Cynicus

The Kroner looks like one of the safer options to go for. They have political stability, mountains of oil wealth, and therefore look a good bet. However, I say this without having tracked the currency performance. You may want to check an FX chart for history over the last 2-5 years before diving in. If too many others have already had the same thought.....

In this respect, I can only agree with you!

Not stupid at all. Possibly many who think they know what it is, probably do not. It is the International Monetary Fund. Their description of themselves is as follows: Not very helpful really. More of a mission statement than what they do.... As such, good old Wikipedia describes it here. The real question is whether the IMF is a tool of the devil, or a jolly useful institution. For the answer to that question, you will need to form your own views....

I can not sypathise with the first post in this thread enough. The poster is quite right to be angry. He does not need a bailout, is in manufacturing, and actually does something that is creating wealth within the UK economy. When these bailouts are undertaken, one way or another, he will be paying for them. It does not matter whether it is Jaguar or RBS, the money that will pay for these bailouts will eventually be paid in taxation. In practical terms this means that corporation tax might rise, or it may be income tax, in which case he will have to pay more to his workers to give a living wage. As I said, one way or another, he pays. I would take issue with one point. This is the idea that Chinese workers are slaves. I have lived in China for a long time, and can assure you that I have been in many manufacturing plants there - both state and foreign owned. The working conditions are not great, but not that bad either. In addition, when we see the wages, these do not account for the cost of living in China, which is very cheap. I did a straight cost for cost comparison of the cost of manufacturing a product in China and France. It was not the differential in wages of workers that created the competitive advantage, they offered a couple of percent cost benefits, but every other element of the cost base. For products with a very high labour input, this will not always be the case, but for many products, it is not cheap labour that makes the difference. The truth is that we are just not structurally competitive. Every part of our economic structure is bloated with fat, not to mention useless rules and regulations. In such circumstances it is no wonder we struggle to compete. It is all too easy to blame our woes on cheap labour, but that is only one element in the mix, and often is only important for high labour input manufacturing. We are in an era of hyper-competition, and we leave our manufacturers to fight it out with their hands tied behind their backs. In such circumstances, only the very strongest of businesses can survive. I write extensively on both reform of the economy (e.g. here), and why we are seeing economic crisis (e.g. here) in my blog. You are welcome to visit. The one certainty in all of this is that borrowing more money to lend to poorly performing banks and companies is not the answer. It was borrowing that created this mess, and more borrowing will just lead to further problems.

You are assuming deflation is due to the collapse of confidence, rather than a supply side problem. This is what everybody is not considering. It is all a question of over supply. Sorry for a brief reply, but it is very late where I am, but a fuller answer is here.

The first point is that printing money is an indirect method of default. When a government prints money, they are transferring some of the value of the existing money supply to the newly printed money. The overall value of the money has not altered, it is just distributed over a greater number of units. As such, if you then repay debt with the money at the new value, you are paying less than you would otherwise pay. If you owe £1, yesterday the person you owed the money to could have used that money to buy a loaf of bread. Today they can only use it to buy three quarters of a loaf of bread. In effect, you are not honestly paying that person back, but are actually evading paying them back. It is a default through other means. The other problem with printing money is that it is an indirect form of taxation. I suggest you read an article from the Ludwig von Mises institute here. However, the article does not explain the mechanism of the taxation. In redistributing the value of money effectively the government is taking the value of money held by individuals and institutions, and moving that value onto the money that is printed. The government holds that money, and therefore is indirectly taxing everyone who holds that currency. I am not sure what you are asking for what you say more evidence of your thoughts. However, I have recently written this explanation of some of the dangers of the combination of government borrowing and printing money. I have already posted a link to an article, where the possibility of printing money is being openly discussed by the BoE in the original post. With regards to the possibility of default, we have this from the FT: This is just one example, amongst many that I have seen (this is just the first that I found). I have been tracking these kind of articles (with the help of some of the commentators on my blog) for some time, and have referenced many similar stories. The government can not operate without continued borrowing. If the creditors do not stump up, the government will no longer have the finance to meet expenditure. The government will then have a choice of not paying for people/companies in the UK, not paying overseas debt, or paying for either/both with printed money. I hope that I have covered your concerns, but let me know if you need more information. I normally take a browse through the forum once or twice a week, and will be happy to respond to any further questions.

I am not sure if this is common knowledge as yet, but the Telegraph has recently published an article as follows: Even more worrying is that in the new banking bill, the necessity for the BoE to publish how much money it prints has been abolished. I found out about this on at Guido Fawkes here. To say the least, this is very disturbing. It appears that the government will try to print its way out of the crisis. I believe that this is because the UK is about to default on debt, and have been looking at this subject for some time. It seems that there are troubles selling government guilts/bonds, which essentially means that the UK will need to default on debt. I am more than a little puzzled that there are not headlines screaming about even the fact that the BoE is considering printing money. It just seems like nobody is really bothered?

