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Huge Gilts Row Barely Registers As The Uk Sleepwalks Into Stagnation

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http://www.telegraph.co.uk/finance/comment...stagnation.html

UK output shrank 0.8pc between April and June – far worse than the average 0.3pc slump predicted by City economists. All parts of the economy – apart from the public sector – are now in recession.

This was the fifth successive quarter of GDP contraction, with output down 5.6pc since the spring of 2008 – more than double the depth of the early 1990s recession and the steepest peace-time fall since the early 1930s.

Serious financial obstacles prevent a return to sustainable growth. With the global economy still on the skids, demand in key overseas markets remains muted.

Far more significantly, though, UK banks continue to hold the rest of the country to ransom, refusing to extend credit on reasonable terms, despite replenishing their balance sheets off the back of taxpayer largesse.

Regular readers will know what's coming next. But repetition doesn't make a fundamental truth untrue. The UK's inter-bank market remains gridlocked largely because banks are still unwilling to lend to each other. That gums up the wheels of finance, starving credit-worthy firms and households of the cash they desperately need.

This inter-bank torpor stems from fear of counter-party risk, because our banks continue to sit on billions of pounds of toxic liabilities which they still refuse to reveal.

A wiser government, a braver government, would have forced the banks to "fess-up" these losses before splashing the bail-out cash, so purging the system and allowing a genuinely restructured banking sector to dust itself down and start again. It's called "creative destruction". It's not pretty, but it's the only thing that works.

These GDP numbers expose the City's talk of "green shoots" as nonsense. A full recovery won't happen while the UK remains burdened by our newly created Japanese-style "zombie banks".

This is the heart of the problem – yet the politicians don't want to know. The banks are ticking over on a diet of government cash while charging usurious rates on extremely limited lending books. The UK, meanwhile, sleepwalks towards a lost decade.

As the economy stagnates, unemployment rises and the national accounts bleed ever more red ink – as revenues collapse and government spending goes up. New figures show that in June, tax receipts were 8.2pc lower than the same month the year before, while social security benefits were 9.7pc higher.

In any downturn, the public finances suffer, as tax and spending pull in opposite directions. But the bank rescue packages and the depth of the current recession are tearing the UK's national accounts apart.

In his 2008 budget, Alistair Darling said he'd borrow £70bn during 2009/10 and 2010/11. In this year's budget, the Chancellor admitted no less than £348bn of extra debt would be racked up during that period – an astonishing five-fold increase on his forecast of 12 months before.

But even that jaw-dropping increase was an underestimate – because Darling's borrowing predictions are based on the UK economy shrinking only 3.5pc this year, then returning to growth of 1.25pc in 2010 and 3.5pc in 2011.

When these projections were published three months ago, this column dubbed them "ridiculous". Given how growth has fared since, they now look even worse. So the UK will borrow even more this year than the £175bn announced at the last budget. No wonder the gilts market is so spooked.

While admitting fiscal consolidation is needed "at some point", politicians from all main parties drone on that the UK's national debt, while sharply up, is "only" around 56pc of GDP. "It's much higher in the US, Italy and Greece," they say.

Fetch my revolver. Do these people not understand that insolvency relates not to the stock of debt, but to cash flow? And as spending rises and tax receipts fall, cash flow is the issue upon which the gilts market is now very firmly focused.

The UK is issuing more debt as a share of GDP than any major economy. We're borrowing twice as much in 2009 as France and Germany. In recent months, banana-republic style, the Bank of England itself has bought around half of all gilts issued.

Then on Thursday, following the biggest auction of index-linked sovereign debt in UK history, a massive dispute broke out, with investors publicly accusing the authorities of bad faith after the Bank hinted, just 20 minutes after the sale had closed, that it may soon stop buying gilts.

Such a row is almost unprecedented. It is of huge and pressing importance to this country's future status as a viable going concern. Yet it barely registered on the media's radar, receiving a mere fraction of the column inches devoted to the soap opera of Norwich North.

I beginning to like Halligan, although I think we have already gone beyond being a banana republic it's even worse than that.

Is the BoE trying to engineer a bond strike to cripple Brown? It might certainly force the govt into making cutbacks although the delusional Brown would probably take a bond strike as meaning they are the do nothing vigilantes whilst Labour continue to do the right thing.

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I beginning to like Halligan, although I think we have already gone beyond being a banana republic it's even worse than that.

Is the BoE trying to engineer a bond strike to cripple Brown? It might certainly force the govt into making cutbacks although the delusional Brown would probably take a bond strike as meaning they are the do nothing vigilantes whilst Labour continue to do the right thing.

I think so. Merv's benn signalling for some time he's had enough.

End game.

Nick

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http://www.telegraph.co.uk/finance/comment...stagnation.html

I beginning to like Halligan, although I think we have already gone beyond being a banana republic it's even worse than that.

Is the BoE trying to engineer a bond strike to cripple Brown? It might certainly force the govt into making cutbacks although the delusional Brown would probably take a bond strike as meaning they are the do nothing vigilantes whilst Labour continue to do the right thing.

