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‘Creative destruction’ needed to heal UK as Osborne shelves Plan A

The government has quietly ditched its Plan A of austerity measures, says Schroders chief economist Keith Wade, but the UK should hang on to its AAA credit rating.

 
‘Creative destruction’ needed to heal UK as Osborne shelves Plan A

The UK economy has not been through the necessary ‘creative destruction’ to allow a recovery, says Schroder's chief economist Keith Wade, with the continuing weakness prompting chancellor George Osborne to quietly ditch his ‘Plan A’ of full-blown austerity measures.

Despite the 1% growth in the third quarter of the year reported by the Office for National Statistics, the UK economy has flat-lined this year under the weight of the government’s austerity measures and the slowdown in Europe, the UK’s biggest trading partner.

Meanwhile, Britain’s businesses cannot get access to the credit they need to expand. Many are surviving as ‘zombie companies’, Wade said, alluding to recent research showing that one in ten companies are being kept alive only through the low interest rates yielded by ultra-loose monetary policy.

‘The problem in the eurozone and to some extent the UK is the very slow write-off of debt,’ said Wade at a presentation in London today.

‘Banks are not in a position to start lending again – they’ve still got all the bad debt, they’re still shrinking their assets…We haven’t had the write-offs needed to get banking system in state where it can start lending again,’ he added

‘The economy has not been able to move on and restructure. We’ve not had the creative destruction that is needed.’

Facing this continued weak growth, and a warning from the International Monetary Fund that it must backtrack on its money-saving programme, the government has quietly shelved its full ‘Plan A’ austerity package, Wade says. ‘We think this has been ditched by the treasury’.

Disappointing public finances for October, published this morning, mean that Osborne will likely have to admit that he will miss his targets when he stands up to deliver his Autumn Statement in two weeks. The chancellor has been under pressure to change his spending plans to do more to encourage growth.

'They will soften their stance, although they won't admit it,' Wade said.

There has been concern that if the UK does not stick to its plans to bring down its debt then ratings agencies could act on threats to strip the country of its prized AAA rating. But Wade said: ‘I don’t think its going to jeopardise our credit rating.’

98 comments so far. Why not have your say?

Geoff Downs

Nov 21, 2012 at 13:02

The truth is no one is sure how to get the debt down. This problem facing many countries is not going away anytime soon.

QE is not working in the way the Central Banks hoped.

A lot of dangers ahead.

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Keith Cobby

Nov 21, 2012 at 13:24

The debt will be reduced in the time honoured way by default, devaluation and inflation. The Government/BoE will print the money.

Why earn it when you can print it!

If you hold any gilts sell them now.

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Geoff Downs

Nov 21, 2012 at 13:30

They have been printing the money since 2008! Are things getting better?

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an elder one

Nov 21, 2012 at 14:34

I question from ignorance of matters in the financial domain, but if we all owe each other so much money why can we not come to some mutual agreement to cancel some debts.

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Keith Cobby

Nov 21, 2012 at 14:35

The BoE have printed money to buy the gilts from the Government. Does anybody really expect these to be released back onto the market. What would happen if they did? Adair Turner was slapped down for telling the truth when he said the gilts should be cancelled.

As a nation we have been living beyond our means and when this happens default through devaluation and inflation follow.

How can things get any better? The economic centre of gravity has shifted away from us. I hope you all enjoyed it while it lasted.

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Knoddy

Nov 21, 2012 at 15:18

Get Labour back in power. Then they can speed up the printing presses and borrow more like they did the last time they were in power. God help all of us if that happens.

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Jonathan

Nov 21, 2012 at 17:17

We're in the second half of the government's term, they are going to want to give some stuff away so they get voted back in. So no doubt we can look forward to an increase in government spend (deficit) funded by some more QE.

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Bhavesh Sutaria

Nov 21, 2012 at 18:41

UK is well managed now, and has market confidence. The trigger for a crash will be a loss of confidence in the US Dollar.

The total global over indebtedness of tens of trillions & rising just cannot be sustained when interest rates rise & sink the "recovery".

Just paying the interest alone will be a problem, and we'll join the list of nations who "restructure" their debt, i.e. not pay all of it ...

