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I agree with the NN wag (wife and girlfriend!)...we need to ditch Trident...and ditch it fast. We just can't afford it anymore.

What's the latest about the oil find off the Malvinas islands btw?

Happy to see the reference to Marx here. Of all the economic analyses post-crisis I read, the ones which provide the greatest clarity and sense always draw on Marx to some degree or other.

Good post but a few questions. Overseas investors buy gilts and bonds also as well as pension funds. Banks buy gilts and bonds to maintain liquidity buffers.Big banks have the monopoly in making markets for gilts - why, how much are they paid and what influence do they have? What can motivate them? Central banks buy gilts also, ditto. Derivative traders get in on the act.What do the Inter Dealer Brokers do as intermediaries?

isn't it as simple as:

We have got ourselves into a position where we need to borrowing billions, so obviously it matters to us how much the people we intend to borrow from are going to charge us.

I don't see what this has got to do with "middle class retirees" and their cottages in the country. Why would anybody lend money at a low rate of interest if they think there's a good chance of not getting repaid? *

If we want to get ourselves into a position where we don't have to worry about such things, then we need to ensure we can pay our own way, which is the same direction that "the markets" want to see us moving in anyway. The need to bring govt spending in line with govt income (taxes) isn't some artifact of "neoliberal" economics or "markets", which is why talking about things in terms of what the "market wants" is almost misdirection: it detracts attention from the fundamental problem.

* as you point out, the chance of UK defaulting on its debts is low, but the chance of us inflating our way out of debt is meaningful enough to influence the expected return.

Right on the money again Paul.

I only hope that you can get a longer slot on Newsnight, as you really come in to your own when you tackle these bigger strategic issues.

Would be good to see Peter Warburton on Newsnight at some point:



His book "Debt and Delusion" placed major emphasis on how the bond markets have essentially funded our "debt fuelled consumption economy" these last 20 years or so.

I can just picture him nicely refereeing between the laid back Neo-Keynesian Stiglitz with his lap-dog printing press and arch-hawk "here's Jonny" hedge fund manager from Electra Equity Partners (Hendy/Hendry?).

"[Marx]lamented the fact, but he also understood it: "market forces", which appear to be uncontrollable by human beings and look more like a force of nature, are just the products of human action, mediated by an economic system."

This is why Marx was for freedom & democracy.
By understanding that capitalism enslaves humanity, it becomes obvious that for humanity to be collectively free requires the democratic control of the means of production.

A good example is the ecological crisis.
Capitalism can only offer growth, so it sells us 'green' growth.
The ecological crisis requires humanity to take collective, conscious action.
This is exactly what the market prevents.
To be a Green is to be anti-capitalist.

Paul,

With this single post you've probably done more to explain the financial firmament and why it matters to the general public, than anything I've seen from the mainstream media since it all went pear shaped in 2007. Kudos.

For those more interested in Karl Marx the economist, you should check out David Harvey I think you'll find he makes an awful lot of sense, and has a video series free to watch if you want depth.

Bond markets are ok, but I think oil price is a very significant player, at least when it comes to kicking in the head of Joe Public.

I paid 1.42€ per litre to fill my tank with supermarket petrol this morning. Nothing modern, anywhere, can prosper with that kind of overhead.

''With bonds, if you place a big enough bet, you can influence the outcome of the race.''

That begs the question... who owns most of our debt? Pensioners in waiting or China?

As I mentioned earlier a sensible amalgamation of Lib-dem and Tory policy, while in a tradional party orientation sense looks like an obsurdity on a practical (there goes the engineer in me again) level actually looks quite sensible and balanced in the midst of an equally obsurd situation we find ourselves in.

Re-balancing the tax system (10,000 limit - changes to capital gains etc) as a sweetener to bringing the cuts forward just seems like the right answer to me to a tricky conundrum of keeping the markets happy while preventing large scale social disorder (strikes or worse etc).

That is the cornerstone economically but a similar approach offers up other policy gems also.

What I can not understand is why on earth the talks with Labour have gone on for so long!! Surely they can not be serious!!

