was intended.

 

Looks like the building societies are expecting to struggle for cash soon?

[interestrateripoff]

Advertisers rein in spending as slowdown fears resurface - Business News, Business - The Independent

 

Worries about a renewed economic slowdown are already hitting the advertising industry, an influential survey warned yesterday, with 20 per cent of marketing managers deciding to trim their budgets during the second three months of the year.

 

The quarterly Bellwether survey, published by the Institute of Practitioners in Advertising (IPA) and the accountancy firm BDO, shows media budgets were tightened in the second quarter, with 20 per cent of the 300 company advertising executives questioned cutting their spending, against 15 per cent reporting an increase.

 

The report also found that overall business confidence has dipped, indicating that companies are concerned about the effect of the massive public-spending cuts that the Government is set to implement. The findings will disappoint those who had hoped the worst was over for the advertising industry. The second-quarter findings mark a reversal of the results in the first three months of the year, when more companies increased their spending than cut it for the first quarter since 2007.

 

Despite the gloomy overall numbers, spending was up on direct sales and on online advertising, yet the rate of growth of online budgets was at its slowest for nine months. For more traditional media, such as newspapers, spending continued to slide, but the survey did find that overall spending will be higher in 2010 than last year.

 

"That we are seeing a more cautious approach to marketing spend compared to the first quarter is not surprising due to the uncertain nature of our economy at the moment, and in the wake of the recent Budget," said Rory Sutherland, the president of the IPA. "However, though this indicates a less optimistic picture than previously thought for this year, marketing spend is still set to increase."

 

The advertisingless recovery?

 

Still I'm sure the recovery is locked in and it's contained.

[interestrateripoff]

Actually, Chinese Debt-To-GDP Is Enormous, And Regional Governments Need The Real Estate Bubble Stay Solvent Finance Blog

 

Victor Shih, a professor at Northwestern University who specializes in China warns that the country has only achieved its blistering GDP growth through massive leverage on a scale nobody currently appreciates.

 

Here’s what he wrote in an op-ed in WSJ Asia in regards to figure out the true level of provincial, local debt:

 

To obtain an independent estimate, I collected data from thousands of sources, including regulatory filings, bond-rating reports and press releases of government-bank cooperative agreements. I estimate local investment entities’ borrowing between 2004 and the end of 2009 totals some $1.6 trillion. The data are far from perfect because borrowing by low-level government entities and lending by small banks are difficult to track. Nonetheless, my evidence suggests that the scale of the problem is much larger than previous government estimates. At $1.6 trillion, the size of local debt is roughly one-third of China’s 2009 GDP and 70% of its foreign-exchange reserves.

What does this mean in practice?

 

So basically, in addition to the 20% of official debt-to-GDP ratio, one has to add an additional 30%. We also have to add other debt that the central government guarantees, such as the nearly 1 trillion RMB in Ministry of Railway bonds and bonds issued by the asset management companies. All of this gives China a high debt to GDP ratio. Also, there are some disturbing implications of this high debt. For one, local governments would have to sell lots and lots of land every year for many years to come to pay interest payment on this debt. Thus, to the extent that there is a real estate bubble today, it must continue for local governments to remain solvent. Regardless of what you believe about Chinese real estate, you have to think that this growth in real estate and land prices must slow or reverse at some point.

 

If true, these are extraordinary numbers. Of all the problems China is thought to have, high public debt in not considered one of them. But if a real estate bust triggered a wave of regional government insolvencies (which obviously would have to be bailed out by Beijing), the problem of public debt could be significant.

 

I wonder how accurate these figures are?

 

Elite Chinese Politics and Political Economy

 

Looming Problem of Local Debt in China-- 1.6 Trillion Dollar and Rising

 

Did China accomplish the impossible? Did it generate almost 9% growth and maintain low debt to GDP ratio even as its export plummeted by 20%? What about claims that the torrent of investment in China has come without too much leveraging? After spending half a year looking into the debt level of local government investment entities-- some 8000 of them-- my conclusion is no. As in the past, the Chinese government just ordered banks to lend to investment companies set up by both central and local governments. Local governments have fully taken advantage of the green light in late 2008 and borrowed an enormous sums from banks and bond investors starting in late 2008 (well, a large amount even before that). In an editorial in the Asian Wall Street Journal yesterday, I outline some problems with this massive amount of borrowing:

 

Beijing is no longer sure how much money local investment entities have borrowed from banks and raised from bond and equity investors. The amount, however, must be large. In September, the Chinese press, citing government sources, suggested that these entities have borrowed $880 billion (6 trillion yuan). In a January interview with the Twentieth Century Business Herald, a Chinese newspaper, the vice chairman of the Finance and Economic Committee of the National People's Congress, Yi Zhongliu, revealed that local investment entities borrowed some $735 billion in 2009 alone.

 

These are mere guesses, however. A National Audit Agency audit conducted late last year uncovered so many problems with the data that Premier Wen Jiabao ordered another large-scale audit of local investment entities. Until a thorough audit is completed and the results announced to the public, no one really knows the total scale of local borrowing.

 

Given the information vacuum surrounding this issue, I spent half a year collecting data that would allow me to provide an estimate of total local debt (and also for each of China's provinces). Again, in the WSJ piece, I briefly outline my methodology and the results in the piece.

 

To obtain an independent estimate, I collected data from thousands of sources, including regulatory filings, bond-rating reports and press releases of government-bank cooperative agreements. I estimate local investment entities' borrowing between 2004 and the end of 2009 totals some $1.6 trillion. The data are far from perfect because borrowing by low-level government entities and lending by small banks are difficult to track. Nonetheless, my evidence suggests that the scale of the problem is much larger than previous government estimates. At $1.6 trillion, the size of local debt is roughly one-third of China's 2009 GDP and 70% of its foreign-exchange reserves.

 

So basically, in addition to the 20% of official debt-to-GDP ratio, one has to add an additional 30%. We also have to add other debt that the central government guarantees, such as the nearly 1 trillion RMB in Ministry of Railway bonds and bonds issued by the asset management companies. All of this gives China a high debt to GDP ratio. Also, there are some disturbing implications of this high debt. For one, local governments would have to sell lots and lots of land every year for many years to come to pay interest payment on this debt. Thus, to the extent that there is a real estate bubble today, it must continue for local governments to remain solvent. Regardless of what you believe about Chinese real estate, you have to think that this growth in real estate and land prices must slow or reverse at some point.

 

I think that the best course of action for the Chinese government is to credibly stop leveraging by local investment companies. Instead of the half measures in place today, a public and stern order should be given to banks to stop lending to all new projects undertaken by these local entities. Other measures should follow:

 

Since county governments are in the poorest fiscal shape and have the least ability to repay banks, the central government should take over the debt of almost all of the county-level investment vehicles. Although this will increase China's debt-to-GDP ratio significantly, the total would still be low by international standards.