It's a gilt-market toe-dipping exercise by the BoE.

Testing the water temperature (market reaction).

The next auction will be interesting and will probably signal the start of increased interest rates.

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http://www.telegraph.co.uk/finance/comment...stagnation.html

I beginning to like Halligan, although I think we have already gone beyond being a banana republic it's even worse than that.

Is the BoE trying to engineer a bond strike to cripple Brown? It might certainly force the govt into making cutbacks although the delusional Brown would probably take a bond strike as meaning they are the do nothing vigilantes whilst Labour continue to do the right thing.

thing is

boe signal or print money to buy gilts

gilt yields fall - which seems illogical but

short term the fact that boe prints money to buy gilts effectively increases the demand for the gilts (more buyers in the market for gilts)

long term though it means higher interest rates

a bit like a drug junkie temporarily easing his pain by having a greater dose

ultimately the eventual withdrawal will be worse

or if the dosage is too high

death (of the currency) results

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Guest Daddy Bear
ultimately the eventual withdrawal will be worse

or if the dosage is too high

death (of the currency) results

come to papa.......

there is no turning back now..........

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Mervyn King, the Bilderberger and Group of Thirty member, is at odds with with Gordon Brown, a fellow Bilderberger?

What a load of cobblers!

They bat for the same side FFS in spite of what their controlled media feed the gullible.

There is, however, some hope... The Independent published the following today.

http://www.independent.co.uk/news/uk/polit...ii-1761474.html

Mandelson's Greek farce Act II

Sunday, 26 July 2009

It was, arguably, one of the most memorable incidents of last year, and certainly one the key players would rather forget: involving Peter Mandelson, George Osborne, a couple of yachts, some of the planet's richest and most influential people – all set against the glistening backdrop of the Aegean.

Obviously unconcerned about the risk of tempting history to repeat itself, the two politicians again came together in 2009, again in Greece – and again surrounded by lavish floating gin palaces to mix with millionaires, billionaires and the world's elite.

Yet, while Mr Osborne noted his attendance at the Bilderberg conference in the MPs' register of interests, his co-player in this Greek drama's second act has been a little coy.

Lord Mandelson, like the shadow Chancellor, spent two nights at the five-star Astir Palace resort on an exclusive pine-covered peninsula outside Athens as a guest of the Bilderberg Foundation – the secretive organisation that has spawned a thousand conspiracy theories.

The Secretary of State for Business used taxpayers' money to fly to Greece because, happily, he had arranged a meeting with his Greek opposite number on the eve of the three-day conference in mid-May.

The taxpayer paid for hotel accommodation on Thursday 14 May, which his department said was justifiable because of the ministerial meeting the next morning.

He then stayed Friday and Saturday night at the Astir Palace, paid for by the Bilderberg Foundation, and flew back to Britain on Sunday.

A spokesman for Lord Mandelson said he had no need to declare the hospitality because it fell below the £1,000 threshold at which peers must declare their interests on the register within 30 days.

The spokesman refused to reveal what the accommodation cost, but the cheapest rate for a room at the Astir Palace is €390, which at the time would have been about £350 – total £700 for two nights. This was for a room with two single beds. Lord Mandelson's spokesman refused to say if he had gone for the budget option.

The next highest rate was €560, which for two nights would have tipped over the £1,000 threshold, even before the cost of meals and drinks, also funded by the Bilderberg Foundation, are taken into account.

While there is no suggestion of wrongdoing on the part of Lord Mandelson, a cursory look at the resort's literature suggests it would be difficult to spend less than £500 per day. There were also concerns that he had used taxpayers' money effectively to attend the Bilderberg conference. The resort is in the "most exclusive area of the Athenian Riviera", says the literature, where "luxury and nature combine to create a uniquely beautiful destination". On a private peninsula, it was developed in the 1950s as a playground for Greek shipping aristocracy, and multimillion-pound yachts are moored there all year.

The Lib Dem MP Norman Baker, who tabled questions in Parliament about the minister's attendance at the conference, said it was an "amazing coincidence" that Lord Mandelson has timed his meeting with the Greek business minister to coincide with the Bilderberg conference.

Mr Osborne sparked last year's Corfugate saga by leaking the news that Lord Mandelson "dripped pure poison" about Gordon Brown while the pair holidayed on the Greek island and on the yacht of the Russian billionaire Oleg Deripaska.

The threshold for declaring hospitality and gifts for MPs is £500, half that for peers. Mr Osborne registered the Bilderberg trip two weeks later. He refused to comment on the conference last night. Apparently recollecting last year's furore, an aide said wearily: "We're not going anywhere near that one."

A spokesman for Lord Mandelson said last night: "It's no secret that Peter went to Bilderberg.

"The trip was declared to the permanent secretary as usual and recorded in the departmental hospitality register. It was below the £1,000 threshold for the House of Lords register."

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Mervyn King, the Bilderberger and Group of Thirty member, is at odds with with Gordon Brown, a fellow Bilderberger?

What a load of cobblers!