Once confidence goes, markets sell, stocks plunge, interest rates rise, panic starts, credit disappears, governments find it difficult to roll over short term bonds & are forced to raise rates causing more pain & a snowball effect, and increasing welfare bills & flattening demand.

Life will change ... a lot ... the young cannot even imagine it ...

The bad debt in the pipeline will have to be recognised, and currencies of debtor nations be written down in value to pay it. Basically, all we own will be written down in range of 25% to 50%, so high is the debt.

That will cause pain, but clear out the decks for a long painful recovery. Standard of living will fall, and people will pay. The government is not an individual. Their debt is OUR debt. The depression & poverty will be harsh, cause civil disorder not seen for decades, and make tinpot dictators worldwide popular & cause millitary problems.

Those countries with cash, or the millitary power, will be in control, as usual. The poor 3rd world will see its natural resources inc. land, water, minerals etc massively usurped or leased, in return for cash to live.

The key player is USA. It has $15 trillion of debt, around 110% of GDP, which is actually not too bad. Provided bipartisan agreement is reached to cut spending & balance the US budget.

Trouble is, does not look like its going to happen, the've been stalling for years, and lets not even think of cost of any surprise wars in MIddle East. No one wants to cut spending, nor raise taxes !! Sometimes a fool only learns when kicked - let's hope sense prevails before its too late.

There is huge danger of Lehman like market seizure, because the massive derivatives market globally is $ several hundred trillion.

No spelling mistake. Several hundred trillions.

Once the dollar, the reserve currency falls, or the counterparties i.e banks, are weakened in a crash, who will guarantee the derivatives ? Panic will set in as parties try to close open contracts & crash markets when there is little liquidity, and cause global market seizure & failure.

Even the US has not got that much cash to save us. Only prudence and taking some pain now will save us from an almighty fall.

A systemic nightmare crash wil shatter the system. That is the reason the money printing goes on merrily for a kinder "soft landing"

I hope it a crash does not happen, and I am wrong.

But like many, we're losing confidence unless the US wakes up & get real, instill confidence & drive demand to a world recovery, and pay off old debt slowly, rather than crash straight off Highway 1 into the ocean.

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Atheist 2

Nov 21, 2012 at 18:47

I recall a certain gentleman before he was voted out of office saying " Britain will be in a better position to come out of this World Crisis.

So what did the country do? They voted in a rubbish government who missed all the available chances, so we are now in a much worse state. We know

what option 1 did for us, I hate to think what option 2 will do, and once they realize that is not working there will be no time left for option 3.

well at least that's a blessing.

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James Park

Nov 21, 2012 at 18:50

Confidence is the key! Engendering that is the difficult part.

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dogdays

Nov 21, 2012 at 19:24

Why do you all think there may be a solution? Perhaps this is how it will be in future.

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Colston Hicks

Nov 21, 2012 at 19:34

Ted Heath was grossly misled in 1974 when he was told by economists that the Treasury could afford to fully inflation proof the pensions in payment of publlc sector workers. The free pensions so far granted, and,and all future free pensions should be scrapped now.

The Treasury will then have to borrow £billions less, and the deficit and the debt will immediately shrink. The economy improve instantly.

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Pagoda

Nov 21, 2012 at 19:53

Keith Cobby, Nov 21, questions whether anyone really expects QE printed money will really get released on to the market. Presumably because purchase of gilts by the B of E is believed mainly to get deep frozen in the balance sheets of banks.

Would it not be preferable to divert a proportion of this 'money' into a government agency which was given the job of stimulating growth by supporting infrastructure projects, low cost housing production, and practical application of promising R&D results in industry?

Pagoda

21 Nov 2012

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Jonathan

Nov 21, 2012 at 20:25

Pagoda

But the government is using QE to fund its deficit. None left to fund anything else. They could always increase the deficit by using some money to do something you want, their deficit would increase, then they would have to get the BOE to increase QE even more by buying more debt to cover it.

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Philmo

Nov 21, 2012 at 20:26

Well said Bhavesh!

Why does no-one understand that you cannot spend your way out of debt!

It can only be done by :

1 reigning in spend on wishlist luxuries like HS2 and divert spend to real payback projects like Severn Barrage.

