14 JAN 2015.
Dear John
When banks collapse - who pays?
In answer to your questions, the bank bail-in laws are complicated. Anticipating their
impact is like trying to foresee 20 moves ahead in chess.
(New UK bank laws start on 1st January 2015)
My political view is that if we stick to The Free Markets
- then the owners of banks etc should pay the bail out costs. In theory, but I
doubt in practice, We the People - depositors and bank shareholders, will read
our banks' balance sheets with zeal; we will stop executive greed entirely; we
will insist on claw-back of bonuses and pensions; we will insist that
casino-banking stops in our banks. We may even insist that auditors stop
fiddling the books, report honestly, and bear financial responsibility for
errors (as might happen at TESCO).
I note that inter-bank balances are largely exempted from
risk; odd, as other banks are the only ones who might be able to read a rival's
balance sheet and see danger looming.
Of course, we cannot know the true state of any bank - so
we will be flying blind, waiting to lose our savings over £85K. I note the Free
Market attack on Mutuals /Building Societies - converting non-risk savings into
risky shares; which may drive small savers to the Big Banks.
If we are to have the risks heaped on our shoulders
- then I forecast a new profession of
Real-Audit - firms that watch bank executives and funny-money subsidiaries like
hawks and sue to recover the losses they cause. A New Scientist article pointed
out that nobody collects bank balance sheets data across the world - and
compares them. It would be quite simple in bookkeeping terms to run a mandatory
daily spreadsheet of all financial institutions - When totalled across the
page, all the debits and credits would
cancel to zero, leaving only the true bank-owned assets. But there are so many
secrets to keep, not least tax-evasion-capital-flight, that this simple tool
will only be applied after another massive failure and theft from small savers.
Greece - Greece (less than 2% of Europe) could balance
its budgets next week if it repatriated the offshore tax-evasion-capital-flight
on the lists hacked from Zurich (most from HSBC), passed to Christine
Lagarde, now head of the IMF, who passed
them to the Greek tax-collectors - who buried them. Shipping companies and
families in Greece are tax exempt. I guess anyone who is anybody in Greece,
pays no taxes and siphons out all capital. The Greek Diaspora could re-fund the
Greek economy - but the nation and its exiles choose not to. This is one reason
why the EU gets pissed off by Greece. The other is that for decades Greece has
been a major net recipient of billions from the EU - all immediately diverted
from the intended projects - to tax-havens. They are a bunch of spivs. You can
read the list here:
What will happen? I think a socialist government will
take power - and take the populist route of writing off Greek Debt - at the
expense of the EU. Greeks of all persuasions do not pay tax. It could tip the
EU's hand to aggressively action long, tediously planned, bureaucratic steps
towards Fair Tax - particularly for Greece, Italy, Spain and the UK. But it may
have to wait until President Juncker, the Luxembourg "industrial scale"
tax-dodging PM resigns as head of the EU.
(FROM EURODAD: 13th Jan 15 - FAIR TAX - Please accept
this brief update on the European Parliament's response to the LuxLeaks
scandal.
As you know, we have been calling for the EP to establish
an inquiry committee. Although the proposal has been met with resistance the
idea is still alive. At the latest count 165 of 188 needed signatures from MEPs
have been collected, and significantly a few EPP representatives have now also
signed, including the powerful EPP vice-chair of the ECON committee (Economic
and Monetary Affairs).)
The banks are of course at the heart of all
tax-evasion-capital-flight, particularly London banks.
As I said, I think governments will do whatever is needed
to maintain confidence in the banks and currencies - even total nationalisation
if needed.
Noel
(Mr) Noel Hodson
16 Brookside, OXFORD, ***********************
13 Jan 2015
Hi John and Tony
Thanks for the emails and papers. I am interested in such matters - but I comment
as a very cautious and small investor. My eldest brother Richard was a Chartist (extrapolating
past graphs to make forecasts) and he gambled - often cleverly and profitably -
but ultimately gambling in commodities, land (in Mellor), currencies and
metals, wiped him out - and very nearly bankrupted my father who followed
Richard's recommendations. So I am cautious.
Taking McHugh's Forecasts for 2015:
STOCKS - Gamblers love a volatile Stock Market. Steady
growth is boring. However, the fixed assets underpinning most public companies
are a significant part of the global real-economy and overall, on average, they
keep pace with that other stable asset - land and property. With offshore cash
growing at $1 trillion a year (now more than $32 trillion, 80 million good
jobs) we can expect volatility in all real-economy markets as the money-economy
(paper) thrashes around.
GOLD ETC - Gambler's delight in King Copper and other
metals. They are part of the real-economy and will always retain a real-value.
However, most Metals are subject to fads and fashions, fears and hopes and bent
manipulation of prices. I agree that gold has a utility value in science. But
it is not as rare as supposed. I had a client who bought bars of Cornish Tin 40
years ago - he still has them and they have kept pace with the money-economy.