 

A sudden contraction of lending to local investment vehicles will generate a wave of nonperforming loans, but a greater reliance on market mechanisms can easily solve this problem over the next few years. First, banks will fully recover the debt of the healthiest local entities, which may account for half of total local debt. For the remainder, the government needs to allow banks to directly sell subprime or distressed loans to both foreign and domestic investors. Beijing need not fear that China's listed banks will sell their nonperforming loans at below-market prices, as these banks report to shareholders. Banks, in conjunction with investment banks and distressed-asset investors, should also explore ways to securitize local debt for sale to both domestic and international investors. The latter in particular would have a healthy appetite for yuan-denominated security, anticipating a currency revaluation soon.

 

 

Basically, I think the Chinese government can turn this into a great opportunity for market reform in the financial system and the internationalization of the RMB. However, it has to act soon before local debt gets too large to handle.

[interestrateripoff]

How much of BT's huge pension liabilities are underwritten by the taxpayer? Nearly 26 years after one of Margaret Thatcher's biggest privatisations, the telecoms firm's pensioners are finally close to getting an answer.

At 10.30am on Tuesday the high court will start to consider the thistly question of the "crown guarantee", which was set up before shares in British Telecom, as it was then called, were sold to the public in 1984. The case has been brought by the trustees of the BT pension fund, who hope to get a definitive ruling that the government would have to take on a significant chunk of BT's £7.6bn pension deficit if the company collapsed.

BT is technically a defendant in the case, along with the Department for Business, Innovation and Skills (BIS).

Lawyers for BIS are expected to argue that while the government stands behind people who were BT workers or pensioners in 1984, it has no obligation to those who joined the company afterwards.

Pension experts say that the situation is quite unclear. The high court could potentially rule that BT employees who joined since privatision are also covered by the guarantee, which would leave the taxpayer facing significant liabilities. Alternatively, it could decide that the government's liabilities are capped at the point when BT was sold, which would leave pensioners with much less protection.

The crown guarantee was enshrined in the 1984 Telecommunications Act, which paved the way for the privatisation of British Telecom. Section 68 of this act said that the government was liable to "discharge any outstanding liability" if BT were to become insolvent.

This attracted little attention until 2006 when BT, faced with a large and growing deficit, announced its belief that the government would have to underwrite three-quarters of the scheme, including liabilities built up since 1984.

Government lawyers questioned this claim, suggesting the total exposure was much lower.

Crucially, an edition of Hansard from 1984 quotes Lord Mackay of Clashfern telling the House of Lords that "the government stands behind the pension entitlement of current employees in respect of all their service to retirement; that is to say, service both before and after the transfer date". This quote is likely to be cited in the high court.

Ros Altmann, a pensions expert, said it was understandable that the trustees are now trying to get clarity.

"It is only relevant because BT has such a huge deficit. BT thought it had a surplus until a few years ago, so there was no need to worry about the crown guarantee," said Altmann. "I'm sure that at the time it was drawn up, everyone thought it was was clear, but now the trustees are thinking 'let's try and get it interpreted this way'."

The trustees declined to comment on the case.

A BIS spokesperson said the government believes the guarantee "covers BT's liabilities in respect of the pre- and post-privatisation service of individuals who were members of the scheme in 1984", including "liabilities built up since 1984 by people who were in the scheme at that time of privatisation".

However, BIS also pointed out that the matter is now in the hands of the courts.

There are about 360,000 members of BT's pension scheme, including 185,500 who have already retired. The implications of the hearing go much wider, though.

"If BT goes bust and the government has to pick up a significant proportion of its pension liabilities, it could affect everybody," Altmann warned.

[interestrateripoff]

Inflation slows in June but Q2 rate above Bank forecast | Reuters

 

Falling petrol prices pushed inflation down for a second month running in June, but underlying pressures rose and inflation over the quarter was higher than the Bank of England's latest forecast.

 

The Office for National Statistics said annual consumer price inflation fell to 3.2 percent from May's 3.4 percent after prices rose 0.1 percent on the month, as economists expected.

 

However, the older retail price measure of inflation fell less than expected as core CPI inflation -- which excludes energy and food prices -- unexpectedly rose.

 

"The obvious surprise was the rise in the core rate, which serves to underline this theme of price stickiness," said Ross Walker, UK economist at RBS. "Clearly it's not falling as much as we'd hoped and it's not making the BoE's job any easier."

 

During the second quarter, headline consumer price inflation averaged 3.5 percent, above the 3.3 percent predicted by the central bank in its May Inflation Report.

 

Gilts fell and sterling rose as investors sensed more BoE policymakers may be persuaded to join rate-rise advocate Andrew Sentance if underlying inflation does not resume a downward path.

 

Consumer price inflation hit a 17-month high of 3.7 percent in April, prompting concern that slack in the economy was failing to bear down on inflation to the degree expected.

 

BoE Governor Mervyn King remains convinced inflation will ease back towards its 2 percent target over the course of the year once past rises in oil prices and January's VAT rise fall out of the annual comparison, but recent BoE policy meetings have seen heated debates.

 

Well if you keep predicting by the law of averages you'll get it right at some point.

[interestrateripoff]

Breaking news:

 

• U.S. standards set for electronic medical records - Reuters
  
• Easing fears curb bidding at US 10-yr note auction - Reuters
  
• Experts weigh Glaxo's Avandia; settlement reported - Reuters
  
• Modelo's uncertain future could hit stock for now - Reuters
  
• BP to start Gulf well test on Tuesday - Reuters
  
• Ocado faces calls to cut IPO price tag - Reuters
  
• Euro advances, lifted by Greek debt sale, earnings - Reuters
  
• Apple shares slide as iPhone 4 concerns grow - Reuters
  
• Q+A-How does BP's new cap work? - Reuters
  
• U.S. Wall St bill appears to have votes to pass - Reuters
  

 

 

 

• Coalition budget 'has increased chance of double-dip recession'
   
   
  Cuts in public spending and higher taxes have 'logically increased the possibility of a double dip', an official at the Office for Budget Responsibility told MPs today 220 comments
   
  
  • OBR's Budd grilled by the select committee
    
  • OBR 'must show independence by leaving Treasury'
    
  • Key questions for Sir Alan Budd
    
  • OBR's job loss figures under fire again
    

   

  [*] MPs launch inquiry into retail banking

   

   

  Select committee to hold inquiry into retail banking market, as banks argue new EU bonus rules could see City losing out to rivals

   

  • Banks facing permanent tax on pay and profits
    
  • Mark Hoban: We'll tax the banks
    

   

  [*] Inflation rate fall helped by high street

   

   

  Price-slashing by retailers and a reduction in petrol prices bring inflation down to 3.2% in June 10 comments

   

  • Inflation: what the economists say
    
  • Datablog: UK inflation since 1948
    
  • Interactive: Inflation in the UK
    

   

  [*] BP gains as new cap hailed a success

   

