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By Steven Baker MP, on 29 July 09
Via FT.com / UK / Economy & Trade – Companies pay down debts.
The bank debt held by companies fell for the first time since records began in 1997, in a sign of the credit squeeze facing smaller businesses.
The data from the Bank of England support Alistair Darling’s claims this week that in spite of the tens of billions of pounds spent on rescuing banks, companies are still struggling to gain access to finance.
Meanwhile, separate figures from the Bank suggested that its programme to pump £125bn into the economy has so far delivered disappointing results.
By Steven Baker MP, on 29 July 09
Via FT.com | Arena | What is the point of economists? .
“Why did no one see the crisis coming?” Queen Elizabeth asked last year. “A failure of the collective imagination of many bright people” who were all “doing their job properly on its own merit”, was the answer many of those bright people gave in a letter to the Queen last week.
If the economics profession could not warn the public about the credit crunch and the recession, what is the profession’s raison d’etre? Did this reflect, as some claim, that economics has gone astray with models that no longer help understand economic reality but rather distort it? Did such models even contribute to the crisis? FT writers and outside experts will set out their views in the posts below.
By Steven Baker MP, on 28 July 09
Via Chancellor appoints new Chairman for UKFI – HM Treasury .
Sir David Cooksey has been appointed as Chairman of UK Financial Investments Limited (UKFI), the company set up to manage the Government’s stakes in the banks, the Chancellor of the Exchequer Alistair Darling announced today.
The Chancellor said:
“As one of Britain’s leading businessmen, Sir David combines hands-on financial expertise with a thorough understanding of the needs of businesses throughout the country. I am delighted that he has agreed to take on the role of Chairman of UKFI, looking after the investments we have made in the banks”.
Sir David Cooksey said:
“I am pleased to be to taking on this important and challenging role. The taxpayer has made a substantial investment in the banks in order to preserve financial stability, and I will be focused on protecting the value of those investments and disposing of them over time”.
The Chancellor also expressed his thanks to Glen Moreno, who has served as Acting Chairman of UKFI since Sir Philip Hampton moved from UKFI to become Chairman of the Royal Bank of Scotland in January. Sir David’s appointment will take effect from 1 August.
By Steven Baker MP, on 28 July 09
Via Quantitative easing only one week to run, economists warn – Telegraph.
The unprecedented programme of quantitative easing could be coming to an end, with just one more week of the Bank of England buying back government bonds, economists warned.
The Monetary Policy Committee has a target to pump £125bn of cash directly into the economy by buying government and corporate debt, the process known as quantitative easing (QE), and has already gone above £120bn. This week will see it reach £125bn, according to Michael Saunders, chief western European economist at Citigroup.
By Steven Baker MP, on 28 July 09
Via FT.com / UK – Equities surge as UK economy shrinks.
The stock market surged higher for the tenth day in a row on Friday – the longest winning streak since 2003 – as investors shrugged off news of Britain’s biggest economic contraction in more than 60 years.
The FTSE 100 closed at 4,576.61 to record a 4.3 per cent gain over the week and a 10.9 per cent gain since the start of the winning run.
By Steven Baker MP, on 28 July 09
Via FT.com / UK – Darling threatens banks over loans.
Ministers have warned Britain’s banks to increase the supply of affordable loans to businesses or face the threat of a competition probe if evidence of market failure emerges.
Alistair Darling, chancellor, has ordered ministers to hold a series of one-to-one meetings with bank chiefs through August to establish whether margins and fees have risen excessively on loans to small and medium-sized companies.
The bosses of seven major banks were told on Monday that ministers would leave “no stone unturned” and could present their research to the Office of Fair Trading if there was a suspicion that competition was not working effectively.
By Steven Baker MP, on 28 July 09
Via Iceland’s krona proves the magic wand as Europe ails – Telegraph:
Out in Iceland’s Eastern fjords, Alcoa has raised aluminium production to record levels – and metal matters as much as fish for exports.
“The smelters are running full speed,” said the new-broom finance minister, Steingrimur Sigfusson. So is Mr Sigfusson himself. Last week he launched three new banks on the ruins of the old. Normality is returning. “We are going to get through this better than feared. We’re feeling real activity in the economy, and much of this comes from a favourable exchange rate,” said Mr Sigfusson.
