ultranomics

12th November 2008, TK (co-editor)

Welcome back everyone! You made it to our second edition.

Here in autumnal UK, it seems we are certainly living through one of those accursed ‘interesting’ times as per the clichéd old chinese proverb.

On the face of it last week’s 1.5% base rate cut (down to a 53 year low of 3%) by the Bank of England should put a smile on the face of every mortgaged person in the country. Lets for a moment put aside the poor pensioners who were relying on a reasonable savings rate to get them through the winter (do I detect a reversal in the declining trend of extended asian families living together?)

Thankfully for us struggling ‘homeowners’ and small business owners (who should have saved for a rainy day anyway) most of the high street banks have agreed to pass the cut on. The Nationwide, Lloyds TSB, Abbey, Scottish Widows, RBS and NatWest said they would be passing on the full 1.5 per cent rate cut. They were followed – eventually – by Bradford and Bingley and the nationalised Northern Rock. A monthly mortgage of £150,000 should reduce by £138 to £887. Bargain.

But by dropping rates are Central banks merely making the same mistake as Alan Greenspan during his time as the US Federal Reserve chief? They are trying to use a drop in real interest rates (nominal rates minus inflation rate) to convince consumers to spend their money instead of saving it. In other words they are attempting to keep the credit bubble inflated, or at least to stop it from deflating any further. This isn’t good monetary policy in the long run as ultimately encouraging people to save, e.g. by giving reasonable rates of return from savings vehicles is the only way to wealth accumulation. The road the bankers would have us take is the road to poverty via debt-servitude; i.e. take out a car loan, get another credit card, remortgage the house. The life of the average Javed and Jameela is thus burdened with paying back interest for trinkets, e.g. lcd tvs, overseas holidays, luxuries, that they could ill-afford in the first place. This is wealth transference from the many to the few.

Sure there is ‘the economy’ at large to worry about and if we as consumers aren’t motivated to spend our money instead of keeping it in our accounts (or safer still, under the mattress) then companies left, right and center will be on the decline and jobs will be lost. Unfortunately though dear readers that is nature’s way. Bloated companies and unlikely ventures should not be saved by artificial means. If a company is competitive and well run it will get through and be stronger in the end. Those that are not must meet their demise and make way for fresh enterprises with new ideas and new jobs. The easy credit of the last 10 years allowed unhealthy risk taking to flourish in business, and Javed, with his imagined new wealth from credit cards and rising house prices bought into the myth of unlimited prosperity disconnected from true wealth-building activities, otherwise known as “hard work” (I apologise to all the hard working Javeds out there – I don’t mean you!)

Our hope here at the Ultranomics desk is that Javed and Jameela, as well as the rest of us with mortgages and loans, will take this opportunity given to us by the fall in rates to use the monthly drop in our payments wisely. Now would be the time to use that extra cash to pay off more of the loan capital where possible. The trinkets can wait! For those with no mortgage to pay but some money in savings accounts, sorry. But hey, cheer up and treat yourself to some new shoes for being such clever people.

continues below…..

jq ponders on Pakistan’s money flows

Ab Tera Kiya Hoga Kalia!

12th November 2008, JQ (co-editor)

Our brand spanking new democratic PPP government has finally managed to find the sacrificial goat or ‘patli gardun’ responsible for all of Pakistan’s current economic evils. The news is that the State Bank has suspended the licence of Pakistan’s top money changer company Khanani and Kalia International [they used to sponsor news and current affairs on some major Pakistani channels] for 30 days after allegations that it was involved in smuggling $10 billion in foreign currency outside Pakistan.

This smuggling of foreign currency has apparently resulted in a massive downward slide in the country’s forex reserves, which have depleted from over $16 billion in Oct 2007 to now at below $7 billion. What no one mentions is that Khanani & Kalia were only the brokers so who actually owned those $10 billion dollars?

A private TV channel reported that Khanani and Kalia had offered to return the foreign exchange transferred outside Pakistan if the government released them and they have also promised to bring the dollar back to 72Pak Rupees from 78 at the current rate. I mean WOW they surely are the George Soros of Pakistan! But wait a minute, if just 2 Pakistani businessmen have the ability to bring the dollar price down by 6 rupees then what about the masses of wealth of Pakistan’s ruling class [and opposition alike] stacked in European banks and offshore accounts?