2 reducing overheads, stripping out overweight in public sector

3 reducing inefficiency eg (just 1 example) stop paying early retirers both a pension and continuing employment on a contract basis, eg in MoD

4 bring back 60p/£ tax

5 ensure tax recovery on all profit from revenues raised in this country - if cheeky foreigners want to use our workforce and infrastructure the must pay for it!

6 increase simple fuel tax and forget fancy, expensive tolling and mileage monitoring schemes plus do the environment a favour too!

etc, etc

Yes it will be hard, but it will certainly be harder if we don't!

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Jonathan

Nov 21, 2012 at 20:32

Even Stephen Hester (head of RBS) has said that the government is using QE to fund its deficit:

http://www.itv.com/news/2012-05-11/hester-quantitative-easing-funds-bigger-budget-deficit/

"“What the Bank of England does in quantitative easing is it prints money to buy government debt, and so what has happened is the government has run a huge deficit over the past three years, but instead of having to find other people to lend it that money, the Bank of England has printed money to pay for the government deficit.

"If that QE hadn't happened then the government would have needed to find real people to buy its debt.

"So the Quantitative Easing has enabled governments, this government, to run a big budget deficit without killing the economy because the Bank of England has financed it.

"Now you can't do that for long because people get wise to it and it causes inflation and so on, but that's what it has done: money has been printed to fund the deficit.""

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Dave Buchanan

Nov 21, 2012 at 20:36

Bhavesh Sutaria I really want to dispute your comments but I can't. What government is going to be elected on a platform of 'there has been a seismic shift in the world economy and growth based purely on discretionary consumer spending will not continue so expect 10-20 years of economic, political and social unrest. Sorry but there is nothing we can do about it"

Until the existing debt load is eroded nothing will really change - problem is it will be done by stealth and as soon as it reaches an acceptable level the spend will start again with the next populist govt who see's the opportunity to ignore the past and start it all again, hoping that the Us or China will save us.

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Robert Brown

Nov 21, 2012 at 20:42

When the coalition came into power in May 2010 the economy was growing at 1.1% od GDP with an IMF end of year forecast of growth at 2.9%. The coalition immediately began talking down the UK economy more for political reasons than economic ones (blaming the last labour government for what was a Global financial crisis that began in the USA).This had a huge negative impact upon business and consumer confidence and we are still paying the price. Nobel prize winning economists praised Gordon Brown for being the right person in the right place at the right time to take the necessary actions. The Coalition took the UK economy that was at the top of the G20 for economic growth and recovery in May 2010 and within just 18 months took the UK to the bottom of the G20. Along with Italy we became the only two countries to experience a double dip recession. The Government at this time should be the main mover in terms of increasing aggregate demand in the UK economy, the problem is they are ideologically opposed to such action. Remember it was economists like Milton Friedman and Alan Greenspan who contested that the markets should be deregulated and they would take care of everything else. We now now that this has been the cause of the Global financial crisis and not the road to Utopia. We need more and better financial regulation and more not less government spending. Just look at the historical evidence in post war Europe. The Lib Dems have supported this crazy economic policy, they will pay the price at the next General Election and rightly so.

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Nobby Clark

Nov 21, 2012 at 21:28

Come out of Europe, let Wales and Scotland go their own way, stop all overseas aid, bring back the death penalty, make prisons hell holes, make the unemployed pick vegetables and clear the verges for their dole, introduce mass sterlization for unemplyed families with more than three kids, introduce mass repatriation for troublesome Muslims and make all police and military motorcycle purchases be Triumph. Sorted.

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Anonymous 1 needed this 'off the record'

Nov 21, 2012 at 22:25

Nobby Clark

Pity your parents were not sterilised!

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Geoffrey Ashby

Nov 21, 2012 at 22:26

I agree woith all said so far.

What seems to have been missed (I could be wrong) is that to my knowledge the Government will no longer be paying Interest to the Bof E on Gilts purchased as part of QE.

Treasury has resisted actually writing off the bought ion Gilts themselves but I am swure this will happen - at a stroke we have reduced the annual borrowing bill and Government Debt. This magic formula would be more and more attractive and one could see hyper inflation eventuially.

