Debt Ceiling Fall Out

An ‘interesting’ 10 days has finally concluded in the US with the debt ceiling being raised and Obama’s hands being untied……for now. In reality all that has actually taken place is the can has been kicked down Pennsylvania Avenue until January……when we do all of this again.

 

The whole episode has reinforced two strong beliefs I hold.

 

Belief 1

It never fails to fascinate me how important the US are to the UK yet at the same time so few people recognise and appreciate this. At the point when the political parties were close to agreement, BBC, ITV, Channel 4, Channel 5 and Sky reported live from Washington. The same day, only Radio 5 provided live coverage of Prime Minister’s Questions from Westminster.

 

This really tells a compelling story……US politics are far more important than our own. It is a reality that we have to accept and embrace.

 

Belief 2

 

I am flabbergasted how fragile the US political system is and by definition, their fiscal and financial policies. When Government departments are shut down and a default on public debt within hours of becoming reality, is this really how the most powerful nation in the world behaves……a house built on sand comes to mind.

 

This is a further national embarrassment (for the US and UK) on the back of a similar issue in December and it is about time that Obama forced Congress to grow up and govern with some modicum of orderliness and common sense.

 

I was sucked into the excitement and hope that Obama’s first term would bring refreshing change following the catastrophic 8 years under Bungling Bush……but it never materialised. Obama has a real chance now to make a difference and stop this ever occurring again. He may have 3 years left but he needs to achieve this within 3 months.

 

Yes it will take hard work……moving a supertanker always does……but why not? If not now, then when?

 

A very interesting crossroads for Obama……his legacy will be written based on the road that is taken.

 

The UK needs to hope he chooses wisely.

A Right Royal Rick

Question: Why Are The Queen’s Actions Causing Economic Concern?

 

In 1952, the Queen sent 255 telegrams to celebrate 255 people reaching the age of 100. In 2011, this reached 12,500.

 

So what?

 

Well, average life expectancy has risen significantly……it has increased by 10 years over the past 30 years and this creates a ticking time bomb for the State Pension.

 

So what?

 

There has been much negative comment regarding increasing the age of the State Pension by as much as 3 years for some and the maths just don’t stack up.

 

So what?

 

Let me explain. As things currently stand, the Government do not have a penny towards the State Pension for millions of people that are expecting it. They simply use the National Insurance Contributions from those that are working to pay for those that are in retirement.

 

If the number of people in retirement increases (the post war ‘baby boomers’ are coming to retirement now) and they live for longer, this significantly increases the amount of National Insurance Contributions required from those working to pay the State Pension for those in retirement.

 

Quite simply, there is a black hole between what is coming in and what is being paid out. Clearly, raising the State Pension Age by a few years when life expectancy has increased by 3 times that is doomed to failure.

 

But which political party wants to address the issue of needing to increase National Insurance Contributions significantly for workers and at the same time increase the State Pension age to 70+……none of them when we have an election on the horizon.

 

For the record……in 2034 it is predicted that the number of 100 year birthday telegrams will reach 92,000……that’s just 20 years away.

 

Tick, tick, tick……

Help Themselves Scheme

The news and media has been full of the ‘help to buy’ scheme that the Government has brought forward under the mask of ‘we must help more people to become home owners’.

 

In short, the Government will fund a 15% deposit interest free if the borrower puts down 5% and they can go to a lender to request the remaining 80%. This is all designed to ‘oil’ the first time buyer market and the housing market reinvigorated as a whole.

 

The reinvigoration will create demand for houses, the construction industry will bounce back and jobs will be created.

 

All too good to be true?

 

Oh yes. The Government has got a nice big fat angle on this one.

 

The Government will charge banks 0.9% of the total to be borrowed. That’s right, not the 15% they are funding but the additional 80% as well. Given that they have earmarked £130 billion for this scheme, the Government sets to make a cool £1.2 billion for the 0.9% levy. Not bad for simply being a middle man to give out money they don’t have.

 

Unless the mortgages go sour, the Government will literally clean up.

 

Question: If the Government is the winner, then who is the loser?

 

I’ll give you a clue……it is not the banks.

 

Answer: The Borrower. The banks will pass on the addition 0.9% charge to the first time buyer by way of a more expensive interest rate on the mortgage.

 

Remember the rules……don’t be fooled by the headlines……never trust a good thing from the Government!

 

There is always more than meets the eye!

 

 

Inglorious Gideon

Two things I learnt last week……actually it was more like a memory jogger (but you get the point).

 

Firstly, George Osborne (you remember him right? The most powerful man in the UK charged with managing the UK finances) changed his name in his teens……he was originally called Gideon Oliver Osborne.

 

Keen to enter politics, he changed his name as he didn’t want to come across as pompous, arrogant or wealthy and changed to a more credible George (due to the rich royal and political history of such a name).

 

Secondly, the Coalition Government (well George Osborne) proclaimed to all in 2010 that there would be economic growth of 8.8% by 2013. Well guess what, we have actually had 2.2%.

 

The thing is……it matters little whether you are Gorgeous George of Glorious Gideon if your finger is so far off the pulse of economic reality. The brutal fact is……you have achieved only 25% of the target you set yourself. There are not many that can fail so miserably and still retain their position.

 

Oh, and while we’re at it……it takes more than a change of name to stop being arrogant or pompous. Credibility is soooooooo much more than a name.

 

Just saying……

Shutdown State

I rambled back in August that a storm was brewing in the US…… 

 

http://stevesmithlive.blogspot.co.uk/2013/08/storms-ahead.html

 

Well, that storm has turned into an economic tsunami that has ripped through the political scene in Washington.

 

In short

The US Congress failed to pass a budget to fund the government for the next year on 30 September 2013. In particular, it did not agree to raise the public debt ceiling and the US Government does not have sufficient money to pay key Government staff.

 

All ‘non-essential staff’ (about 800,000 of the 2.1 million total) on the federal workforce will be told to stay home. If there is no budget bill that is passed by both chambers in the next week, the US Government will come to a screeching halt also.

 

Historical Evidence

 

You will see from the table above, the debt ceiling has been raised without much drama in the past. Since 1960, it has been raised 78 times. However, over the past three years, it has been used as a negotiation point for House Republicans who have sought to extract budget concessions from Mr Obama. To put that another way……you can have your way Barack but you must give us what we want first.

 

A Big Deal?

This is the biggest and most powerful economy in the world failing to pay Government staff. The news, investment markets and other Governments will get very twitchy over the next week. Expect plenty of unrest and media coverage.

 

Should you be bothered? Damn right……the UK is the 51^st State after all!