   

  Shares in BP rose after news overnight that the oil giant has successfully fitted a larger containment cap on the well that has been spewing oil into the Gulf of Mexico 6 comments

   

  • BP shares punished over Gulf disaster
    
  • Engineers test BP containment cap
    
  • New cap 'successfully installed' on leaking well
    
  • Barack Obama's investigation hears of 'friction'
    
  • Deepwater Horizon timeline
    
  • Nils Pratley: BP should snub cheap bids
    

   

 

 

• 
  World Cup: business winners and losers
   
   
  Nightclub operator Luminar is a loser in the World Cup stakes, but other companies - especially those selling flat-screen TVs - saw the tournament boost their business 2 comments
   
  
• BA boss Willie Walsh heckled at AGM over strike claims
   
   
  Members of the Unite trade union interrupted the British Airways chief executive at the airline's AGM today after he claimed the airline had flown full services during recent strikes 22 comments
   
  
• Euro slips after Moody's downgrades Portugal's debt rating
   
   
  Equity markets have shrugged off news that Moody's has downgraded Portugal, although the euro has weakened as a result 8 comments
   
  
  • Britain's growth story questioned by S&P
    
  • Nils Pratley: Don't let S&P get you down
    
  • Bank study shows QE boosted growth prospects
    
  • UK recession even deeper than first thought
    
  • Larry Elliott: Slow growth probably as good as it gets
    

   

 

 

• More business news
   
   
  
  • BT pension fund seeks ruling on 'crown guarantee'
     
     
     
    
  • Falkland Oil and Gas shares plunge
     
     
     
    
  • FDA scrutinises Glaxo's Avandia
     
     
     
    

[interestrateripoff]

MPs to probe retail bank competition

 

LONDON (Reuters) - MPs are to examine whether there is a lack of competition within UK retail banking, the head of an influential select committee said.

Continue Reading

 

 

 

Abu Dhabi crown prince eyes BP stake - report

 

DUBAI (Reuters) - Abu Dhabi's Crown Prince Sheikh Mohammed bin Zayed al-Nahayan is considering an investment in oil major BP , Bloomberg reported on Tuesday.

5:47pm BST

 

Pound climbs 1 percent on day versus dollar

 

LONDON (Reuters) - Sterling extended gains on Tuesday, climbing 1 percent on the day versus the dollar on speculation that data showing stubbornly high UK inflation may add to the argument for higher interest rates.

7:13pm BST

 

Ocado faces calls to cut IPO price tag

 

LONDON (Reuters) - Online grocer Ocado faced calls to cut the price of its planned initial public offering on Tuesday as analysts and investors said its hopes of a 1 billion pound valuation were way too high.

7:00pm BST

 

Bank's Sentance wants "gradual" rise in rates

 

READING, England (Reuters) - Bank of England inflation hawk Andrew Sentance said on Tuesday policymakers should start raising interest rates because economic conditions were improving but any increase should occur only gradually.

3:48pm BST

 

Banks and commods help FTSE to 6th day of gains

 

LONDON (Reuters) - Top shares climbed for the sixth consecutive session on Tuesday, led by banks on optimism that U.S. peers would post strong earnings and lift the sector, and that Europe's lenders would pass a key stress test.

5:34pm BST

 

EU ministers back closer budget surveillance

 

BRUSSELS (Reuters) - European Union finance ministers agreed on Tuesday to increase monitoring of member states' economies from January as part of efforts to tighten budget discipline and prevent new economic crises. | Video

7:49pm BST

 

U.S. Wall St bill appears to have votes to pass

 

WASHINGTON (Reuters) - U.S. Senate Democrats on Tuesday appeared to nail down the votes needed to approve a historic overhaul of U.S. financial regulations and moved to set up a final vote on it by the end of the week.

6:44pm BST

 

Apple shares slide as iPhone 4 concerns grow

 

LOS ANGELES (Reuters) - Shares of Apple Inc slid more than 4 percent on Tuesday after a poor review for its iPhone 4 from an influential consumer guide underpinned mounting complaints about the hot-selling device's reception and spurred speculation of a product recall.

7:03pm BST

 

Inflation slows but still uncomfortable for Bank

 

LONDON (Reuters) - Falling petrol prices pushed British inflation down for a second month running in June, but underlying pressures rose and inflation over the quarter was higher than the Bank of England expected.

[interestrateripoff]

Falkland Oil & Gas gives up on Toroa well

 

Falkland Oil & Gas (FOG) has not found anything at its Toroa well to the south of the islands, sending the Aim-listed group's stock into freefall yesterday.

 

 

• GSK faces US showdown over blockbuster drug
  
• High street price cuts and cheaper petrol curb inflation
  
• Prisk signs off Ford's £360m green loan deal
  
• Kent confirms Flowers deal as banks prepare fightback
  
• UK keeps triple-A rating but S&P warns of risks
  
• It wasn't the bankers' fault after all
  
• Hefner vies for control of Playboy as Penthouse prepares to pounce
  

 

James Moore: A fair kicking for auditors?

 

Bill Michael, head of UK financial services at KPMG, is a combative fellow. After a dig at the England football team (he’s an Aussie) we’re into a lengthy defence of auditors before an audience of bankers at the British Bankers’ Association’s annual conference.

 

 

• James Moore: Bankers get their old confidence back
  
• David Prosser: If public spending is behind the recovery, what happens when we cut it?
  
• James Moore: Solution needed for this mutual funding crisis
  
• David Prosser: FTSE chairmen must keep a closer eye on their executives
  
• Hamish McRae: Let's pay attention to our service sector: you know it makes sense
  

[interestrateripoff]

Surveyors expect house price fall

Surveyors are expecting house prices to fall in the coming months owing to more home sales and economic uncertainty.

Self-cert mortgages face ban

House price surveys explained

How to buy your first home

FSA boss warns against quick fix

 

The head of the UK financial watchdog warns the recovery could be undermined if new regulation is introduced quickly.

 

Record fall in foreign holidays

 

Visits abroad by UK tourists fell at a record rate in 2009 as holidaymakers and business travellers cut back.

 

 

OTHER TOP STORIES

UK inflation slows again in June

 

BP prepares key test on oil well

 

Borders agrees to sell Paperchase

 

Greece enjoys debt sale success

 

US trade deficit at 18-month high

 

Budd in defence of OBR's record

 

Eurozone debt: Good money after bad?

 

Can banks cure their social leprosy?

 

Would a bid for BP be good or bad?

 

In Budd We Trust

 

The eurozone crisis: What's it all about?

 

OBR: Can it live up to its billing?

