ECONOMISTS

According to newspaper reports today, economists are divided over the coalition plans to cut the deficit. Some say that it is too fast, too soon, while others say that the UK is still in growth and that to change course now would be fatal.

There is something to be said about not changing course mid-stream, indeed in our latest issue Mark Roeder, author of The Big Mo makes this very point.

With the IMF making its judgement today, the Treasury will be hoping for a grand endorsement - both for political and economic reasons - but if I was the Chancellor I wouldn't be too worried.

As the old saying goes, when economists agree then the world really is in trouble.

A MINISTRY OF FINANCE - REALLY?

Apologies but this is a gift that keeps on giving.

Greece is in a terrible state, Ireland and Portugal would dearly love some of that Quantative Easing that we and the States have indulged in and German is worried that its economy could overheat.

So not really the most ideal time to call for further centralised monetary controls and a ministry of finance is it Jean-Claude?

GREECE SLIDES

I make no apologies for coming back to this topic - the periphery Eurozone countries are going to be in the news quite a bit over the coming months.

The interesting thing to note about Moody's latest downgrade is that there is an evens-chance of a default on Greece's sovereign debt.

Although Moody's says that it doesn't think that Greek debt restructuring is inevitable, it is curious that of all the Caa1- rated insitutions, within a five-year period, 50% have defaulted. 

Many in the media have concentrated on the fact that Greece is now at the bottom of the league table with a worse credit rating than Montenegro, but is this the first time that the odds have significantly foreshortened for the worst from a ratings agency?

FINANCIAL RISKS TODAY ISSUE 2

E-Edition out now

CURRENCY

In an ominous statement, Greek officials have warned that either Greece reforms its economy and makes sever cuts or it should return to the Drachma.

Now, that may not necessarily be a bad thing for Greece to do.

With control of your own currency, governments can, and do, use monetary policy to ease the deficit problem - re: UK - but without that control, there are very limited things that a government can do.

In addition there is the issue of what is the natural balance for a country.

It seems that the natural balance for Dollar/Sterling is between 1.45 and 1.65. Apart from a few blips, this range appears to be the norm as far as Forex is concerned.

Indeed, one of the major issues for the UK when it was in the ERM was that its peg to the Deutschmark was too high and the economy paid the price.

Some in the insurance industry have just come back from a golfing jaunt business conference in Spain and complained about the price of beer.

For years, Spain, Greece and Portugal were the destinations of choice, in part because of their relative cheapness after currency conversion. However, following the Euro, many noticed how much prices had gone up. Now, there was a sleight-of-hand mark-up in prices but also the currency was linked with that powerhouse Germany so prices went up after conversion.

If Greece does return to the Drachma, not only will it return to having a degree of control over its economy but in addition, prices will fall and tourists will return in their droves.

Is that necessarily a bad thing?

CREATING EMPLOYMENT

This morning, the OECD published its latest Economic Outlook.

Despite the recovery there are still many risks around and one of the keys to maintaining the recovery is apparently employment.

But how can this be achieved? Here in the UK we are facing the potential of state employees flooding onto the jobs market where the government hopes the private sector will pick up the slack.

Yet nothing is that simple.

How can people become employed? Where is the room for further workers when downsizing has been the rationale in this so-called post-industrial age?

These are questions that can challenge the most erudite academic let alone policymakers but they are questions that, according to the OECD, must be addressed for all our sakes.

BoE TURNS TO TEENAGERS OVER INFLATION

Far be it for me to make fun of an initiative designed
to promote financial awareness among teenagers but, in light of government figures out today and the missed inflation target once again, should we be worried that the MPC may have run out of ideas?

This week marks the launch of the twelfth Interest Rate Challenge, the competition designed to give 16 to 18 year old students across the UK the opportunity to take on the role of the Bank’s Monetary Policy Committee (MPC) and set monetary policy for the UK to meet the inflation target of 2.0%. 

Bank of England press release 

Yeah, I know it's the 12th such competition but I couldn't resist!

photo: FreeFoto.com