IS BRITAIN ON THE RIGHT ROAD FOR ECONOMIC RECOVERY ?

As a Briton, born, bred and educated in England, it is necessary now and again to confront the current options of the British Government (and the Governments of other countries), with some economic truths ?

In the 1920's, after Germany had lost the first world war, when the country was economically in a state of meltdown, financial ruin, Hitler rose to power.  He got the wheels of industry turning, partly, by building Motorways, which became the admiration and envy of many other countries. 

When there is a depression, when the wheels of industry are not turning, should a government anywhere increase taxes and the costs of living ?  Reduce benefits to make cost savings ?

Is the real alternative not to create more jobs by more Capital spending like building Motorways, Railways, Hospitals in the regions outside main towns, new purpose-built Prisons in outlying areas instead of inside big cities and towns and why not, Nuclear Power plants ?  Is this not also the opportunity to encourage the  decentralisation of certain Government departments ?

In this Computor Age, must everything be concentrated in London ?  To reduce endemic unemployment should governments not dangle a carrot to industrialists who want to expand ?

In this way governments could reduce unemployment benefits and restore the hopes and aspirations of the neglected members of our society !!!  That is what they all really want, not to be dependent on Social Handouts.
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CRICKET: THE ENGLISH TAIL IS WAGGING !!!

To "tweet" on Cricket in a Blog like mine, can deroute normal readers !!!  Cricket is not Baseball (or Rounders) but a serious Sport or Game played in English speaking Commonwealth countries, but also in one or two other countries like Holland.

To say that the tail is "wagging" is perfectly understood by all adepts !!!  In this case it means that England is doing very well, on top, at a moment when their oponents are suffering !!!  Some players are surpassing themselves !!!

As India is a serious "foe", Englishmen are exstatic whereas Indians are forelorn !!!  This is quite normal.  In England in Summer, up to a million people could be watching or playing Cricket during a weekend !!!  Likewise in other Commonwealth countries !!! 
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MARINE LEPEN:DECEVANTE FACE A MANUEL VALLS

Manuel Valls était l'invité de l'émission "DES PAROLES, DES ACTES" sur France 2 ce jeudi 6 décembre. Il était notamment confronté à Marine Le Pen forte de ses 18% à l'élection présidentielle.

Manifestement, la Présidente du "Rassemblement Bleu Marine" avait oublié que la campagne présidentielle était terminée.  Le thème de "l'immigré, responsable de tous les maux", n'a été que trop utilisé !

Il fallait plus longuement insister sur le fait qu'accueillir de nouveaux immigrés sans être en mesure de leur fournir un travail qui leur permette de trouver un logement décent et de subvenir aux besoins de leur famille aggrave leur situation et ne peut qu'engendrer misère et désespoir.

DML

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Jesse Helms and the 'University of Negroes and Communists'

Did Jesse Helms ever call UNC the "University of Negroes and Communists"?

That line has been attributed to the late longtime U.S. senator for many years by many sources. John Dodd, president of the Jesse Helms Center in Wingate, says it is "a fabrication."

I included the reference in a column last Sunday opposing the idea of naming a federal courthouse in Raleigh after Helms. Dodd called and emailed me to say the quote "has zero basis in reality." Dodd says he can find no evidence that Helms ever said or wrote it.

"It's one more in a long, false list of made-up 'quotes,' out of context half-truths and deliberate mischaracterizations that have entertained the Senator's enemies over the years," Dodd wrote.

Many sources that have cited the quote over the years attribute it to an editorial or editorials Helms delivered on WRAL-TV in Raleigh, where he opined on-air in the 1960s. WRAL included the reference in its obituary of Helms, which has been on its website for more than four years. Monday, the station removed the reference after Dodd complained.

The quote and its attribution to Helms has been around for decades. Among those who have included it in their reporting on Helms: CBS News, Newsweek, The Nation, syndicated columnist Richard Reeves, the Washington Monthly, the Washington Post, conservative commentator Michael Graham, the Observer (by many different reporters and columnists), Yahoo!, Mother Jones, the Florida Times-Union, the South Bend Tribune and countless blogs. Some citations say Helms "once called" UNC that. Others say Helms "repeatedly" or "frequently" used that moniker.