The only thing that makes sense is if the lib dems are using labour's desperate power grasping leadership as a stick to beat the conservatives with until they cough up, which on a practical level maybe will get the best result policy wise for the country (as given by example above) but leaves me with a bit of an uncomfortable feeling! It may be effective but it is hardly democratic!!

Interesting.

This is all getting way out of hand now!

A couple of people on the other ³ÉÈË¿ìÊÖ blogsites have now posted/referenced the same link below...

"89. At 11:49am on 11 May 2010, armagediontimes wrote:

Oh what a tangled web we weave when at first we practice to deceive. Just who is being bailed out here - Southern European economies, French banks or the bonuses of French bank FX traders?



So... to make a few guys even richer we are expecting Spanish citizens (and others) to take a big hit with a big bat. Good trick if it works. If it doesn´t expect fighting in the streets."

--------------------

These traders are completely out of control, they will single handedly bring down the whole Western economy...THEY ARE LITERALLY TERRORISTS DRESSED IN SUITS WEILDING WEAPONS OF MASS FINANCIAL DESTRUCTION.

Someone needs to sort them out fast.

...and this one is bang on the money as well (no pun intended)

/blogs/thereporters/robertpeston/2010/05/benchmark_gilt.html

WHY IS THE CURRENT WJHEELING AND DEALING BEING DONE BEHIND CLOSED DOORS? iTS OUR COUNTRY. WHAT ARE THEY SO ASHAMED OF? WHERES THE HONEST AND OPEN STUFF THEY HAVE BEEN BANGING ON ABOUT? THESE ARE THE 'DEBATES' I WANT TELEVISED, NOT THE SMARMY EMPTY PROMISES.

There could be more radical solutions that you are not countenancing.

We could nationalise the banks - and our utilities, so that profits are back into public hands.

We could employ British people instead of paying them dole money while other workers repatriate earnings.

We could cut the terrorism budget by gettiNg rid of the terrorists.

Its a narrow view of a country and ultimately its economy that doesn't take account of the difference between a country pulling together - or not, and the effect of this on the bigger picture.

Motivational forces are not limited to the narrow concept of Chigago rational economics.

But thanks for the explanation.

the NN Popular People's Front?

marx?




i had a copy of Das Capital once but i sold it for a profit.

marx is a curious pair of glasses to be wearing. why not look at the market economy through theology? its bonkers.

what kind of 'a market economy' did Marx have access to? a democratic one? globalised? its all nonsense to use his analysis of 19th century oligarchic feudalism where only a few have the vote and few have access to information unless one believes that society still exists? marx is irrelevant to the modern world economy except for those stuck in a time warp.

let us look at what the experts on Marx [one might think] are doing. China. Currency manipulation that smashes jobs in the uk and creates a wealth transfer from us to them. Their analysis is to use the market to economically destroy everyone but themselves.

Jim Rickards: "Goldman Can Create Shorts Faster Than Europe Can Print Money"

#14 jauntycyclist

Perhaps if you read & understood Marx you could provide a rational criticism of his standpoint.

I have debated with many economists & it is quite obvious that mainstream economists (& Austrians) have difficulty in explaining what is going on in the aggregate (world economy) because they have a flawed conception of value (the marginalist conception only works at the micro level).

Unlike other blogs this one has quite a high standard.
Please try to engage with the analysis rationally rather than make emotive responses.

@9 "The only thing that makes sense is if the lib dems are using labour's desperate power grasping leadership as a stick to beat the conservatives with until they cough up, which on a practical level maybe will get the best result policy wise for the country (as given by example above) but leaves me with a bit of an uncomfortable feeling! It may be effective but it is hardly democratic!!"

Jericoa old friend - the system which enables parties to seize absolute power on just over 1/3 of the vote is "hardly democratic". Preventing it from happening again is vital, to secure long term good governance for this country. Nick Clegg should be playing hard ball with the Tories, and I'm glad he is.