 

MORE FROM BUSINESS

FSA to ban self-cert home loans

 

Moody's downgrades Portugal

 

Burberry sees high sales growth

 

EU approves Estonian euro entry

 

Infosys suffers fall in profits

 

Avtovaz in profit as sales surge

 

Sun shone on UK retailers in June

 

Businesses 'profit from nature'

 

RMT union calls off Tube strike

 

Quilt firm enters administration

 

Alcoa in profit amid sales surge

 

EU welcomes bank rescue fund

 

YOUR MONEY

Bankrupts 'cut off from banking'

 

Affordable rates lift borrowing

 

Kent Reliance in buy-out talks

 

ECONOMY

China's property market falters

 

NHS 'to undergo radical overhaul'

 

UK GDP growth still at 0.3%

 

COMPANIES

Well failure knocks Falkland Oil

 

Strike reduces BAA passengers

 

Santander buys German banks

[interestrateripoff]

[/url]

 

BoE hawk Sentance wants gradual rise in UK rates

 

Inflation hawk Andrew Sentance said policymakers should start raising interest rates because economic conditions were improving.

UK Inflation driven down by fall in petrol price

 

 

 

FTSE 100 gains on BP spill hopes, corporate optimism

 

Index rose 2pc to 5271.02, lifted by hopes that BP may have at last contained the biggest oil spill in US history.

 

BA AGM: as it happened.

 

The battle for British Airway's future continued at Tuesday's annual meeting in Westminster. This is how events unfolded.

 

BP oil spill: new cap fitted onto leaking well

 

 

 

 

UAE-backed RAK moves on Iraqi oil explorer DNO

 

 

 

 

Glaxo drug panel told to 'keep an open mind' over Avandia

 

 

 

 

MCC names shortlist to redevelop Lord's

 

 

 

 

UK house prices 'not set to recover for ten years'

 

 

 

 

Chinese rating agency strips West of AAA status

 

 

• Bankers' lack of humility has ushered in a new era of intervention
  

 

• Tighter lending rules mean 10-year wait for first-time buyers
  

 

 

• Deutschland über alles doesn't mean EMU trickledown recovery
  

 

Saving may cause double-dip recession

 

 

 

UK dealt rating blow as economic growth fears mount

 

 

 

 

Treasury Select Committee to give OBR chairman a grilling

 

 

 

 

Afghanistan timetable 'puts British troops at risk'

 

 

 

 

OBR chairman rejects questions on independence

[interestrateripoff]

Financial Bill to Close Regulator of Fading Industry

 

By BINYAMIN APPELBAUM 12:57 PM ET

 

 

The regulator of savings and loan associations is following the industry, once dominant in mortgages, into oblivion.

 

• Financial Overhaul Moves Closer to Vote 2:48 PM ET
  

Financial Overhaul Moves Closer to Vote

 

By DAVID M. HERSZENHORN 3 minutes ago

 

Senate Democrats say they have cobbled together the 60 votes needed to close off debate and advance the bill to a final vote.

 

Media Decoder

 

Appeals Court Strikes Down Indecency Rule

 

By BRIAN STELTER 22 minutes ago

 

In a surprise decision, an appeals court said the F.C.C.’s indecency policy violated the First Amendment.

 

• Media Decoder: Fox Reacts to Indecency Ruling
  

 

Wall Street Closes In on 6-Day Win Streak

 

By CHRISTINE HAUSER 1 minute ago

 

The momentum that has propelled Wall Street indexes in the last five days got another lift on better-than-expected quarterly earnings.

 

U.S. Trade Gap Widens on Rising Imports of Consumer Goods

 

By CHRISTINE HAUSER 21 minutes ago

 

The trade gap grew 4.8 percent to $42.3 billion, the largest since November 2008, defying expectations that it would decrease.

 

Moody’s Cuts Portugal’s Credit Rating

 

By JAMES KANTER 10 minutes ago

 

Moody’s cut Portugal’s sovereign bond ratings two notches Tuesday, but left them at investment grade.

 

In BP’s Record, a History of Boldness and Costly Blunders

 

By SARAH LYALL

 

In pursuit of growth and profits, BP has taken risks and suffered consequences. But its record shows that it has been unable or unwilling to learn from its expensive mistakes.

 

• New Culture of Caution at Exxon After Valdez
  
• BP Is Set to Test if New Cap Stops Oil
  
• Timeline: BP's Troubled Past
  

 

U.S. Issues Revised Offshore Drilling Ban

 

By JOHN M. BRODER

 

Interior Secretary Ken Salazar issued new rules for a six-month moratorium on deepwater oil drilling in the Gulf of Mexico, replacing an earlier one that courts had declared invalid.

 

• Green Blog: Europeans Mull a Deepwater Drilling Freeze
  

 

Diabetes Drug Maker Hid Test Data, Files Indicate

 

By GARDINER HARRIS

 

SmithKline Beecham found in a study as early as 1999 that its diabetes medicine, Avandia, posed heart risks.

 

• Times Topics: Avandia
  
• Post a Comment | Read (304)
  

 

Automated Debt-Collection Lawsuits Engulf Courts

 

By ANDREW MARTIN

 

As millions of Americans fall behind on bills, debt collection law firms have been clogging courtrooms with suits seeking repayment.

 

• Post a Comment | Read (95)
  

 

DealBook

 

Tyco Electronics to Buy ADC for $1.25 Billion

 

By DEALBOOK

 

Tyco Electronics said on Tuesday that it has agreed to buy ADC, a broadband equipment maker, for about $1.25 billion in cash.

[interestrateripoff]

The Engine Of Job Creation Is Full of Sand

 

I give the NFIB credit for their analysis, but not for their "education" during the last bubble - and this collapse.

Indeed, their newest report is rather interesting:

 

• The prime problem with small business is slow or declining sales, and is worse today (by six points) than last year, which was the so-called "formal" bottom of the recession. Access to credit is the prime problem in only 8% of small businesses.
  
• 38% of small businesses are using credit cards as a funding mechanism (!!!) At today's pricing this is suicidal. If this number indicates those small business who have effectively been forced into this use of credit (and I suspect it is) we're in deep kimchee - nearly 4 in 10 small businesses are likely to fail in the next two to three years as a consequence of this.
  
• Far too many (11%) small business owners are collateralizing real estate as a means of funding operations. If I'm reading this report right, these are businesses where the owner has pledged his or her personal residence as security.
  

If you remember yesterday's Ticker on this subject (which included a nice jab at Krugman), along with the "meat" of yesterday's Blogtalk Radio Show (available always on the right sidebar of The Ticker) you'll find most of the problems are one of a small business person's own making, and NFIB is not helping matters one iota with their bleating about "more credit availability", nor is Bernanke and his evil minions issuing various comments about the same issue.

Let's face it folks: Interest charged on borrowed money has to come from gross margins, and in the marketplace the person who has the fewest and smallest parasitic factors increasing their costs wins.

Some parasitic factors are not under your direct control (think taxes) but others are. Taking credit and thus embedding interest costs into your operations is one of them.