Some references cite Helms' on-air editorials. Others say the phrase emerged years earlier, in fliers circulated in the race-tinged 1950 U.S. Senate race between Willis Smith and Frank Porter Graham. Helms was Smith's publicity director.

For many long-time North Carolinians and Helms observers, the phrase, and Helms as its author, is something they've heard for as long as they can remember. But no one seems to be able to point to the original source material.

Did Helms say it? Or did someone make it up long ago and it took on a life of its own? At this point, we can't say, and more research is required. What is not in question: Helms repeatedly used race to divide his constituents and the country. His bigoted comments and actions inflamed racial tensions for decades, and he never apologized for that.

-- Taylor Batten

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SMOG IN LONDON IN 1952, NOW WHERE IS IT ?

The "Smog" (SMoke + fOG) was an unforgetable experience for all Londoners in December 1952.  I knew my area of London, the Kennington Oval area where the Surrey Cricket ground is still today, like the back of my hand !!!

Yet, when I came home on Fridays from my Boarding School I got "lost" in an area I knew well !!!  The Smog was thick and one could not see more than 10 or 15 feet in any direction !!! Traffic just crawled !!!

I now live in the centre of Paris, but almost each week, on a Sunday morning, I say to my French wife "There is no haze, the Sky is blue, ..."

In fact, there are no cars, or very few, in Paris between Saturday lunchtime and Sunday  evening !!!  There are less foul emissions from cars, and, let's be clear, less Buses !!! 

This problem has now been raised because something must be done !!!  However, politicians should not rub their hands at the thought that this is another good idea to create a tax on Motorists in France !!!  Or on Motorists in major cities in France !!!      

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On least corrupt scale, U.S. ranks 19th

There's actually something called the Corruption Perceptions Index, and the United States ranks 19th. And that's good. In fact, the U.S. is perceived as even less corrupt this year than last year when it ranked 24th, notes the Weekly Standard.

Transparency International, a nonpartisan group made up of members worldwide, compiles the rankings of 176 countries released this week. The U.S. scored 73 out of 100 - with 100 being the least corrupt. The rankings take into account public sector behavior such as bribery, fraud, cronyism and perceived levels of corruption in countries. It also takes into account perceptions about public sector leadership, government transparency and accountability, and the effectiveness of public institutions and agencies.

The U.S. made the top 20 but trails many of the leading developed countries. In the survey it falls behind, in order, Denmark, Finland, New Zealand, Sweden, Singapore, Switzerland, Australia, Norway, Canada, Netherlands, Iceland, Luxembourg, Germany, Hong Kong, Barbados, Belgium, Japan, and the United Kingdom. Coming in 20th is Chile; 22nd is France. Spain is 30th , Italy is 72nd, and China is 80th.

Bringing up the rear as the most corrupt are Sudan, Afghanistan, North Korea, and Somalia. Iraq is at 169th. Syria is 144th.

"While no country has a perfect score (Denmark and Finland came close with scores of 90), two-thirds of countries score below 50, indicating a serious corruption problem," Transparency International notes. "Corruption destroys lives and communities, and undermines countries and institutions. It generates popular anger that threatens to further destabilise societies and exacerbate violent conflicts," the group says.

Politicians in the U.S. might be tempted to feel smug that across the world this country is perceived as among the least corrupt. But here at home the public's view of politicians and others working in the public sector is not so rosy. Many citizens say they don't trust public officials. A Gallup Poll taken last week showed that only 10 percent of respondents said Congress has very high or high honesty and ethical standards, second only to car salespeople. An Elon University poll a couple of years ago showed that here in North Carolina, 65 percent thought elected officials look out more for their own interests than the public’s interest, 73 percent thought corruption is common among elected officials, and 67 percent thought corrupt behavior among N.C. public officials was becoming more common.

Those are not good findings. And 19th internationally shouldn't be good enough either. On a corruption scale, being No. 1 as least corrupt surely is the goal.