Interest rates are set as a target to govern the money supply in the economy by central banks (through open market operations in the UK primarily through the London Interbank Offered Rate). The control of the money supply is managed by either buying or selling securities such as second hand government debt (e.g. bonds), or by lending to or borrowing money from banks. The important word here is target. At its most basic, the more money sloshing around the economy, the more supply in other words, means that there is less scarcity of money. This allows (in principle) banks to lower interest rates. However, commercial lenders actually decide interest rates on other factors, such as perception of risk and other commercial considerations. If the central bank wants to lower interest rates, they simply increase the supply of money. The government has been 'targeting' lower interest rates, but the banks have been reluctant to follow, as was mentioned by Paulokes. As such the government is now using the newly found muscle in the banking system to force lower interest rates through the economy - essentially by threats and as a quid pro quo for the bailouts. In doing so they are very likely to force the banks to misprice the current high risks in their lending, thereby prolonging the pain in the banking system long into the future. The first paragraph here is technical, and the second answer is somewhat more partisan. If you wish, you can read more about the second answer here.

I'll republish a link from an earlier post. This from the Spectator: http://www.spectator.co.uk/the-magazine/fe...ons-books.thtml Gives a good summary. Some argue that the UK net debt position is not too bad. There is an answer to this which suggests that we should be worried here. Who is lending to the government can be found here: http://www.bankofengland.co.uk/publication...in/qb040406.pdf I hope this all helps with the answers.

Money is any unit of exchange, at its most basic. In the case of modern 'money', it is the confidence that an intangible abstraction will hold a value in exchange. Scary, huh? I have written something on this that can be found here, or the easier option is the Wikipedia definition here. For your question about the production of gold coins. This is not increasing the money supply in the sense that you mean. There is no difference between producing more gold coins and producing any other good, or even growing more wheat. In this case a service is being added to a commodity, as the making of a coin out of gold is making it into a more convenient form, providing the service in use of immediately being able to identify weight and purity (and looking prettier). However, it is money in the broadest sense in that it can be used as a unit of exchange. To your last point, yes governments do make money out of nothing. The simplest way of looking at this is to think of the traditional way that this is done, which was to physically print more money.

The arguments about the cost of new oil does not alter the reality that most oil is still very easy and cheap to extract. That is why it was so cheap, right up to the point where demand exceeded supply. With demand falling, oil could in principle return to the prices of a couple of years ago. However, I am sticking with my guesstimate of $60 per barrel, though I suggested orignially that this would take two years. I now think that this will be the price in about 12 months. Why not fall lower than $60? I think that demand from emerging economies will start to rebalance drop in demand from the OECD economies, at about that level, though perhaps now I must consider a maximum low of $50 in light of the speed of the economic collapse in the OECD (is a maximimum low an acceptable expression - apologies if not).

More probable is devaluation leading to inflation of imported goods and commodities, with falling incomes (in particular if you take unemployment into account as a displacement of wage level falls), and falling house prices. Perhaps economics needs a new term for this, which I would suggest as the economic phenomenon of 'toxic mess'

The answers are all in this article from the Spectator: http://www.spectator.co.uk/the-magazine/fe...ons-books.thtml Hope it helps

bombardier: Not quite an answer to your question, but you may find this informative in general. http://en.wikipedia.org/wiki/List_of_count...y_external_debt I know it is Wikipedia, but it references the CIA factbook. Just a big picture look at debt. This may also answer many of your questions: http://www.bankofengland.co.uk/publication...in/qb040406.pdf I have not had time to check it is the right report (it is taking ages to download) but I believe it includes aon the UK assets and liabilities (including whom we owe what to), and may make interesting reading for you. However, it is not the whole picture. For fractional reserve banking you may be interested in this amd for the state of UK debt overall, this. Questiondog: Great introduction to the subject

You may want to take a look at the Telegraph article here - unless OPEC restrict supply, then there is a real possibility of a drop to $60. However, the article does not suggest that. I am just reasserting my original prediction....though I have been wrong about the speed of the decline in price. Having said that, I think the decline in price from here on will be less dramatic, more bumpy,and that the price fall will be tempered when the $US goes back into decline. The interesting thing is that so many people kept on insisting that the price would remain so high. I have yet to see an explanation that makes sense to me. Perhaps OPEC will move to restrict supply, but there are no structural reasons for prices to remain so high. For OPEC, they will have to ask about the consequences of restricting supply in light of the current state of the world economy, and I would guess that they will not act upon restricting supply in the current circumstances (though I emphasise that this is a guess - people are not always rational). I do think oil prices will rise again, but not until the current troubles in the world economy have stabilised, and the emerging economies replace the drop in /dropping demand from the OECD countries. My guess is that the price will start to rise again in about 3-4 years time (OPEC foolishness notwithstanding).