Self-liquidating trade credit (e.g. Net 30 terms on purchases) is one thing - you generally don't pay materially for that, although for those suppliers where you can negotiate a 2% 10 discount you should take it. Even a 1% 10 discount adds up to 12% over a year's time, compared to paying Net 30. If you want to know where your margin is going, look at the poison you willingly and knowingly ingested in the form of financing costs.

Ditto if you're a small business and are not being paid on time. This is just plain suicidal - and for those small businesses in places like Illinois, if you have business dealings with the state you must get this problem under control or it will BURY YOU.

I know all the common excuses - "I need that contract", or "we won't survive without them." Well folks, how will you survive when you have a 10% operating margin on some product you're selling and the state doesn't pay you for six months, forcing you to finance the operation on your credit card at 29.9% interest? You're thus taking a forced loss on every unit you sell!

Forget it folks.

If you're a small businessman or woman you need to take a hard-nosed no-credit approach to operations. That which you can't pay for you can't afford. That which your customers can't pay for on normal commercial terms consistently you must refuse to ship. Those suppliers who won't provide you with the ability to squeeze outward your margins by paying them promptly you must replace with suppliers who are hungry enough to give you that 1% or 2% 10 day discount.

I've been there and done this folks. Before MCSNet was an Internet company we did cabling and PC work for various businesses. It was a fairly decent-volume but tight-margin business, and we would have been cooked to a crisp instantly without hard-nosed cash management. But never - ever - did we go hit the founders and owners equity in their homes. Yeah, it was thought about - for about 30 seconds.

It was thought about again when I became the only "principal" owner of MCSNet and was running it as an Internet concern - for about another 30 seconds.

NFIB needs to pull its head out of its ass, to be blunt, and start talking about sustainable business practices. This means dropping the reliance on credit that sucks precious margin points out of your operation and gives them to the $%%$#ing banks! Who are these clowns over at NFIB trying to fool - and exactly who are they serving?

"Will that be your left arm, right leg, left testes or your house you'd like to pledge today Mr. Jones?"

My answer to all of them?

 

 

Figure out how to run your operation without these sharks folks, because while such nonsense may work for a while it is a road that leaves you with less and less margin between solvency and bankruptcy over time - and thus is and should be utterly unacceptable.

[interestrateripoff]

The Case For And Against College

 

An article in the Chronicle of Higher Education that was forwarded to me (and which requires a subscription, so I won't link it) prompted me to finally complete this Ticker, which I've been working on for a while.

The question that is facing a bunch of 18 and 19 year olds right now, and will be facing 17 and 18 year olds coming into their Senior Year, is, quite simply: Where do I go to college?

Let's back up and change the question, because frankly, put as stated up above, the answer might be "nowhere!"

Let's first run some numbers so as to put in perspective exactly what the choice to go on to a post-secondary education costs you.

And yes, it does.

I'm going to make a few assumptions here:

 

1. You have a brain.
   
2. You will use it, which means that you will not in the general case live beyond your means as a young adult. Specifically, we will assume that you will save (not spend) a full 10% of your income (and before you argue "that's impossible!" it's a hell of a lot easier when you have no dependents and are unmarried than at any other time in your life! Trust me on that - giving up your Friday night beer binge is much easier than your baby's formula!)
   

Now let's further make an assumption that you can make $10/hour in a job out of high school. That's not much. If you work 2,000 hours in a year (that's 50 weeks of 40 hours each) you will make $20,000 gross. Save 10% of that, it's $2,000.

Ok. Here's the basics. We will assume you use five years to complete college. Most kids do - and colleges do their level damndest to make it happen. Yeah, I know, it's a four-year program. Watch how classes you need as pre-requisites magically are unavailable at a key point - just once - to guarantee that fifth year. It happens far too often to be a "mere" coincidence. We're going to go further and presume you will not take debt, which means you're going to actually do something productive during your college years to pay your way, which makes the "compressed" programs (e.g. 3 year) pretty much impossible.

Ok. You start at 18 and "retire" at 65. This is 47 years.

If you go to school you have 42 years to accumulate surplus.

What do the five years cost you?

That depends on the compound growth rate. We're going to be extremely conservative and assume only 30 year Treasuries are invested in, and further, that they earn only 4.5%. This is a bit above today's coupon, but is much below anything considered "reasonable history." That is, we're being damn conservative in our assumptions - no "8% return" nonsense as is often touted by pension fund managers or worse, 10-11% "quoted" by stock promoters.

If we save $2,000 a year @ 4.5% interest for 47 years we will wind up with $307,345.27. If we do so for 42 years we wind up with $237,849.58.

This means that in future values that five years costs you about $70,000 down the road. Note that this does not account for inflation (and it's impact on your purchasing power) nor does it matter if your savings rate changes after the first five years - that is, the $70,000 is real opportunity cost in retirement savings.

 

More at the link.

[interestrateripoff]

A Modest Solution by Butler Shaffer

 

"We cannot solve our problems with the same thinking we used when we created them."

 

~ Albert Einstein

 

Governments in America – at both the state and federal level – are in an escalating state of bankruptcy. Politicians, media hacks, and academicians propose the kinds of responses reminiscent of the classic definition of insanity: to keep repeating the same actions expecting a different result. Increase income taxes, cut spending, enact a federal sales tax, tax "junk food" and tanning salons, are just a few of the suggestions being made by those intent on recycling political solutions to politically-generated problems.

 

At the center of all this is a national debt that has arisen from a basic truth that statists prefer to ignore: human beings are much less thrifty in spending other people’s money than they are with their own. Let me control your checkbook, and I will come up with a much different pattern of expenditures than you would have. We are much more generous with the lives and property of others, a state of mind upon which political systems depend for their existence.

 

We need to step outside the circle of our conditioned thinking and consider alternatives to our dilemmas. I have a modest proposal to offer to resolve the national debt: repudiate it! The reality is that, even after more extended wars and the formalization of slave-state efforts to avoid it, defaulting on this debt will become the ultimate solution. Leviathan, and its institutional keepers, will not curb its appetites, particularly when all that stands in its way are the always-expendable people.

 

I find support for my proposal in the thinking of the Keynesians, whose ideas most of us accepted, helping to produce our current state of affairs. My undergraduate introduction to the study of economics was firmly rooted in Keynesianism, whose tenets expressed what I assumed Thomas Carlyle meant in regarding this field of study as the "dismal science." One of the frequently stated defenses of government debt was "we only owe it to ourselves." It was only years later that I was to discover who the "ourselves" were to whom we were indebted. Such creditors proved to be the same gang who comprised "we, the people" in the creation of government in our country: the institutional interests who comprise the ruling political establishment.

[interestrateripoff]

http://www.chinadaily.com.cn/bizchina/2010-07/14/content_10104762.htm

 

Bank of England governor's men fiddle with UK forecasts

By David Blanchflower (China Daily)

Updated: 2010-07-14 10:54

 

It is time to reveal a dirty little insider's secret. It isn't hard to make time-series forecasting models produce wildly different results.