Posted by Fannie Flono

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Will Hillary run? Are Rubio, Ryan already doing so?

Enough about the fiscal cliff, Benghazi, Susan Rice and drone strikes. What Americans really want to know is will Hillary run in 2016.

In a new Washington Post-ABC News Poll, a majority of Americans say she should. According to the Post, overall, 57 percent of all Americans say they would back a Hillary Clinton candidacy, with support peaking among younger women. Among all women, 66 percent say they would support Clinton as a candidate for president in 2016; it is 75 percent among those under 50 and 54 percent among those aged 50 and up. Forty-nine percent of men back a Clinton bid, regardless of their age.

 The poll attributes some of the enthusiasm for another Clinton run to her popularity as Secretary of State: 68 percent approve of the job she's doing as the nation's top diplomat. None of the fallout from the embassy deaths in Libya seems to have touched her though diplomats' security clearly comes under her department's purview.

Republicans, not surprisingly, aren't so keen on another presidential bid from the former first lady: in the poll, 23 percent of Republicans would support a run in 2016; 73 percent would oppose it. Some 82 percent of Democrats would back her candidacy, with most saying they would do so “strongly.” A majority of independents, 59 percent, also support another Clinton run.

Republicans, of course, already have their eyes on recapturing the White House after a loss in November that stunned some: How could their man, Mitt Romney, lose to a sitting president who presided over a lagging economy and in whom many Americans are disappointed, they lament?

Two possible GOP candidates are already out of the blocks, some say, trying to become the party's frontrunners. Rep. Paul Ryan (Wis.), Romney’s running mate and the chairman of the House Budget Committee, and Sen. Marco Rubio (Fla.). Both spoke at the Jack Kemp Foundation dinner - Rubio was the foundation's Leadership Award recipient and Ryan was the keynote speaker. The foundation is a charitable nonprofit organization named for the late GOP congressman and Housing and Urban Development secretary.
 
Both spoke about the party putting emphasis on inclusion and a renewed focus on growing the middle class. It was a stark contrast to John Sununu's comments at a GOP forum on Tuesday. The former New Hampshire governor and Romney adviser atributed Romney's loss to President Obama's ability to turn out his base - people dependent on the government. Interestingly, Ryan's speech later that night seemed to repudiate such comments, noting: "Both parties tend to divide Americans into 'our voters' and 'their voters... Republicans must steer far clear of that trap. We must speak to the aspirations and anxieties of every American. I believe we can turn on the engines of upward mobility so that no one is left out from the promise of America."

Well said.

As for 2016, it's way too early to be scoping out the next presidential election just weeks after the 2012 race ended. Yet if there's speculating, what about the specter of another Clinton-Bush face-off - meaning Hillary Clinton vs. Jeb Bush, the former Florida governor who many Republicans wanted to run this time? Could happen, though the Republicans and maybe even the Democrats might be looking to go younger the next time around.

In any case, we'd like a breather from presidential campaigning. What's needed now is some governing. A lot of critical work awaits.

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Fire Bob Costas? For what?

So Bob Costas appears at halftime on NBC's "Sunday Night Football" telecast to talk about the biggest news in football last weekend - the murder-suicide involving Kansas City Chiefs linebacker Jovan Belcher. Costas begins by rightfully ridiculing the "mindless sports cliche" that "something like this really puts it all in perspective." He then quotes extensively from a piece by FOX Sports columnist (and Charlotte Observer alum) Jason Whitlock. That piece includes this line, which Costas reads: "If Jovan Belcher didn't possess a gun, he and Kasandra Perkins would still be alive today."

Cue the outrage. Not at the substance of what Costas said. At the fact that he dared soil a sports event with his gun commentary.

"You tune in for a football game and end up listening to Bob Costas spewing sanctimonious dreck," tweeted former presidential candidate Herman Cain. On Fox's Morning Show "Fox & Friends," the hosts read letters from viewers critical of Costas. On the network's afternoon show, anchor Megyn Kelly led a debate about whether Costas should be fired for his out-of-place monologue.