Off to get ready for my choir's annual Christan Aid concert now. Funny - many of us aren't religious, but it's a good cause and a community event so we happily cooperate and play our part. Politicians should remember the community as a whole is watching them, and most of us aren't blindly partisan.

@10 Hear Hear. The traders are not part of our community: they are parasites who need to be found "alternative employment."

@14 Jaunty. Yes - Marx became theology in the hands of "followers" who wanted certainties. Nonetheless, many of his analyses were valid when he made them, and are relevant now. In particular, we still have a degree of planned in obsolescence to avoid crises of overproduction.

In reality UK gilts market has been pretty toothless so far, allowing UK govt to print money to buy its own debts, run inflation over 3%, budget deficits over 12%, and devalue its currency by 25%. I wonder if Gilts market is a captive audience. Pension funds have such huge amounts invested that they simply can't move into other assets (gold, real-estates, cash) and no matter what happens no other asset class will ever be considered as safe for pension funds to hold.

Government bonds issued by reputable countries are supposed to be risk free, and their coupon rates/ yields therefore set the risk free return on investment. This is especially true of short-dated government bonds.

The risk free return on investment underpins the whole financial system.

If government bonds are no longer seen as risk free then the whole financial system is undermined, given that capital reserves are essentially underpinned by government bonds.

@jauntycyclist

Marx is actually fundamental, and I say this as a Keynesian :)

What the public know of Marx is communism & the Russian revolution. But Marx was first and foremost an economic thinker & commentator if not a "real" economist, though truth to tell the "Dismal Science" at that time was more rightly thought of as natural philosophy or political economy. We in the West view history through a prism, but the economic system we know of, didn't really take shape until the 1940's and the market economy had to wait until Milton Friedman before it attained it's current ideological status. But then I have a very dim view of Monetarism [spit!]

The Argument Paul seems to be making is one for the collective will, the fact that there is no "us & them", Man vs Market, there is only us, we are the market. For that perspective, Marx is your man. Unless you want to start reading Mancur Olsen :)

Which is Why I said that if you want to understand Marx the economist, then David Harvey is a very good guide. If you want to understand Marx in context then you need Heilbroner:

(US)
(UK)

Which is the standard work on economic thought and the implications of such. If you've come this far, and read and understood the above why not go a little further and discover how deep the rabbit hole goes?

Paul, what are your thoughts about the possibility of capital and exchange controls being introduced? Likely? Possible? What might be the impact?

#17

On reflection you are quite right!

Yeah Lib dems, play dirty, play smart, just remember to forget that approach once the 'negotiations' are complete. I never thought they had the political cage fighter spirit in them!!


The Lib dems suffered almost to the point of extinction by the 'big twos' relentless squeeze on the media, starving them of anything approaching 'fair' coverage, continually belittled in public as 'irrelevent' by both main parties.

Irrelevent of course really means threat to our power sharing see-saw duopoly therefore must be made to look irrelevent to protect it.

Thanks for the new perspective Sasha...go on sock it to em lib dems, make them suffer, take no prisoners, give as good as you get, extract the blue blood unreasonablness from the Tory policy agenda with the professional zeal of a career torturer who takes pride in his work extracting fingernails one by one from unbelievers in order to save their souls.

Why stop now

VINCE FOR CHANCELLOR

Vince cable on paper and track record is by far the best qualified candidate for chancellor for, if it were a job interview, Gordons Browns CV (degree in History) would have gone straight in the bin at the first round and george osbourne would not get past the corporate psychometric testing or basic 'experience' test.

As for what the market 'thinks' mattering.

Like everything.. it only 'matters' with my permission. A self fulfilling prophecy, a shared illusion built on the idea that the world can 'grow' forever.

With our collective permission we choose to believe it, so long as we keep getting bigger TV's, faster computers and more fresh fruit flown in from Chilli.

Its quite hilarious really.

re: "has to be logical, ruthless and unsentimental".
Reminds me of the times when gladiators needed to have the above qualities to survive the arena. Today it seems, however, the gladiators, rather than plying their skills against each other, strike out at the spectators and use these same qualities to determine who survives in the stands. Bad dream.