 

Estimates have a tendency to whizz around all over the place in the face of small changes in assumptions, data used and time period covered. And errors can be huge, especially at turning points, so carefully considered judgment matters. Economic forecasts can be massaged, so independence is vital.

During my time on the Bank of England's Monetary Policy Committee, which makes quarterly economic prognoses, Governor Mervyn King controlled the hiring and firing of the forecast team, who did his bidding. They had to produce a result that was consistent with King's views, or else they would be history. A patchwork of arbitrary fixes and prejudices frequently drive forecasts, which for the uninitiated are hard to see.

 

King always emphasized the importance of top-down judgments, which means you can just make stuff up as you go along. Worryingly, this was often only loosely based on the workings of the real world. Such glorified guesswork operated reasonably well during the boom years, but failed miserably when the recession hit. To put it bluntly, it isn't that hard to manipulate a forecast. I have seen it done.

 

On May 17, 2010, the UK's new Chancellor of the Exchequer, George Osborne, announced that the Treasury would stop producing its own economic forecasts.

 

"I am the first chancellor to remove the temptation to fiddle the figures by giving up control over the economic and fiscal forecast," he said. "I recognize that this will create a rod for my back down the line, and for the backs of future chancellors. That is the whole point. We need to fix the budget to fit the figures, not fix the figures to fit the budget. To do this, I am today establishing a new independent Office for Budget Responsibility (OBR). For the first time, we will have a truly independent assessment of the state of the nation's finances."

 

Bold stuff. Unfortunately, after only a couple of months the OBR is proving to be neither responsible nor independent. Instead, there is growing evidence that this new organization had actually fiddled its own figures to get the new coalition government out of a jam. The OBR, as currently constituted, has failed almost as soon as it began.

 

An office with "responsibility" in its title and "independent" in its Web address was always going to have a lot to live up to. The OBR has manifestly shown that it isn't taking care of its duties and doesn't appear to be autonomous. Appearance is everything.

 

 

The government has claimed the OBR is independent even though it is physically located in the Treasury; it is staffed by a handful of seconded Treasury officials; all queries are handled by the Treasury press office; and if you call them, the Treasury switchboard answers.

 

On June 22, Osborne announced a program of measures to cut public spending and raise taxes, including an increase in the value-added tax rate to 20 percent from 17.5 percent. The OBR produced a forecast that suggested these measures would have a minimal effect on employment and unemployment.

 

Subsequently, leaked documents showed they would actually result in the loss of at least 500,000 public-sector jobs and 600,000 to 700,000 jobs in the private sector.

By noon the next day, the OBR had produced a new forecast saying that, even with these job cuts, employment would rise and unemployment would fall every year throughout the forecast period. The idea that the private sector would fill this hole by creating as many as 2.5 million jobs was greeted with howls of incredulity. And with a new forecast produced so quickly, it smacked strongly of political interference.

 

Adding to the firestorm, Alan Budd, the OBR's boss, almost immediately announced he would be leaving. The government's claims that Budd's appointment was always intended to be temporary don't appear credible.

 

A few days later, the plot thickened when it was reported that the OBR had also put a positive gloss on the employment numbers by trimming its forecasts for public-sector job losses by about 175,000.

 

The OBR pre-empted the results of the Pensions Commission by assuming lower pension contributions and reduced promotions for public servants, even though the government hasn't announced such a plan. Both assumptions cut the job-loss figure. Meanwhile, policy initiatives that would lower long-term growth and increase unemployment were excluded.

 

As a young economist, I gave a presentation on youth unemployment to an academic panel at the Congressional Budget Office, which produces a forecast twice a year for the US Congress. The panel's purpose is to "provide advice to further the reliability, professional quality and transparency of the CBO's work."

 

Before the talk, I had no idea who was on the panel. Sitting in front of me, among others, were Nobel laureates Lawrence Klein, Paul Samuelson, James Tobin and Robert Solow, who had to sign off on the forecast before it was made public. That is independence.

 

David Blanchflower, a former member of the Bank of England's Monetary Policy Committee, is professor of economics at Dartmouth College and the University of Stirling. The opinions expressed are his own.

 

You can trust Mystic Merv...

 

Blanchflower has clearly spat his dummy out but he's clearly trying to cause as much damage as possible.

[interestrateripoff]

Spain 'relying on short-term funding' as councils go bust - Telegraph

 

The great majority of councils in Andalucia are already in deep crisis – either insolvent or muddling through from day to day. More than 400 of the 8,000 councils across the country have stopped paying electricity, water and telephone bills, according to Spanish newspaper El Economista.

 

"I am deeply ashamed to know that I won't be able to pay our staff. They have got mortgages, children. What am I supposed to do?" said Jesus Manuel Ampero, mayor of Cenicientos, near Madrid. "We were not able to cover our payroll in June. Neither I nor our councillors have received anything for two years. I've had two heart attacks. My health is cracking. If we cannot solve this, I'm resigning."

 

Spain's federation of regional governments said councils were heading for slow "asphyxiation", with many facing a payroll cut-off next month. Pedro Arahuetes, mayor of Segovia and head of the federation's finance committee, told The Daily Telegraph that councils had lost up to 30pc of tax revenues because of the property and construction crash, and a further 20pc in funding cuts by Madrid.

The body has called for a moratorium until 2012 on debts to central government, which is itself slashing wages by 5pc as a quid pro quo for backing from the EU's €750bn (£626bn) rescue.

Council debt is just 3pc of Spanish GDP, so default risk is modest. The greater worry is political as Spain's depression grinds on. The latest Consenso Económico survey forecasts that GDP will contract by 0.8pc this year, with zero growth next year. Unemployment is already 19.9pc. The lesson of the early 1930s is that once slumps last much beyond two years they start to engender serious social tension.

 

 

Only 3% of GDP so it will all be contained....

 

Question is will that 3% balloon quickly.

[interestrateripoff]

UK public sector could have £4 trillion of hidden debts - Telegraph

 

The UK’s public sector debt could be nearly £4 trillion higher than headline figures suggest, according to new research that highlights the scale of the economic challenges facing the Government.

 

The Office for National Statistics (ONS) released a study revealing that the public purse could be faced with £4.84 trillion of liabilities compared with the current public sector net debt figure of £903bn.

David Hobbs of the ONS described the public sector balance sheet as an “open-ended concept” as he outlined liabilities that are considered to be “off-balance sheet” or not covered in official debt measures.

 

The Government’s stakes in RBS and Lloyds Banking Group could add another £1 trillion to £1.5 trillion, the ONS said, the largest potential liability.

 

Meanwhile, unfunded public service pension obligations could account for a further £770bn to £1.2 trillion, while unfunded state pension schemes amounted to between £1.17 trillion and £1.35 trillion.

 

“For transparency, it is important for a broad range of information on public sector liabilities, obligations and contingencies to be made readily available, whether or not included within balance sheets,” Mr Hobbs said.