Except that this is what Costas has been doing for years now, including on Sunday nights at halftime. He's talked about Jerry Sandusky and child molestation. He's criticized the International Olympic Committee for failing to honor the 11 athletes killed at the Summer Games in 1972. He regularly examines topics at the intersection of sports and society, sports and culture, sports and law. Often, it's worth a listen.

The uproar this time, of course, is about Costas and gun control, not Costas having an opinion. But just in case, a tip for future viewing: Costas might talk again Sunday about an issue that's not strictly sports-related. If you don't like it, take that time to tuck your kids in, refill your beverage, whatever. The game will be back on soon enough.

Peter St. Onge

   

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DOES EU STAGNATE BECAUSE THERE IS NO DEMOCRACY ?

The European Union gives the impression that its Leaders no longer know how to give it the impetus to solve current problems.

The evident current problems concern,

1) The adoption of the seven year EU Expenses Budget

2) The continued EUROZONE determination to save Greece or any other EURO currency country, from  Bankruptcy

3) The non control of immigration into the EU

4) The denial of Democratic principles concerning elections in the EU !!!

In fact, if one can think clearly, without  preconceived ideas or ideals, about the above problems, one could come to the conclusion that it is the lack of Democracy in the EU that is the root cause, of the stagnation in the EU !!!

Every voter in the EU knows his local Member of Parliament (MP).  Do all voters know the name of their "local" MEP (Member of the European Parliament) ?

The EU has 27 EU member countries and there are several elections each year when local MPs are "voted out".  Does this affect the EU MEPs ?  Not at all !!!  They are elected every five years, come what may !!!  Always at a different date from any National Elections, of course !!! Locally when MEPs are elected they are not really judged on the effects of their efforts in the EU.  The percentage of voters proves this !!!  Should MEPs therefore not also be elected at the sme time as MPs ?

Whatever the problem, if elected MEPs (or even MPs) are not made to account for their efforts, the "gravey train" attitude in the EU will continue !!! It is already a proven, comfortable life-style for failed MPs !!! 

Nothing will really change if there is a continued lack of Democracy in the EU !!!
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Why the fiscal cliff impasse doesn't matter - so far

Any discussion about the “fiscal cliff” back-and-forth between Democrats and Republicans needs to be put in this frame: It’s Dec. 4. There’s almost three weeks to go before Congress heads home for the holidays. It’s too early for outrage about the White House proposal last week that was designed to appeal to Democrats. It’s too early for scorn at the Republican proposal Monday that did the same for the GOP base.

What’s happening now is what happens with most negotiations. Each side is in the wish list phase, declaring the items they want most and drawing the lines they say they won’t cross. This serves to both publicly reafffirm a philosophy and, more importantly, to provide a place at which both sides might later point and show how much they were willing to compromise.

For Republicans on Monday, that again involved defiant declarations about not raising tax rates – although most everyone expects GOP leadership to bend some, given the election results and the fact that tax rates will go up, anyway, if a deal isn’t struck this month. Democrats, meanwhile, are scoffing at any semi-specific suggestions of social spending reform.

“That’s just a kabuki theater,” debt guru Erskine Bowles told PBS NewsHour on Monday. “If they got to agreement – the way Washington is – too quickly, their own side would just kill them because they wouldn’t think they had negotiated hard enough. They got to go through this exchange.”

But beneath all the posturing, a framework of a serious deal might emerge. With their proposals on Social Security and Medicare, Republicans are laying the groundwork for social spending reform – not merely trims around the periphery that solve little long-term. In return, they will have to give on tax rates on the rich going up – at least a little – but that also would be accompanied by an examination of tax deductions and loopholes. Those are the baby steps of the tax reform we need.

One thing we do know about both proposals thus far: Neither comes close to the kind of savings we need to make a real dent in the deficit. Bowles has long said that the $4 trillion the Simpson-Bowles plan saves over 10 years is about the minimum the country needs to do. The most recent Democrat and Republican proposals are hovering near the $2 trillion mark.

That’s not nearly enough, and three weeks won’t likely get us much more in the way of deficit reduction. But the foundation might be built for something more, so long as neither side decides that a win is more important than a compromise.