They bat for the same side FFS in spite of what their controlled media feed the gullible.

There is, however, some hope... The Independent published the following today.

http://www.independent.co.uk/news/uk/polit...ii-1761474.html

Mandelson's Greek farce Act II

Sunday, 26 July 2009

It was, arguably, one of the most memorable incidents of last year, and certainly one the key players would rather forget: involving Peter Mandelson, George Osborne, a couple of yachts, some of the planet's richest and most influential people – all set against the glistening backdrop of the Aegean.

Obviously unconcerned about the risk of tempting history to repeat itself, the two politicians again came together in 2009, again in Greece – and again surrounded by lavish floating gin palaces to mix with millionaires, billionaires and the world's elite.

Yet, while Mr Osborne noted his attendance at the Bilderberg conference in the MPs' register of interests, his co-player in this Greek drama's second act has been a little coy.

Lord Mandelson, like the shadow Chancellor, spent two nights at the five-star Astir Palace resort on an exclusive pine-covered peninsula outside Athens as a guest of the Bilderberg Foundation – the secretive organisation that has spawned a thousand conspiracy theories.

The Secretary of State for Business used taxpayers' money to fly to Greece because, happily, he had arranged a meeting with his Greek opposite number on the eve of the three-day conference in mid-May.

The taxpayer paid for hotel accommodation on Thursday 14 May, which his department said was justifiable because of the ministerial meeting the next morning.

He then stayed Friday and Saturday night at the Astir Palace, paid for by the Bilderberg Foundation, and flew back to Britain on Sunday.

A spokesman for Lord Mandelson said he had no need to declare the hospitality because it fell below the £1,000 threshold at which peers must declare their interests on the register within 30 days.

The spokesman refused to reveal what the accommodation cost, but the cheapest rate for a room at the Astir Palace is €390, which at the time would have been about £350 – total £700 for two nights. This was for a room with two single beds. Lord Mandelson's spokesman refused to say if he had gone for the budget option.

The next highest rate was €560, which for two nights would have tipped over the £1,000 threshold, even before the cost of meals and drinks, also funded by the Bilderberg Foundation, are taken into account.

While there is no suggestion of wrongdoing on the part of Lord Mandelson, a cursory look at the resort's literature suggests it would be difficult to spend less than £500 per day. There were also concerns that he had used taxpayers' money effectively to attend the Bilderberg conference. The resort is in the "most exclusive area of the Athenian Riviera", says the literature, where "luxury and nature combine to create a uniquely beautiful destination". On a private peninsula, it was developed in the 1950s as a playground for Greek shipping aristocracy, and multimillion-pound yachts are moored there all year.

The Lib Dem MP Norman Baker, who tabled questions in Parliament about the minister's attendance at the conference, said it was an "amazing coincidence" that Lord Mandelson has timed his meeting with the Greek business minister to coincide with the Bilderberg conference.

Mr Osborne sparked last year's Corfugate saga by leaking the news that Lord Mandelson "dripped pure poison" about Gordon Brown while the pair holidayed on the Greek island and on the yacht of the Russian billionaire Oleg Deripaska.

The threshold for declaring hospitality and gifts for MPs is £500, half that for peers. Mr Osborne registered the Bilderberg trip two weeks later. He refused to comment on the conference last night. Apparently recollecting last year's furore, an aide said wearily: "We're not going anywhere near that one."

A spokesman for Lord Mandelson said last night: "It's no secret that Peter went to Bilderberg.

"The trip was declared to the permanent secretary as usual and recorded in the departmental hospitality register. It was below the £1,000 threshold for the House of Lords register."

they obviously dont give a shit

Edited by lowrentyieldmakessense(honest!)

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http://www.telegraph.co.uk/finance/comment...stagnation.html

It might certainly force the govt into making cutbacks

Well that would make the situation worse.

The problem is a lack of new money creation by the banks, they're restricting credit. So, the government step in and take up the slack by increasing the national mortgage. If they cut back it will reduce the money in circulation further.

The fact that most "educated" commentators don't seem to get this, to me, is the most worrying aspect of the entire matter.

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:blink:

the nominal quantity of money in existence today is higher than it has ever been before.

Yes. And 60% of that was created against assets - can you guess which ones in particular?

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I used to get the Sunday Times but got disillusioned because of the crass VI slant at every opportunity. For the last couple of months I have switched to the Sunday Telegraph entirely for the wisdom that is Page 4 of the business section, lead by the consistently superb artiles by Liam Halligan.

edit for spelling

Edited by v23nb

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ink and paper?

Bricks and mortar!

So, 60% of this "nominal quantity of money in existence today" entered the economy through the conduit of mortgages, the rest - government borrowing and consumer credit.

Your statement - "the nominal quantity of money in existence today is higher than it has ever been before" - is meaningless, it hasn't helped the Zimbabweans. What it means is that the money supply has been inflated against assets. The amount of new credit being created has slowed causing the nominal price of assets and many other large consumer durables to fall.

If the government stop pumping debt the "problem" will be amplified.

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