OIL & ENERGY - Who forecast the halving of oil prices
from Sept 2014 to date? It is political, to try to bring Putin to heel (I think
that will fail) but is also based in the reality that more fossil fuels are
being found. We haven't even touched the immense frozen deposits of methane in
Russia's tundra. So fossil fuels in the real-economy will fall in price.
Several OECD countries are using ever increasing amounts of green energy
(despite the press reports) which will reduce the price of fossil fuels. McHugh
doesn't analyse the impact of global warming - losing coastal margins and causing
migration. Clean & Dirty Energy prices will take warming into account.
RUSSIA - Is not collapsing. This "news" is in
the Fox News category that "Birmingham UK is a violent no-go Muslim
City!" Really? The danger to the
money-economy is that Putin will turn away from the dollar as the world's
reserve currency, and will create other currencies with India, China, Africa
and South America. Russia has massive real-assets, land, energy and people who
did put the first man into space.
RISING DEBT and CURRENCIES. I don't have much faith in
the intelligence of bankers, but they do have the professional job of keeping
the money-economy large and fluid enough to serve the ever expanding
real-economy. The World has always had rising debt and depreciating currencies
as the population and our inventiveness and productivity grows - and always
will. Today, computers could launch a new currency, pegged to the reality of
what most people want to transact in their real lives, in a few months. Bankers
are sometimes crazed gamblers (or thieves) who mistake paper for real assets -
but reality re-asserts its dominance very quickly. I assume that all those
national treasuries, Wall St and The City etc do have some inkling of the
problems that McHugh fears - and make plans to adjust the money-economy
accordingly. I think that our children and grandchildren will not meekly sit by
and save up for 15 years to buy a washing machine; however much we preach
austerity at them. Ditto for houses. People will continue to want real things -
and will adjust the paper-economy to get them; think back to TV Rentals in the
sixties - and, horror piled upon horror, foretelling the End of The World as
our parents knew it - "Credit
Cards".
Half the world's population is very, very poor. They want
stuff - real-economy products; and will find ways to get that stuff. Production,
automated production, is and will continue to rise to meet the consumer demand.
To oil the wheels more paper has to be printed to enable the transactions: e.g.
200 new homes in Cheshire at £500,000 per home MUST have £100M of new mortgages
to enable the transactions. QE is only putting back a small fraction of the $32
trillion siphoned out to tax-havens; which, if it sits in Banana Banks long
enough, will become worthless as the real-economy rolls by it. (Very Long Term -
prices of goods will reduce to the value of the basic raw materials + land.
Computerisation will replace all human repetitive labour).
McHugh's "screen generation" will not sit idly
by while we frightened old men try to slow the economy back to the 1930's
walking pace. Economists must widen their basic (usually hopelessly flawed)
calculations of Land x Labour x Capital to include - Land Labour Capital &
The Internet. Youth will not tolerate collapsing markets. Lets get back to work
in the real-economy.
QED
Noel
Deflation: It
depends on the definition. I think that prices of goods will reduce, due mostly
to automation and to mass emerging markets of people with little income. UK
Housing is still skilled labour intensive, so I don't expect to see that part
of house prices to deflate - but we have deflated mortgage interest and
builders' bank interest, which was about 25% of the market cost. Land prices
will increase. Low interest rates are the present underlying main cause of
reducing prices because interest and bank charges are added at every stage of
production and distribution - typically ten stages from e.g. farm to plate.
Deflation of prices is good for the majority. It only
becomes dangerous if it is caused by fear of collapse, in turn causing the
majority to stop being active in the economy. If the world stops working,
everyone is at risk. I don't think that will happen. QE re-boots the economy.
Banks - I think the world will do whatever it takes to
keep confidence and liquidity flowing. I can see some scenarios where all banks
will nationalised - at least for a time. It is dangerous to have private
interests in a position to print and distribute national money. But would we
want our bank managers to be civil servants?
Jobs - Our meetings about telework and the Internet - in
Brussels from 1992 to 1998, concluded
that most repetitive jobs would be automated and that most of us in OECD
countries would work far less. I think this has happened. The answer to
millions of under-employed lost souls was Lifelong Education. The greatest
difficulty is to find new ways of distributing automatically produced
real-wealth, without soup kitchen queues. But I think it will be achieved.
After all, the bulk of the unemployed are our own grandchildren. There will
also be major new hi-tech industries but they will not need mass workers.
WE HAVE WORKED HARD TO ABOLISH WORK - AND SUCCEEDED
(compared to factory and field hands pre-1920).
Now back to my damned tax returns.
Noel
******************
From John
OK those are your views.
Will you be surprised if there is deflation?
And what do you think about the bank bail-in regimes
being put in place all across the world?
It is one thing saying lets get back to work in the real
economy but in fact there are a vast number of people without jobs, almost
certainly a lot more than the politicians say, is there an answer to that?
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