Peter St. Onge       

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BRAVO WILLIAM AND "OUR KATE" !!!

Britain and the Whole Commenwealth and even other Nations, will be more than delighted with "the" News that William and "Our Kate" have annouced the imminent arrival of a future "Heir to the Throne" !!!

Speculation is rife everywhere.  What will be the name of the future Baby ?   William or perhaps Diana ?  If one then imagines that Twins could finally present themselves that, would be a double joy ...!!!

"Our Kate" has in fact captured the hearts of everyone.  She has with her radiant smile opened the hearts of everyone, including that of William !!!  He was never so radiant before their mariage. 

"Carry-on Kate" is what everyone really wants !!! 
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DSK IMPOSES BLACKOUT ON NEWS !!!

Dominic Strauss Kahn, internationally known as DSK, the former President of the IMF, has again hit the headlines.

This time because the Press seems to "half know" that he has concluded an arrangement with one of his adversaries.  What excites the Press is that both parties to the agreement are prohibited from revealing the details of this settlement !!!

There is a "Complete Blackout" on any details that concern this "agreement", which obviously exists !!!

DSK is not yet out of the woods !!!  He still has to face accusations connected with the "Carlton" affair in Lille, but up to now he has never been found guilty of anything, either privately or criminally !!!

In spite of his "Inocence" it seems unlikely that he could return at a high level like when he was President of the IMF !!!  However, as an "After Dinner Speaker" he could have a future !!!  And he, like everyone, needs a "free meal" once in a while !!! 
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Do UK Banks Need More Capital?

Yes.  The Bank of England’s November 2012 Financial Stability Report has made the case for UK banks to shore up their levels of capital, perhaps to the tune of up to £20-50bn according to the FT.  Three arguments seem to have made: (i) banks may have to pay fines because of “misbehaviour”;  (ii) provisions for expected losses need to be made and (iii) risk weights may not be appropriate, in the sense that the weights applied may under predict risk.  Rather predictably commercial banks have complained about the new requirements arguing that they want more certainty about capital targets.  I am not quite sure that financial institutions, whose basic role is to price payoffs in uncertain future states of nature and allow people to write contracts for smoothing consumption and investment decisions over those uncertain futures, should be calling for certainty otherwise their very rationale seems to me to disappear in a puff of full information.

But more importantly, in a recent talk, I drew upon a chart published in the June 2012 Financial Stability Report (see below, p 6), that showed a pleasing movements towards some reduction in funding costs for more well capitalised banks.  That the market might now be thought to be punishing more risky banks – measured by their level of capital – means that market scrutiny of bank balance sheets may be starting to re-enforce plans for macro-prudential instruments.   So rather than an unwanted deadweight loss, or simple compliance with regulatory demands, there may be direct market benefit for financial institutions that move to more sensible levels of capital.     

One clear reason why the risk held by bank might be under-reported is that under European convention, sovereign bonds are given a zero risk weight in any calculation of risk-weighted assets.  This means that commercial banks do not have to hold any capital against these assets but which nevertheless, in reality, do carry significant risk.   This means that there is a fundamental shortfall in capital held in proportion both to the quantity and actual risk of sovereign debt. 

In fact, I examined the capital shortfall of the banking system in two ways.  Firstly, using the Eurozone Stress tests of late 2011 (Source: EBA, Eurostat, European Commission and Reuters Breaking Views), I examined the losses of all EMU and non-EMU banks in the EU from a 50% haircut (debt forgiveness, essentially) in Greek and also all Portuguese, Italian, Irish, Greek and Spanish Debt under scenarios for a 7% or 10% capital ratio target.  The capital shortfall in the case of only a 50% Greek haircut and a 10% capital target was some Euro348bn, for the UK alone this was a shortfall of Euro72bn.   Obviously some of the required adjustments may have already been made in the last year but such a calculation may not deal with further losses induced in the system, as banks may incur losses to other parties under a generalised haircut.  (These results are reported in The Euro in Danger.)  Secondly, and more recently, I then looked at the loss in terms of GDP from a 75% haircut on Greek debt and 30% on Ireland, Italy, Portugal and Spain.  With the same 10% capital target, we get a shortfall of Euro75bn in the UK, which rises to Euro221bn if the capital target is 15%.  Now while I think it is unlikely that increasing bank capital to extraordinarily high levels will be necessary or sufficient and much work remains to work out what of the optimal amount for each bank and in the system as a whole, this simple calculation seems to imply that the risk of continuing problems in the Euro Area would seem sufficient to justify the extra call for capital of this magnitude. 