 

The report also highlighted a potential £200bn of off-balance sheet obligations from private finance initiative schemes, and £40bn in nuclear decommissioning liabilities.

 

Hr Hobbs also set out a further £500bn miscellaneous grouping of guarantees and contingent obligations, some of which “are more likely to materialise than others”.

 

The total in liabilities and obligations came to £3.68 trillion to £4.84 trillion.

 

The report comes just a day after a study by the Institute of Chartered Accountants in England and Wales (ICAEW) and the Centre for Economics and Business Research (CEBR) revealed that there could be a further £1.13 trillion of liabilities above current debt estimates.

 

Pick a number any number and guess what it is the UK actual liabilities are. No figure is too ridiculous to suggest...

 

Yesterday is was just over £1tr hidden and now we have an even bigger figure.

 

It's the open ended recovery.

[interestrateripoff]

BBC - Newsbeat - First-time buyers 'need £37,000' to purchase home

 

First-time buyers now need to find an average of £37,000 up front before they can buy their first home, according to figures seen by Newsbeat.

 

House prices have risen over the past year and banks are still asking for a large deposit to secure the best mortgage deals.

 

"Getting that kind of money together can take a good few years," said Anthony, 28, from Leamington Spa.

 

"You've got to live at the same time, so you have to sacrifice a lot."

 

The number of new first-time buyers has fallen to a near record low while the average age has risen to 29 or 37 without financial help from parents.

Deposits up

 

The latest report from the Council of Mortgage Lenders (CML) shows the typical price of a first home in the UK now stands at £139,000, although there are wide variations depending on where you live.

 

Prices have been drifting up along with a general rise in the housing market.

 

If I was renting now that would take me years to save up, and my bank of mum and dad haven't got that sort of money.

[interestrateripoff]

Singapore sees economy growing 15pc - Telegraph

 

Gross domestic product for April through June grew 19.3pc from a year earlier when the economy was shrinking because of the global recession, the Trade and Industry Ministry said Wednesday.

 

The growth was the fastest since the government began releasing quarterly GDP figures in 1975.

 

The ministry raised its forecast for the city-state's economic growth this year to a range of 13pc to 15pc from the previous forecast of 7pc to 9pc. It also raised its forecast for export growth as global demand has stayed strong amid Europe's debt and fiscal crisis.

 

"This should reinforce the view that fears from the eurozone crisis may be exaggerated," DBS bank said in a report.

 

Singapore, which has the highest percentage of millionaires in the world, is the first Asian economy to announce GDP results for the April-to-June quarter. The tiny island nation is often seen as a barometer of world demand because its economy - built on manufacturing and services like finance - is one of the most export-reliant in Asia.

 

Manufacturing in the April-June quarter recorded explosive growth of 45.5pc compared with a year earlier.

 

........

 

The ministry revised first-quarter GDP growth to 16.9pc from 15.5pc. The second quarter results were preliminary, based on data from April and May. On an annualized and seasonally adjusted basis, the economy grew 26pc in the second quarter.

 

The economy will likely slow in the second half of the year as the US and Europe battle high unemployment and fiscal austerity measures.

 

One hell of a bounce.

 

Just think how much it would have been if they had QE'd and deficit spent like the UK, they too could be looking at an impressive 0.3% too....

[interestrateripoff]

Breaking news:

 

• German growth may top 1.4 pct forecast -econ min - Reuters
  
• US STOCKS SNAPSHOT-Market drops on Fed's economy view - Reuters
  
• Nestle drops health claims for BOOST drinks - Reuters
  
• Nestle drops health claims for BOOST drinks - Reuters
  
• Pension funds scoop up bonds in long-term safety run - Reuters
  
• Euro pares gains versus dollar after FOMC minutes - Reuters
  
• BP could bypass test if could damage Gulf well-exec - Reuters
  
• T.Italia suspends job cuts as govt seeks deal - Reuters
  
• Toyota to fix transmission on up to 235,500 RAV4s - Reuters
  
• Prices gain on weak retail sales data - Reuters
  

 

 

 

• Unemployment falls but part- time working hits record high
   
   
  Benefit claimants drop but more complain they can't get full-time work. Long-term unemployment rises
   
  
  • Ten things to learn from the latest statistics
    
  • Unemployment figures – what the experts say
    
  • Datablog: the unemployment figures where you live
    
  • Interactive: UK unemployment since 1984
    

   

  [*] BP faces delay in shutting off valves as new well cap examined

   

   

  Oil firm says it must analyse effect of choking off supply as pressure could cause ruptures on sea floor

   

  • BP gains as new cap hailed a success
    
  • Interactive: BP shares punished over Gulf disaster
    
  • New cap 'successfully installed' on leaking well
    
  • Deepwater Horizon timeline
    

   

  [*] Self-certified mortgages should be banned, says FSA chair

   

   

  Lord Turner to tell Future of Finance conference bonuses must be addressed as he signals change in approach to regulating loans

   

  • FSA to ban fast-track and self-certified mortgages
    
  • Nils Pratley: Taking on the liar loans
    
  • MPs launch inquiry into retail banking
    
  • Banks facing permanent tax on pay and profits
    

   

  [*] Asos co-founder cashes in on shares

   

   

  Online retailer Asos saw first-quarter sales rise by 54%, while co-founder Nick Robertson scoops £15m by selling fifth of his shares

   

  [*] Apple shares dip amid iPhone 4 recall uncertainty

   

   

  Growing speculation on the future of Apple's iPhone 4 has hit the company where it hurts – and its reputation is also on the line 85 comments

   

 

 

• 
  Sainsbury's and M&S face shareholder anger
   
   
  Two top UK companies are being grilled over their executive pay packets at AGMs in London today 19 comments
   
  
  • BA boss Willie Walsh heckled at AGM
    

   

  [*] World Cup: business winners and losers

   

   

  A game of two halves for British businesses 2 comments

   

  • British sport a hit with foreign visitors
    

   

  [*] Pimco turns bullish on UK gilts

   

   

  World's biggest bond investor seems unfazed by possible downgrade of UK's AAA credit rating 5 comments

   

  • Britain's growth story questioned by S&P
    
  • Nils Pratley: Don't let S&P get you down
    

   

  [*] Intel's profits lift technology stocks

   

   

  Intel reveals better-than-expected sales and profits – boosted by demand for chips – as technology shares in US and Asia rise

   

 

 

• More business news
   
   
  
  • Cool-er e-reader company goes bust
     
     
     
    
  • OECD recommends tougher stance on public sector pay
     
     
     
    
  • Barnes & Noble squares up to tycoon Ron Burkle
     
     
     
    
  • Inflation rate fall helped by high street
     
     
     
    
  • Falkland Oil and Gas shares plunge
     
     
     
    

[interestrateripoff]

German growth may top 1.4 pct forecast -econ min | Business | guardian.co.uk

 

German economic growth in 2010 could be "a bit more" than the government's official forecast of 1.4 percent, Economy Minister Rainer Bruederle said in an interview to be published on Thursday.