16

ah the usual name calling. no red can live without that.

what is this great marxism?

..Humankind's history is fundamentally that of the struggle between social classes..

so class is their highest idea of the mind.

...Marx argues that in capitalist society, an economic minority (the bourgeoisie) dominate and exploit the working class ..

where is the working class today?

..In order to overcome the fetters of private property the working class must seize political power internationally through a social revolution and expropriate the capitalist classes around the world and place the productive capacities of society into collective ownership...

this is 'rational'? or a hallucination that comes from having class as the hifghest idea of the mind.

any philosophy that does not have the good as the highest idea of the mind starts from other than the good so will have little good in it. marxism does not have the good as the highest idea of the mind so there won't be much good in it. how could there be? If you sow peas do you expect beans?

The question is one of priorities: do we spend taxes on war and weapons of mass-destruction or on the things that we need; schools, hospitals, universities, colleges, welfare, decently funded state pensions etc. Marx was clear on the animal that we're dealing with here: let's call it by its name - capitalism. The priorities of all mainstream political parties is to manage as effectively as possible the continued bail-out of the capitalist system, a system that is suffering a long-term crisis of sustained profitability. This explains why British investment found a home in the financial sector as opposed to the manufacturing sector - the profits promised to be much greater than those achieved in producing or manufacturing commodities. Capitalism has been marked by these investment bubbles. Lest we forget the DotCom boom?

It is clear that credit or debt has been useful in realising massive profits for financial speculators. It has also been absolutely necessary for many millions of ordinary people to maintain living standards using credit and cheap loans as an advance against future earnings, precisely because wages in the UK and US are stagnant. We also work the longest hours in Europe and in the case of the US, some of the longest hours in any advanced Western industrialised economy. Consumerism and living standards have been predicated upon historically massive levels of personal debt in these two countries. Bringing down these huge personal debt levels without raising wage levels, whilst viciously attacking public spending and the public sector, promises to create social upheaval, without restoring long-term profit levels.

We live in very interesting times!

how to spot a marxist

someone with no sense of humour and who never uses a simple word when a complex one will do.

the rabbit hole is for midnight tokers.

marx is irrelevant in the modern world. class as the highest idea of the mind and as the basis of a nation building science is a ridiculous.

however every marxist society needs to create gulags to deal with counter revolutionaries and political criminals. Yes merely thinking non marxist thoughts is a crime.

25

..why British investment found a home in the financial sector as opposed to the manufacturing sector..

who invested in manufacturing in Asia? why is it cheaper to import steel from china than to make it here? does the raw material cost different? is shipping different? No its the 'marxist' currency manipulation that makes china cheaper.

..Consumerism and living standards have been predicated upon historically massive levels of personal debt..

yes we are forced by capitalists to get sky and have holidays. how the workers suffer under this oppression of holidays.

marxists [in an ego inflation?] think they are involved in some kind of elite intellectual sport that only they understand. the masses could never come to grips with it which is why [for their own good] they must coerced into it through the threat of violence. Only then will people see the workers paradise.

hands up all those who see themselves as oppressed working class?

if working class = good then everything non working class [decadent] must be destroyed in a great 'cleansing'?

the oxymoron is that anyone working class is never going to read marx. unless its groucho.

My word is my bond - maybe, but a bond is just a piece of mathematic symbolism predicated on money and time. The problem here is that both money and time are social constructs.Yes they are capable of being concreted in fixed symbolisms, but also liable to dissmeniation too.

We always end up in the morass of trying to sort the real from the ideal. This was at the root of Marx's problems.He was not alone.

Michael Polanyi, John Gribbin and John Caputo made useful contributions to dealing with the dilemma. Derrida made a career of it and like Marx ended up inventing his own religion. Maybe that's all we can do ? God's Work a la Blankfein !

marxism 101

'i'm being repressed'

Where can I find out what percentage of England, or GB has a pension fund. I want statistics on this 'grey nomad' demographic and their pension fund capital. I want to know how the pension fund capital as a whole is spread across that 'grey nomad' demographic; precentages of who hold what. Where can I find it?

