String Theory

Benefitz Betty's picture

How long is a piece of string?

Ten years ago to the day I became a mini- 'Thatcherite'.  How gross?

A lot has changed since then.  Starting with the Financial Crisis (unforseen!!) Hey ho, lets 'ride it out' tis a cycle thing it will only last a year or two.   Never say never.

"By Mervyn King

Sept. 24, 2017 10:05 p.m. ET

Well, we weren’t. Excessive leverage once again proved to be the weak point of our financial system. And wisdom does not seem to be on an upward trend. A decade on, one might expect that leverage would have been significantly reduced. And in the majority of large banks, that is indeed true.

But the opposite is the case for much of the rest of our economy. Indeed, total debt relative to gross domestic product is higher now than it was immediately before the crisis...

"But after 10 years of relative stagnation, we could be in for a bumpy decade ahead, because of the only immutable law of economics—double-entry bookkeeping. If asset values fall, then so too must total liabilities...

"So, as interest rates rise, the discount rate will increase and asset prices will fall relative to incomes. A squeeze on the value of total liabilities falls initially on the value of their equity, making it more difficult to borrow. But it also increases the likelihood that some companies and banks will default on their debts. We could see a sequence of defaults in different sectors of the economy and in different countries.

"Up until now, extraordinarily low interest rates mean that many borrowers have been able to continue to service their debt when in fact there is little prospect that the full value of the loan will be repaid. When the Bank of England conducted its first stress test of the U.K. banking system in 2013, we found that expected losses on loans were much higher than stated provisions.

"Unsustainably low interest rates over a long period have led to a significant imbalance in economies around the world. Whether excess capacity in the export sectors of Germany and China, or excess investment in residential and commercial property in the U.S. and U.K., much misplaced investment remains to be written off.

Rising interest rates will reveal the true state of balance sheets that has been concealed by accounting rules that allow loans to be valued at their full value, provided those loans are currently being serviced. We shall see the force of what economist Joseph Schumpeter described as “creative destruction,” an inevitable part of economic growth in a prosperous capitalist economy. That force is now needed to correct the misplaced pattern of investments induced by faulty market signals such as inappropriate exchange rates and excessively low interest rates.

As we have seen many times over the past century—from the financial crisis at the outbreak of the First World War to the events of 2007-08—markets sometimes wake up to the true position at the last moment, and then seemingly small events can trigger a sharp change in sentiment and asset values. A few unconnected defaults could lead to a reappraisal of the effective leverage of the financial system. Although banks are better capitalized than a decade ago, they are still vulnerable to runs.

And foreign banks are still heavily reliant on short-term dollar funding. That will lead to increasing pressure on the Federal Reserve to enter into swap agreements. Understandably, the Federal Reserve is reluctant to make open-ended and indefinite commitments of that kind. So, governments will need to think carefully about the regulation of short-term liabilities of their banks denominated in U.S. dollars.

We cannot know whether the process of writing down debt will, as we emerge from the excesses of the financial crisis, undermine the normal forces generating economic growth. And there will be plenty of investment opportunities for those able to spot the companies and sectors in which expansion will occur, and plenty of pitfalls for the unwary who think we are merely recovering from an unusually long but traditional business-cycle downturn. Over the next decade, our economic journey will take us along an interesting and bumpy road.

Lord King, governor of the Bank of England from 2003 to 2013, is a professor at New York University and author of “The End of Alchemy,” published by W.W. Norton in paperback in March. He can be reached at"

"The latest quarterly survey of 94 financial services firms by business lobby CBI and consultancy PwC found sentiment about Britain’s overall business climate deteriorating, with banks and building societies especially pessimistic.

Confidence in the financial services sector - Britain’s biggest source of corporate tax revenue and largest export sector - has now declined in six of the last seven quarters.

“While demand in the sector is expected to hold up in the near term, we can’t ignore the fact that optimism has dropped in almost every quarter for the past two years,” said Rain Newton-Smith, CBI chief economist.

The uncertainty about Britain’s future trading relationship with the European Union continued to weigh on the industry.

Britain will have to negotiate new trading terms with the EU and it is unlikely banks will retain access to sell their services and serve clients across the economic bloc.

Prime Minister Theresa May called on Friday for Britain to stay in the European Union’s single market during a roughly two-year transition out of the EU while offering concessions on a divorce deal as she appealed for a revival of Brexit negotiations.

But the job market was broadly stable in the last quarter and firms are expected to step up the pace of hiring over the coming quarter, the survey showed."