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FRENCH SOCIALISTS WILL BE PILLORIED !!!

This blog yesterday drew attention to the ridiculous plight of the UMP party which at present is incapable of organising the election of its own Party President !!!  God save France if UMP in five years time are elected to Govern France !!!  

The plight of the Socialist Party, together with its Communist and Green bedmates, is not much better !!!

The big shock of this week has been the declaration of the Minister for Industrial Recovery, Arnaud Montbourg, that, to avoid more redundencies in the Steel Sector, he could envisage the "nationalisation of Acelor Mittal", a private holding company in Europe, but not only in France !

What has sent "Shock Waves" through not only France but the EU as a whole, is the thought that foreign investors could be dispossessed of their investments without legal recourse !

If the EU allow France to act unilaterally in the case of Acelor Mittal, is this a signal to foreign investors that the EU is not a Free Market ?

Foreign attention is now rivited on President François Hollande and the Socialists.  What will they decide ?
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SPANISH BANKS ARE BANKRUPT , WILL THE EUROZONE STILL SUPPORT THEM ?

The critical position in which Spanish banks find themselves means that the EUROZONE and its Euro must "bail them out" !!!  There is no other logical solution !!!

Now it is Spain, and next, which country will it be that needs "EURO" help ?   ITALY ?

How long will this "ideal" go on for ?  How long will Germany and its current politicians be prepared to support the costs of this "idyllic" and "euphoric" adventure to continue ?

When countries overspend, they need to reorganize, very seriously, their finances.  This is a basic rule which is even recognized by the EUROZONE dictators !!!

The cost of "reorganising" implies that a country  devalues its currency, unless, of course, it is in the EUROZONE !!!  In that case it can call on EUROZONE help which means that temporary help is available !!!

In the end, what will happen ?  Will German taxpayers and those of other solvent countries, really be prepared to pay through the nose to save the EURO ?
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Politics Blogspot

This blog provides information about politics international

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SHACKLE THE PRESS ? IS THIS A REAL OPTION IN BRITAIN ?

Can any right thinking Briton really imagine that one should limite Press Freedom in Britain ?  Is this really a serious option ? 

The Press represents the British right of expression !!!  Should this centuries old right now be denied ?

The answer is "Yes" if the Press does not want to curtail outrageous articles on sex and other subjects which denigrate normal British life.  Does the Press really want to control its members or itself, or not ?

On the other hand, if the answer to this fundamental question is "No", that the Press does not accept that there are standards to which it should adhere, the Government must legislate !!!

Do we not see daily, foreign countries which try to deny the  Press the "Freedom to Express itself" ?  The Press in Britain must covet this freedom, but must also merit it !!!
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CAN THE FRENCH RIGHT AVOID UMP SPLIT ?

On Sunday November 17, 2012 the official members of the UMP were invited to vote for the next President of the UMP party. The last one was Nicolas Sarkozy until his election as president of France in 2007.

The two candidates were the Former Prime Minister François Fillon and François Copé, the General Secretary of UMP. 

Copé beat Fillon by 98 votes but since then there has been one almighty verbal fight in which both candidates claim  they have won !!!  Recounts have taken place and forgotten urns have been found. Jupé as an unofficial mediator tried to propose a solution but this was not successful.  Fillon in fact wants a new vote.

Thus, for the best part of the last two weeks, the whole of France has been entertained by this tragic comedy.

One certain winner is the new French President, François Hollande, because the attention of French Voters has been deflected from him and his Government. 

The National Front is another party which has benefitted by gaining numerous new members.