"In 2010 our forecast for growth of 1.4 percent -- or perhaps a bit more," he told the Augsburger Allgemeine newspaper, according to an advance text released on Wednesday.

Bruederle has in the past also hinted the 2010 growth rate could surpass the government's official 1.4 percent forecast.

Bruederle also said the economy will have completely recovered from its worst post-war recession by 2013 at the latest.

 

Great news for the Greeks then, they can carry on spending and the Germans can carry on earning...

 

Although was level of growth does the German economy need to keep stable unemployment?

[interestrateripoff]

Britain’s debt: The untold story

 

The true scale of Britain's national indebtedness is laid bare by the Office for National Statistics: almost £4 trillion, or £4,000bn, about four times higher than previously acknowledged. By Sean O'Grady, Economics Editor.

 

• Econoblog: If you’ve got a ‘proper’ job, hang on to it
  
• Independence of OBR called into question
  

 

Marks & Spencer fends off shareholder rebellion new

 

Retail giant Marks & Spencer fended off a shareholder rebellion at its annual meeting today despite being taken to task over executive pay packages.

 

 

• BA-Iberia merger given green light by Europe
  
• Kazakhmys accused over Astana government links
  
• Timis's African Minerals agrees $1.5bn Chinese deal
  
• Bankers warn EU curbs on pay will hurt the City
  
• New banks will struggle to compete, says RBS chief
  
• Paperchase sold in £30m management buyout
  
• BA's Walsh pleads for relief from pollution-tax burden
  

 

Ben Chu: Will the banks put recapitalisation and lending before bonuses?

 

Another word from the Bank of England Financial Stability Report on bankers’ bonuses.

 

 

• Ben Chu: God's morally compromised banker
  
• Econoblog: If you’ve got a ‘proper’ job, hang on to it
  
• David Prosser: It is too early to start talking about raising interest rates
  
• Ben Chu: Size does matter in banking
  
• James Moore: A fair kicking for auditors?
  

[interestrateripoff]

14 July 2010 Last updated at 19:30

 

M&S investors endorse pay plans

 

Marks and Spencer shareholders give their resounding support to the company's executive pay plan at their annual meeting.

 

• M&S board facing revolt over pay
  
• M&S sales rise in first quarter
  
• Bumper deal for new M&S boss
  

 

 

• Unemployment dips to 2.47 million
   
  UK unemployment sees a slight fall to 2.47 million, but the number of part-time workers sees a sharp rise.
  
• Stimulus 'made 3 million US jobs' New
   
  A new US government report shows the Recovery Act created around 3 million jobs, more than expected.
  
• BP explains Gulf oil test delays
   
  A key test to see if the Gulf of Mexico oil spill can be stopped was delayed to allow experts more time to review its safety and effectiveness.
  
• Pension deficit worsens in June
  
• Credit Suisse offices are raided
  
• EU gives backing to BA alliance
  
• US retail sales fall during June
  
• Ryanair reprimanded over offers
  
• Mobile firms failing on coverage
  
• New bank supervisor talks tough
  
• Thorntons' sales decline further
  
• Strong demand boosts Intel profit
  
• Rio resumes Australia investment
  

 

 

• Big haircut
   
  Eurozone stress test inflicts big discounts to UK government debt
  
• Eurozone: Who is risky, who is not?
  
• The banks' social leprosy
  

 

 

• Eurozone future
   
  Watchers say there are only two ways out of crisis for the eurozone
  
• More jobs but more pressure
  
• In Budd we trust
  

[interestrateripoff]

BBC - Peston's Picks: Eurozone: Stressful 'haircuts'

 

In the assessment of whether European banks are strong enough, a really important issue is what kind of discount or "haircut" should be applied to their holdings of government debt.

 

The final details are still being agreed. But bankers have disclosed to me that they have been told to assess the strength of their balance sheets on the basis of the following haircuts.

 

Greek government bonds would be written down by around 17%, Spanish sovereign debt by around 10/11%, UK government by a marginally smaller discount than on Spanish debt, French by 6%, and German by 4 or 5%.

 

Now two numbers stand out for me.

 

First, that the discount on Greek debt is only 17% - when many analysts believe it needs to be written down by nearer 50%.

 

And then there is the almost identical haircuts applied to Spanish and British government debt.

 

Now the rationale for applying similar haircuts is that both Spain and the UK had very large public sector deficits in 2009: 11.2% for Spain and 11.5% for the UK.

 

But, as I've pointed out before, the UK has two advantages lacked by Spain when it comes to the affordability of its debt.

 

First, the maturity of its existing debt is much longer than for Spain: so on top of needing to borrow to finance the gap between spending and revenues, Spain also has to refinance maturing debt equivalent to 8.7% of GDP next year, compared with 3.8% for the UK.

 

So from that point of view, Spain is more exposed to the whims of creditors than the UK.

 

Also, most economists would argue that the UK's ability to service its debts is helped by having an independent currency, which adjusts to perceptions of its economic strength, rather than being locked into the euro - as is Spain - whose value is only partly determined by the performance of the Spanish economy.

 

That said, according to Eurostat - the EU's statistical arm - the UK's national debt at the end of last year was 68% of GDP, compared with just 53% for Spain.

 

In other words, and in the round, it is difficult for the UK to argue that a significantly smaller discount should be applied to its sovereign debt in the stress tests than would apply to Spain.

 

Even so, it's arguably quite embarrassing for the new coalition government that European regulators believe the UK's sovereign debts are of equivalent quality to what Spain has borrowed - and significantly worse quality than French and German government bonds.

 

Update 1556: By the way, I have a bit of additional ammunition for those who fear that the stress tests won't be robust enough.

 

What I've learned is that to pass the tests, a bank has to prove that its tier 1 ratio won't fall below 6% through the stressed cycle.

 

Now the important point about this 6% tier 1 figure is that it's calculated according to the widely discredited Basel ll formula: in other words, banks can include in their calculations of their capital resources various forms of capital that the recent banking crisis showed were more-or-less useless for absorbing losses.

 

By contrast, when the UK's Financial Services Authority conducted its stress tests, it insisted that British banks' core equity (or core tier 1 capital) shouldn't fall below 4% of risk-weighted assets (loans and investments).

 

Most investors and lenders would regard a 4% core equity target as more demanding than a 6% Basel ll tier 1 target.

 

The use of the Basel ll definition is widely seen as a victory for France and for French banks, which are relatively short of pure equity in relation to their assets.

 

Is Peston correct that 4% core equity target is a more demanding than 6% Basel II tier 1 target?

 

So UK debt viewed the same as Spanish debt by the ECB, judging by some of the off balance sheet figures being banded around that might be a rather optimistic assumption for the UK.