According to the United Nations, Singapore, USA, Portugal & the UK are at the top of the scale when it comes in sociatal inequality with the top 20% of the population earning around 8 times more than the bottom 20%. Singapore is the worst with 10 times almost.

Japan, Finland, Norway and Swedan are at the other end of the scale with the top 20% earning around 4 times as much as the bottom 20%.

I want to find out about the 'grey nomad' pension fund holding demographic because David Cammeron is going to give these people reward for years of hard work building up the bohemoth of an economy, that just crashed. Moreover an inheritance tax cut will help that top 20% who are 8 times richer than the bottom 20% consolidate or widen the gap.

And what would their argument to me be...well get up, get out and get on young lad! Get on your bike and work hard and ye shall be rewarded!
well I say to them; B****CKS!

"Why would anybody lend money at a low rate of interest if they think there's a good chance of not getting repaid?"

To force economic collapse and a new epoch of Capitalism. What purpose does a recession serve? What has history taught us about what happens post recession in Capilaistic societys?

It's all a game. Knowledge is power.

The markets are a reflection of the balance of ourselves, we are fighting against ourselves.

We are the bloodsucker squids.

'The Tempest' comes to mind.

#20 praxis22

You are quite right that it is possible to accept some of Marx's insights into the workings of capitalism & still not be a communist.

Perhaps Gordon Brown falls into this category.

As far as Heilbroner is concerned, I think he spoke too soon.

#7 praxis22 wrote:

'For those more interested in Karl Marx the economist, you should check out David Harvey I think you'll find he makes an awful lot of sense, and has a video series free to watch if you want depth.'

----------------------------

David Harvey conveniently mentioned the Anglo-Saxon foundation of modern capitalism...yet also 'smartly' ignored the real Jewish foundation of capitalism.

Only one poster on here has had the guts to confront this fact...who I note, most on here, have tended to ignore and not acknowledge. Yet, many on here, have modified large parts of their positions/arguments to accommodate much of what said poster has persistently written on here, without acknowledgement.

Many on here are cowards...just as David Harvey is a coward.

Some are not cowards...such as Kevin B. MacDonald

@ Paul Mason - Whats going on with the IMF and the gold market? Do you know anything about the gold markets and their influence on whats happening to the Euro?

Paul, what a post! Awesome!

"Greece alone has 14 times as much gold per capita as China? Do you realize that your "PIGS" actually have the same amount of gold per capita as the US claims to still have? (PIGS=25 tonnes/million people; US=26 tonnes/million people) And did you know the PIGS combined have 34 times as much gold per citizen as China? Astonishing really. A big gold revaluation should do quite a job on their reputation as swiney muddlers, especially compared to, say, California? I forget. How much gold does California have left?"



Is this true about gold retention by Greece?

@jauntycyclist

OK, I'll bite :)

I'm not a Marxist, I'm Keynesian. I am however a socialist, and my dad claims to be a communist, though I've always thought of him more as classical anarchist :) That said however I wasn't talking about politics, I was talking about economics.

Marx is one of the classical heavyweights, indeed you cannot get to any of the three modern schools without starting at Smith and going through Malthus, Riccardo & Marx.

Again, I'm not talking about politics, only of economics, and the history of economic thought. Which anyone reading Paul, may be interested in.

If you don't like big words how about sock puppets:

#38 praxis22

What's the difference between a socialist & a communist?

"Jargon buster of the day: The effective interest rate on a government bond is called a yield: as the bond's price falls, the yield rises.)"

I don't understand the bit after the colon. Why if the bond price falls (presumably on the open market) does the yield or interest rate rise?

Please can someone explain in plain English? Thankyou.

#40 Osbornes_merkin

To simply greatly, the yield is a measure of fear, if it's high, it means people want to be paid well to take the risk, since they figure the govt may default, (Greece.) If it's low then people fear that everything else is worthless and want a government guarantee that they will get their money back, (Japan.)

If people doubt they will get their money back from the govt, the price drops and the yield rises, they are "inversely correlated" if people only trust the government to pay them back, then the price rises and the yield drops.