I heard the Prime Minister’s Adviser on Interior, Rehman Malik in a press conference saying hundi and hawala are illegal. Really? Since when? There are at least a 100 money changers in Rawalpindi alone right at the door step of the Pakistan Army’s General Head Quarters.

Pakistan has been turned away by all western powers and even China [who we tout about as our bestest buddy] and for what – a measly $5billion to save the country’s economy? Our very own Kalia saab could have done that alone with his special friends!

What I want to say is that instead of looking at the IMF and to beg rich nations all we have to do is have some sharam and sort our tax network and get rid of the double taxation [general sales tax]. So all businesses pay a low amount of tax as compared to a few paying high taxes which in turn gives rise to bribery and corrupt tactics as they try and change the tax rate incidence.

more ultranomics below…..

more views from TK

now the Chinese are feeling the burn…….

The great success story of the new millenium, Pakistan’s friendly-giant neighbour, China is finally beginning to feel the effects of the global slowdown. The great hulking machine that was the powerhouse of world ‘trinket’ production is beginning to run out of steam. (We like the word trinket here at Ultranomics – by it we refer to objects bought by us consumers that often we could do without but we like to acquire to be fashionable or to keep up with our friends, like big TVs, ipods, new sofas, latest shoes).

Anxiety in Beijing is mounting that China’s economy is cooling much more quickly than was initially expected in the face of weaker international demand and a slowdown in the local property market.

Two recent surveys of manufacturers showed a slump in activity in October, confirming anecdotal evidence that the slowdown has accelerated in recent weeks. Some economists believe that growth, which was nearly 12 per cent last year, could fall to as low as 6 per cent next year without a substantial fiscal stimulus.

So, on Sunday China came out with a big bailout program for its ailing economy – a plan called a “Social Stabilization” program, in which the government will spend more than half a trillion dollars (actually £586bn if you prefer your cash in billions rather than trillions) to try to avoid a revolution. With demand from western countries for the trinkets made in Chinese factories dwindling, workers are finding that they haven’t been paid in months and there are reports of bosses just not turning up on a Monday morning and disappearing. Masses of these workers are returning back to the countryside from where they came, often with heads hung in shame, but more often with anger in their eyes. We’re just guessing that this is what is disturbing policymakers in the Mighty Kingdom – the horror of hundreds of millions of desperate, jobless Chinese.

Asian equity markets rallied on Monday – boosted by hope about the Chinese bailout plan. But then, the bad news kept coming…and by market open in New York, hopes were already falling. By the closing bell, stocks ended mixed in Asia and the Dow Jones had fallen 73 points. Gold was trading at about $745 yesterday – after rising on Monday. Oil was slipping again too.

We’ve already seen things begin to go wrong. Unless the next 44 days bring a remarkable bounce, this year will be the worst year for the stock market since 1937. Trillions of dollars has been lost…which has already caused a major change in the way people think. In a matter of weeks, the dominant emotion has shifted from greed to fear.

You’ll remember, the Bush administration worked hard to make people fearful. They came up with those preposterous “threat levels,” trying to convince the masses that they were in constant danger from Islamic terrorists.

Now, the masses actually feel in danger – in danger of losing their jobs and houses. Fear imposed by the government has given way to real fear of the type the Government did not want. They’re never happy are they? Be sacred/don’t be scared. We wish they’d make up their minds. So, when Obama declares that its time for ‘Change’ perhaps he’s thinking about his first job when he gets into office – that of changing the mood of fear into one of joyful confidence. The new Emperor has his work cut out we think!

TIME magazine calls it the “End of the National Nightmare.” No more Guantanamo. Troops out of Iraq. No more ‘threat levels.’ No more suspected terrorists working behind the counter at Burger King. Terrorists? Who cares about them? The danger is now real…and right out in the open. Everyone is living in fear.

Let the history books note that 2008 was the year when in the great USofA the first black president entered the White House and when one hoodwinking scam took the place of the previous one. What americans feared before was a worldwide terrorist assault on their freedom. Yet now, they would gladly give up that same freedom, just to stop losing any more money. The masses need Obama’s administration to give them financing for their homes, to bail out General Motors, to save their jobs and the economy. If they promise to keep us all safe heck the government can do what it wants. We won’t mind.

Thats enough musings for today. More to come soon from the ultranomics desk. Make sure you dont miss the next edition by signing up to the no-obligation regular ultraletter email. It takes just a few clicks!