Stick or Twist?

Stick or Twist?

After months of flirting with it like an awkward teenager at their first disco, it is official……we are now back in recession. The first ‘double dip’ since 1975……congratulations to all concerned at Westminster.  

Hardly a surprise really. Austerity measures are all well and good as a concept, but when the Government simply wants to spend less money, this creates less wealth in our economy through job losses and the reduction of private sector services that support the public sector.

The austerity measures are designed to address our Government / Public spending and reduce it to a level that is consistent with our income (reducing the need for expensive public borrowing as a consequence). The problem is……this will take another 4 – 5 years of painful cut backs before there is light at the end of the tunnel. However, at the end of it, we should be in a much more positive position as a country and economy moving forward.

But that doesn’t help us now and there is no guarantee that the 4 – 5 years of pain will have been worthwhile. In fact, if the economy isn’t growing it could take even longer.

So what do we do?

Scrap the austerity cuts and create jobs / wealth now and inject life into our economy by the Government spending money is doesn’t have (increasing public borrowing as a consequence).   

Or

Stick with the austerity measures, play the long term game and hope the next Government elected in 3 years time continues with the plan.

Stick or Twist?

I can give a pretty good argument for both. My 2p worth……the one thing you don’t do when things aren’t going well is nothing. Time to play the joker me thinks......action and economic stimulus please Mr Osborne.

Time will tell.   

Failure Being Rewarded?

Well who would have thought it……the Bank of England has got it wrong again.

Whether you like it or not, inflation is a big deal in this country. You only have to look at the price of food, fuel and energy to understand the pressure households are under given that incomes are falling.

But fear not, the Bank of England have it all under control……you would think. Well actually, NO.

The Background Bit…… 

Essentially, the two main functions of the Bank of England are to keep prices stable and maintain confidence in our currency. We’ll leave currency for the moment (that’s a whole different can of worms) but price stability is the key for most of us.

Patronising time……price stability is very much about keeping the cost of goods and services (or as the ‘boffins’ call it……inflation) broadly in line with increases / decreases in household income.

Controlling inflation was traditionally achieved by playing with interest rates. If inflation started to rise, the Bank of England would raise interest rates and this would put pressure on household expenditure through more expensive loans / mortgages / credit cards (stopping households from spending as much and lowering inflation as a result). And vice versa.

The Problem……

The Bank of England have a target of keeping inflation at 2% as this will keep prices stable. They have many powers to achieve this but that is the target……and they have failed to deliver this for years. Not a few months……years. You would have to go back to 2007 to find a period of consistency around 2%.

Fear Not……

When inflation was running at 5.2% back in September 2011, we were informed not to panic as inflation would drop in 2012 to below the 2% target and all would be restored to good.

But Guess What……

After just 5 months of steady falls to 3.4%, inflation rose this month to 3.5%. Still 150% above target and yet nobody is questioning the very well paid ‘experts’ on Threadneedle Street why they have again failed to deliver what the economy needs.

The Importance……

Around 70% of all money made in this country is linked to consumer spending. We need to spend as a nation to create wealth, jobs and prosperity. This is why keeping inflation in line with increases / decreases in incomes is massively important. At the moment, we (broadly) have less income paying for more expensive goods / services. This clearly does not promote economic growth and could lead to recession again. 

The Real Inflation Controller……

It is no longer the Bank of England (as they have shown)……it is the banks. They control the supply of money in this country. When it is cheap and readily available, we grow as an economy. You need only look at the doubling of house prices 5 years ago….easy and cheap money created inflation. 

So let’s not kid ourselves any longer. The Bank of England is powerless at controlling inflation. I feel a moral obligation to save their further embarrassment and put them out to graze.  

Besides, in what other occupation could you fail for 5 years and retain your job? 

Exceptionally Thick or Simply A Liar?

This was just too good to resist……

The Story……

HM Revenue and Customs provided the Chancellor George Osborne with "anonymised copies" of confidential tax returns submitted to the organisation by the UK's wealthiest people. Chancellor George Osborne says he is "shocked" that some of the UK's richest people have organised their finances in such a way that that they pay virtually no income tax.

My Thinking……

So let me get this right……you socialise with very wealthy people, they are the largest donators to your political party and you are responsible for setting the tax system in this country……yet you are “shocked” that they pay virtually no income tax?

 

I think I am right in saying that makes you:

      (a)  Exceptionally Thick

     Or

      (b)  A Liar

     Or

      (c)  Both Of The Above

Answers on a post card to the usual address.

My favourite quote from the economic genius on the subject: “I don’t think that’s right”. Well it is right and the bizarre thing is, the wealthy are doing nothing wrong. All perfectly legitimate because the loop holes weren’t closed at the budget. That’s right, you were too busy shafting the elderly with the granny tax!

Just saying……

1p Magic?

Everything you need to know about any current Government involvement in the Private Sector is summed up beautifully with the current mess that is Royal Mail (doesn’t it feel nice not to have to pick on the banking sector for once?). 

The Background Bit……

Royal Mail have a Government licence to provide a postal service 6 days a week at a uniform price regardless of whether the letter is travelling 6 miles or 600 miles.

The Issue……

From 30 April 2012, a first-class stamp will rise in price from 46p to 60p (30%) and a second-class stamp will go up from 36p to 50p (39%) as the regulator has lifted price controls.

The Blame……

Now I’ve got a real issue with this, which is compounded by the fact that I don’t know who to blame. I could really do with some help to understand who to blame so that my ‘melt down’ is directed appropriately.

Option 1: Is it Moya Greene, the Royal Mail Chief Executive who has run the company so badly that there needs to be a 30 – 39% increase in the cost of its service?

Option 2: Is it the Government (always my favourite) for creating such a ludicrous licencing system that creates a significant barrier to other companies joining the postal market (and driving down costs as a consequence)?

Option 3: Is it the Monopolies & Mergers Commission for not doing their job to create a fair and freer market?

Option 4: Is it the regulator, Ofcom, for permitting the increase in stamps without due diligence on whether operation costs could be reduced rather than simply continuing in the same inefficient manner and increasing income to pay for it?

Option 5: Is it ‘us’ as we simply just accept it without any fuss?

The maths……

Royal Mail’s letters business made a loss of £120 million last year in delivering 16 billion letters. If the price of stamps went up by just 1p, then that would create an additional £160 million. Correct me if I’m wrong, but I believe that turns a £120 million loss into a £40 million profit.     

I’m in complete bemusement.