Essentially the available yield is split between those that want to hold the bond.

In normal times the 10 year bond, (the long end of the curve) is a predictor of inflation, while the 2 year bond (the short end of the curve) is a predictor of interest rates in the short term. shorter dated bond maturities are also tied to the currency because of the interest rate sensitivity.

#39 duvinrouge

My personal take on that would be something like... A socialist is somebody who believes in private enterprise but that that enterprise should be taxed and controlled by regulation for the good of the people. "from each according to his ability, to each according to his need" Robin hood, take proportionately from the rich and give to the poor.

A communist is somebody who believes in state control & ownership of the means of production in order to guarantee workers have jobs and that all are equal, or at least "some are more equal than others" :) given that party officials usually get better treatment than the rank and file.

I tend to think that communism is a great system, it just doesn't work with people. Much like the Austrian school in fact :)

praxis22

"A socialist is somebody who believes in private enterprise but that that enterprise should be taxed and controlled by regulation for the good of the people."

Sounds like the definition of a social democrat to me.

If you haven't already I recommend you read Lenin's State & Revolution.
You will see that even the Bolsheviks wanted to 'smash the state'.

It's understandable that communism has been confused with Stalinism/Maoism given the history of the 20th century.

But a one-party state dictating to its people is very far from the communism of Marx.

Perhaps your Dad would agree with me.

Paul,

Thanks for writing this. It's been irritating me for ages that so many people wail about "the markets" as if a bunch of Martians were spitefully trying to sabotage our economy. I don't suppose this will shut them up, but it makes me feel better.

RE: 40. Osbornes_merkin

"Jargon buster of the day: The effective interest rate on a government bond is called a yield: as the bond's price falls, the yield rises.)"

I don't understand the bit after the colon. Why if the bond price falls (presumably on the open market) does the yield or interest rate rise?

Please can someone explain in plain English? Thankyou.

I had a blind spot with this for ages. Try this explanation. The actual numbers are obviously nothing like real but they show the idea.

The government wants to borrow money, lets say a £1,000. They find someone to loan them the money and in return they give that person a piece of paper that promises to repay the £1,000 in ten years time, plus they will pay, let's say, 4% interest (£40) each year. A year or two later, the guy holding the piece of paper decides that he needs his money back right now. He can't get it from the government because the agreement says it's a ten year loan, but he finds someone else who is willing to buy the piece of paper from him. The new guy will get the rest of the interest payments plus the £1,000 at the end of the ten years. However, this new guy isn't willing to pay £1,000 for the piece of paper. He is only willing to pay, let's say, £800. The first guy needs the cash so he takes it. The second guy is now getting £40 per year interest on a piece of paper that cost him £800, meaning he is getting 5% interest on his money, even though the government is actually paying 4% on the money that it borrowed. The 4% is the interest rate and doesn't change during the life of the loan. The 5% is the yield, and (probably) changes every time the bond (piece of paper) is sold on.

In different circumstances, the first guy might find that he could get, say, £1,200 for his piece of paper. In which case the yield for the new guy is just 3% (but the interest rate remains 4%.)

Obviously, in the real world, the two "people" above will be banks or insurance companies and the sums involved will be millions or billions, but the basic idea is the same.

RE 42

Lenin and crew were just anarchists PULLING DOWN THE Tsarist state to get them out of the war with Germany,this has now been repeatedly posted to these blogs in the past, why hasn't it sunk in?.

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Stalin was the statist, Trotsky (who he got rid of along with the Bolsheviks) were not. Anarchists are good for companies like Goldman Sachs, then and now. Wise up.

There is some talk of allowing local councils to issue bonds.

So 'outsiders' can potential control the country, and we may very well hand over control of our cities/towns too!

Should that be allowed, will the local voters be told exactly what they are voting for I wonder?

In Germany, this topic is also discussed very much, especially now that it down with Greek country is.

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In my opinion, should the markets take care of themselves and weaken, rather learn from her, as always to scream for help. Everything takes its time.