Fillon and Copé both have the same ambition, to become the President of France in 2017.  Their current behaviour could ruin the chances of either or both of them because they are disappointing their own supporters.

However, as it has already been said, "French people have a  short memory". 
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Fiscal Multiplier and Bank Dividers

Fiscal multipliers are pretty hard to estimate as they tend not to be particularly stable.  Which is another way of saying that the impact on output of a given change in fiscal policy – which we can define as the planned path of government expenditures and tax receipts over some appropriate planning horizon - depends on a very large number of factors for which it is nearly impossible to condition.   A non-exhaustive list for fiscal policy might include the extent to which the fiscal expansion is expected, credible, temporary or financed by changes in spending or taxes, as well as the debt instruments issued.  The estimated response of the economy will depend how firms, households and banks respond to the changes in fiscal policy but also may be complicated by the response of these same agents to the same shock to which fiscal policy is responding.  The responses of other policy makers such as central bank responses to any fiscal policy and that of other fiscal authorities, particularly in a monetary union, will further complicate any attempts to estimate a clean partial. 

I illustrated some of these issues in a talk to St Catherine’s Political Economy seminar last month.  One early piece of evidence was simply a Table of recent estimates of the multiplier for the UK.  The estimates from these sources give a wide variety depending also on the way in which the fiscal stance is changed.  The outlier in these estimate are those recently derived by the IMF in the October 2012 WEO (Box 1.1), who used the negative residual (where actual output turns out to be below the forecast) of output forecasts from 2010-11 to find some correlation between the timing of fiscal consolidation and the continuing underperformance of the economy.   It turns out though that although the IMF paper tries to apply many controls, they do control for the impact of household and bank deleveraging.

Actually, all kinds of other factors may have led to such an undershoot.  Let me illustrate one.  In this model, “Reserves, liquidity and money:an assessment of balance sheet policies”, in which firms produce monopolistically competitive goods with sticky output prices, optimising households who are credit-constrained by the extent to which banks lend to them in return for collateral in an economy which is driven over the long run by productivity.  This economy can be stabilised by monetary policy changing interest rates or operating open market operations but fiscal policy also has a role by altering the supply of bonds held by the private sector, which act as collateral.  In this model we can alter the size of the government debt by increasing expenditure relative to taxes and trace the impact on output under three scenarios:  (i) a fiscal expansion when policy rates also rise and when banks increase their lending; (ii) a fiscal expansion when policy rates do not rise and the banks increase their lending and (iii) a fiscal expansion when policy rates do not rise and when banks start to delever and contract their level of activity as part of a consolidation. 

The set of impulse responses above are illustrative but show (look at the top left impulse response) that under scenario i) we see a multiplier of around 0.2, under (ii) it is around 0.5 and under (iii) it is around 0.1.  The “fiscal multiplier” in a monetary economy, where banks set the level of broad money depends not only on the policy response.  But also the impact on other interest rates – the external finance premium or bond rates.  And most importantly of all, how the banking sector responds to the state of economy that has led to the need for a fiscal expansion.  This simple calibration shows that cautious banks, or deleveraging banks, who increase the level of monitoring work they undertake and hence hold back on creating new loans can per seoffset the impact of any fiscal expansion.   The key therefore, as we have known for some time, is to fix the banking system.  The problem is that the fix also requires deleveraging and consolidation.

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UBS FINED OVER LACK OF CONTROLS

The article in this Blog dated Wednesday, November 21, 2012 (UBS Trader Jailed for 7 years) lamented the fact that only the trader was prosecuted and punished.  

The latest reports today state that the Bank UBS has been fined 42 Million pounds as a punishment for the the inadequate controls concerning control of the activities of the Trader, Kweku Adoboli.

Fining a prosperous Bank is not a real punishment.  Banks just like any other operating companies have a responsibility towards their Shareholders and their  Customers.  Managers in Banks are paid (often handsomely) to supervise employees and to ensure efficient controls are in place !!!

Lower down the line, those employees who do not perform are quickly sacked !  Are managers and directors never responsible ? 
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