"We are all prisoners of our own experience. For me and the people of my generation who now tend to make the key decisions in finance and investment, our experience has included several huge financial bubbles and crises in the western world, and an unprecedented range of crises in the emerging world. Does that mean that we spend too much time thinking about potential future crises? The markets research team at Deutsche, led by Jim Reid, think not. This week they produced the latest edition of their annual long-term assets survey, and devoted almost all of it to “The Next Financial Crisis”. It is an enormous and excellent piece of research, from which I will try to gloss the most interesting points. First, the era we live in does indeed have more financial crises than those that went before. This is true globally, demonstrated with a welter of statistics, and there is a clear point at which the crises began to accumulate — August 1971, when President Richard Nixon brought the Bretton Woods agreement to an end, ending the tie of the dollar, and ultimately most other currencies, to the price of gold."

OK lets try to put this into context :


Nope its not just about the money. It's about the big divide & cultural behaviour.    

Someone said 10 years dealing with the public is too long.   Meanwhile :

"Liberal Democrat shadow Brexit secretary Tom Brake said: "Corbyn's anti-EU wing of the Labour party have won the day.

"Labour have again shown themselves to be neither here nor there, unable to come up with a coherent policy for fear of their own internal politics spilling out into the public."

"On Sunday, Mr Corbyn faced calls to commit Labour to stay in the EU single market and customs union after Brexit, but he warned this could affect the UK government's ability to use state aid to safeguard jobs."

And one wonders when he last had a job, or more to the point when he actually financed a n other persons job out of his own pocket"

Anyhoos this brings me back to Jessie. Today she is for the chop.

Bubbles is not amused.

One is less amused to discover that an uninsured operator of a leisure craft (as mentioned before) is screwing the Council for repairs to his craft (to the tune of my annual rates)  in an undisclosed deal (behind closed doors).    

Transparency & accountability for this belongs to the Projects Portfolio holder who no doubt will still be leading the Harbour Review Task Group.

"7:02am 25th September 2017

Work to repair Whitby's piers has taken another step forward.

Load testing has taken place, to make sure the structure can cope with the weight of the equipment.

It's passed, so that's another obstacle in the process which has been overcome.

Funding is still being secured, but it's hoped the work itself could start soon.

Scarborough borough council's Cabinet Member for Project Leadership, Mike Cockerill, said:

"We have the £4.8 million from the Environment Agency, but at the moment we still have a shortfall of about £3.5 million. But if all our bids come to fruition, we'll have the money and we'll be starting next year".

12:05pm 12th September 2017
(Updated 3:52pm 12th September 2017)

Scarborough Harbour could undergo redevelopment.

A report was presented by Councillor Mike Cockerill today in front of a Borough Council Cabinet meeting, and a business plan for the harbour will now be considered by the Overview and Scrutiny Board.

There is no concrete time scale at the moment, however it is hoped that the Overview and Scrutiny Board can come back with a report to Cabinet within three months. 

The report states that the key actions in the business plan include:

  • the regeneration of the West Pier, including new mixed use development
  • exploring opportunities for additional retail/commercial concessions in and around the harbour
  • improving port user facilities
  • addressing structural issues with listed building on West Pier
  • strengthening works to North Wharf
  • piling/facing and corrosion protection to harbour structures

"According to Councillor Cockerill, there is 'insufficient water space' at Scarborough harbour, meaning that there is a waiting list for people to come and moor.

Councillor Cockerill said:

"The harbour isn't big enough in my opinion, for even the existing uses. With  the potential for servicing the offshore wind farm and possibly other developments, I think that we have to look at absolutely everything.

At the moment, we're looking at how the existing harbour can be used, because obviously to physically extend the harbour would be a major project, mega money.

We wouldn't be able to afford to do it by ourselves, we'd have to get grant funding..."

Says the man. Whose only tool is his Portfolio.   

Hmmm ... now about that can opener. 

The End of Alchemy

Chews wisely.

Deep in thought....

PSst  "Moody's believes that the UK government's decision to leave the EU Single Market and customs union as of 29 March 2019 will be negative for the country's medium-term economic growth prospects. Aside from the direct impact on the UK's credit profile, the loss of economic strength will further exacerbate pressures on fiscal consolidation.

Growth has slowed in recent months, with average quarterly growth of just 0.26% in the first two quarters, versus an average of 0.6% over the 2014-2016 period. Private consumption has slowed sharply and business investment has been weak since 2016, most likely linked to the Brexit-related uncertainty. While future years may see some recovery, Moody's expects growth of just 1% in 2018 following 1.5% this year and 2.25% on average in recent years.

More importantly for the UK's credit profile, Moody's does not expect growth to recover to its historic trend rate over the coming years. The UK is a relatively open economy, and the EU is by far its largest trading partner. Research by the National Institute of Economic and Social Research (NIESR) suggests that leaving the Single Market will result in substantially lower trade in goods and services with the EU. In a similar vein, both the NIESR and the Bank of England estimate that private investment will be materially lower in the coming years than in a non-Brexit scenario."

Load testing ... Failure is not an option.