By Steven Baker MP, on 27 July 09
Via No need to panic about GDP | Anthony Evans | Comment is free | guardian.co.uk :
GDP doesn’t tell us how economic activity affects living standards. It fails to distinguish between a bubble and sustainable growth. It doesn’t forewarn about inflation. And perhaps most importantly – it doesn’t help the average person on the street know whether they’re more likely to become unemployed. After all, declining incomes actually increase the demand for many types of goods and services, which is why plenty of workers are prospering in the downturn. As the old saying goes, statistics are like bikinis – what they reveal is interesting, but what they conceal is critical. And macroeconomic aggregates are more of a full Victorian bathing suit.
…
The industry built around forecasting gives economics an aura of scientism that is destined to disappoint. A narrow focus on statistical releases can blind us to the bigger picture. The crisis isn’t just a failure of monetary policy, but a failure of the monetary regime.
By Steven Baker MP, on 26 July 09
Via Queen receives lesson in economics – Yahoo! News UK:
The Queen has been sent a letter by a group of eminent economists explaining how “financial wizards” failed to “foresee the timing, extent and severity” of the economic crisis.
The three-page letter, signed by London School of Economics professor Tim Besley, an external member of the Bank of England’s monetary policy committee, and political historian Peter Hennessy, was sent after the Queen asked on a visit to the LSE why nobody had predicted the credit crunch, according to the Observer newspaper.
The letter ends: “In summary, your Majesty, the failure to foresee the timing, extent and severity of the crisis and to head it off, while it had many causes, was principally a failure of the collective imagination of many bright people, both in this country and internationally, to understand the risks to the system as a whole.”
By Steven Baker MP, on 17 July 09
 De Soto’s treatise Money, Bank Credit and Economic Cycles is one of the most comprehensive treatments in print of ideas on banking and the business cycle. It is highly recommended for those embarking on a serious study of the subject and for those who wish to dip into a scholarly treatment of the following subjects:
- The legal nature of the monetary irregular deposit contract. Types of deposit contract including the deposit of fungible goods, such as money. The economic and social function of irregular deposits. The essential differences between the irregular deposit contract and the monetary loan contract. The emergence of general legal principles governing the irregular deposit contract.
- Historical violations of the legal principles governing the monetary irregular deposit contract. Greece and Rome. The late Middle Ages: the Mediterranean, Florence, Medici and Catalonia. Banking under Charles V and the doctrine of the school of Salamanca. A new attempt at legitimate banking: the Bank of Amsterdam, David Hume, Adam Smith, the Banks of Sweden and Amsterdam, John Law and Richard Cantillon.
- Attempts to legally justify fractional-reserve banking. The error of equating irregular deposit and loan contracts. Redefining the concept of availability. Deposits, repurchases and life insurance.
- The credit expansion process. The bank’s role as a true intermediary in the loan contract. The bank’s role in the monetary bank-deposit contract. The effects produced by bankers’ use of demand deposits: individual banks of various sizes and the entire banking system. Simultaneous credit expansion by all banks. Deposit creation compared to unbacked bank notes. Credit tightening.
- Bank credit expansion and its effects on the economic system. Capital theory. Effects on the productive structure of an increase in credit unbacked by voluntary saving. The circulation credit theory of the business cycle.
- Additional considerations on the theory of the business cycle. Crises and real saving. Postponing crises. Consumer credit. The self-destructive nature of artificial booms and forced saving. Squandering capital. Credit expansion as the cause of massive unemployment. The inadequacies of national income accounting. Avoiding business cycles. The manic-depressive economy. Marx, Hayek and the view that economic crises are intrinsic to market economies. Empirical evidence for the theory of the business cycle.
- A critique of monetarist and Keynesian theories. The mythical concept of capital. The mechanistic quantity theory of money. Rational expectations. Say’s law of markets. Keynes’ arguments on credit expansion. The marginal efficiency of capital. The Marxist tradition.
- Central and free banking theory. A critical analysis of the Banking School. The Currency School and the Banking School. Central banking vs free banking. The impossibility of socialism and its application to the central bank. The failure of banking legislation. The concept of saving and the demand for money. The false debate between supporters of central banking and defenders of fractional-reserve free banking.
- A proposal for banking reform.
Over the coming months, we will provide articles covering the scope of this work, supplementing de Soto with insights from across our base of literature.
The book is available in full as a PDF here. It can be purchased from the IEA or the Mises Institute.
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