You have a fair point about amplification and product life cycle. However, I would argue that the real difference that credit has made is that it has hidden some underlying changes in the world economy. A simple way of considering this is to measure the growth in various forms of debt with growth in GDP. It is when you do this that you realise how much recent 'growth' is built on debt. The trouble is that debt is the spending of future wealth. In the up cycle, it expands the economy, in the down cycle it amplifies the contraction, so you are 100% right in the current situation. We have reached the peak and now and, with the future wealth having been consumed such that there is very little available cash, it is causing a massive contraction. However, this is not the only factor driving the economic contraction. I will not link to my blog again for fear of being seen as spam, but this is discussed in many places on the blog.

Just a note, as I have added what I hope is a better explanation of what is going on in the world economy. The post can be found here...

Thanks, positive comments are always appreciated...

sikejsudjek has it partly right. I am not sure most economists have grasped that something profound has changed in the world economy. In particular, there has been a massive increase in labour without a commensurate increase in the supply of commodities. As such we are now in a position in which there will, for many years, be competition over the available resources. I discuss this with an analogy here. The problem would, in any event, be severe but the mountain of debt in the Western economies, including in particular the US and UK, are going to make the problems even worse. Personally, I believe that the UK economy will shrink back by a minimum of 10% of current GDP, and am predicting an economic meltdown.

The trouble is that the entire world economic system is built on fractional reserve banking. The result is that the entire banking system rests on a very dangerous commodity - confidence. At the moment, confidence is at a low, and for very good reason. The banks have been lending like drunks, without any consideration of the fundamentals of the economy. This applies to both the UK and US. There is a rather unusual post here which compares the banking system in the real world with the banking system in virtual worlds, which illustrates the point.

---------------- ---------------------------- I have to admit the poster has a point . The definition of peak oil is as he says. In my post have conflated the idea of peak oil with reserves and the ability to extract the reserves, which was lazy. This is what I say in my post: However, the people arguing that we have reached peak oil point to the lack of new reserves being found, and that we are now using oil faster than it is being found. As such the doomsters are conflating these two ideas. e.g. here I would suggest a quick visit to the economist magazine here (I hope that it is not a subscribers only article) This is a quote from the article, but you really need to read it all. The real argument over peak oil lies in the when.... I was lazy in using the term peak oil, and I should have written something like this: 'Let’s assume for the moment that the doomsters are right, and that we have reached the point at which there are not enough new reserves being found such that reserves overall are in decline. Would this explain the recent spike in oil prices? The first point to make is that reaching the point at which reserves are not being found at a rate to maintain the current overall reserve levels is a long way away from running out of oil. Regardless of the peak in the levels of reserves there is still enough easily accessible oil to last the world for decades on current consumption levels. As such, why would reaching such a peak in reserves, and technology to extract reserves, cause a spike in prices now.' With a clarification of terminology, I would argue that peak oil is a long way off, but even if we have reached the peak in discovery of reserves, then this would not impact on oil prices yet. As the economist article points out, we can use a fatter straw to suck out the oil for a while yet. P.S. Thanks for the perfectly fair criticism.

I have just followed the link to the article, and it just illustrates how many mainstream economists just have not got a clue. Peak oil will not impact on prices for a long while yet, even if peak oil has been reached (which is far from certain). You can find a fuller discussion on this subject here. You will note that oil prices have fallen since the original post on this thread. Well, they will keep falling (or rather the trend will continue down, as there is always the possibility of volatility on the way down). The prediction in the linked article is about $60 in 2 years time.

I am very sympathetic to the views posted by bleakhouse, and the website that he points to. I agree with the idea that we are entering into a new depression period, and that life is going to get awfully tough. I wrote an essay back in November on the future of the UK economy, and came to the same conclusions. In the essay I predicted exactly where we would be now, and have predicted much worse to come. The essay is here. It is long, but has to be to explain how we got in the mess. The one point I disagree with is the point on inflation. I think that inflation will disappear as quickly as it arrived, barring food inflation. I explain why here. Life is going to get very tough indeed, but the problem is not sub-prime, which is rather just a symptom of the underlying economic problems. There is a massive imbalance in the world economy that is currently being 'fixed', and that fix involves pain. A lot of pain. We can no longer take for granted our economic success

I am afraid that it will get worse very quickly. I do not think a comparison with the last recession is appropriate (sorry), so you should work on an assumption that the speed of the economic collapse is going to be extremely fast. The problem is that the UK economy is actually structurally bankrupt. I am aware that this is a dramatic statement. However, I would suggest a long read through here. In particular there is a long essay that explains why here (the section on the house market will present arguments familiar to those who view this site). The second link takes you to a fairly long essay, but it should be worth the read.