When stering comes under extreme pressure, with reduced interest beatring debt the Government of the day could afford higher interest costs and it might just shake the bulk of buy to let properties out of the branches and bring down house prices - and the Banks because of bad debts u8nless Government took up shares in them instead of QE.

Incidentally I outlined the Gilts trick to my MP before the Election so I think they have been mulling this over for quite awhile.

Will all this help longterm - of course not - civil unrest could well come, we need to put a stop to our ridiculous support of the EU etc. AS an aside, when Cameron puts more money into the EU (as he will - perhaps by sleight of hand) it reduces Osborne's income and more tax is needed ie we te population will be funding the Greeks etc!!

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Jonathan

Nov 21, 2012 at 22:47

Geoffrey

The BOE not accepting interest from the government for the bonds it owns is an idea proposed by Lord Turner in his bid to become the next governor of the BOE. It's not monetary policy yet but with this type of offer/bribe Turner he will be the next governor of the BOE and in turn this will become a monetary policy used by the BOE. Eventually, they will decide to not accept the maturity payment on the bonds. When this becomes stated policy it will be clear to all that the BOE has gone down the same route as Zimbabwe and Weimer. We are living in a period of a slow forthcoming truth about the real purpose of QE. i.e. a policy made to fund the government deficit. If you look at the amount of both QE and the deficit it will become clear that the BOE is creating money to fund the deficit, an addictive path that any government will find hard to shake off. Like an alcoholic the fist thing they need to do is stand forward and admit they are an alcoholic before they can tackle the problem honestly.

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bigand

Nov 21, 2012 at 23:58

Nobby - the most sensible thing I have read so far.

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Dave Buchanan

Nov 22, 2012 at 00:04

Nobby, I thought you were serious until the comment about Triumph, economics are one thing but parallel twins? Must be a joke

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Bhavesh Sutaria

Nov 22, 2012 at 02:40

Thanks Philmo.

Dave Buchanan, I agree, my comments are factual only.

No government will dare do the correct thing, as it will scare the hell out of all voters. Neither will they dare spell out the consequences of incorrect action. 90% of voters are ignorant of the situation ( sorry to say ), and expect a miracle fix. It is not going to happen, unless we're very lucky.

Correct action will not be taken. We're relying on luck, and sailing forth on a wing & a prayer. Ignore the fancy economics, ( its all bull propagated by governments & investments banks whose advice got us into this pickle ) and focus on the reality which is just simple maths.

The awful truth is roughly like this ( forgive if it sounds like a rant, but it all seems like Rome burning while the Emperors are fiddling :)

1. 80% of the population is spoilt rotten. They have got used to living beyond their real means, rather than being prudent. Its as if they have a right to HP, credit, overdrafts, hols in the sun, and plasma TV's etc. That is why we are in this mess. Overspending. Nothing else. The West lives on credit. The East saves generally. Guess where the power is moving ?

2. The repeal of Glass Steagall in 90's has created retail banks which are vulnerable to investment banking losses of tens of billions in derivatives, and in a crash situation to wipe out people's monies. We are conditioned to believe banks cannot fail & governments can save us by printing money. The population is going to be shocked. The real debt is much higher, the derivatives situation is a star wars timebomb, and when its all over, the welfare will be cut massively. No one has a right to anything. It all comes from our pockets . We're in danger of a huge depression hitting us, and the politicians are unable to take proper corrective action.

3. The fractional lending system of 90's has enabled huge leverage of real money, propagated inflation, created false wealth in personal & corporate areas, and created a situation where the fall will also be huge, to get back to ground level. Very painful. The civil disorder caused if oil, distribution and basic services fail will be massive. Forget about money, the real demand & value will move into food, water & essentials. Riots, disorder, pillage, etc are real possibilities in desperate times. Gold is poised to shoot up to levels unheard of, as a store of value, and the Wall St rally will plumment to lows. 2007 & Lehman will seem like a picnic.

If this sounds like a wild rant, consider what happens in UK the moment we hear of an oil tanker driver's strike ? Fuel queues, no fuel for days or a week, panic buying in stores & disruption. What might happen in a money crash scenario ? How will people survive ? What happens if credit cards dont work ? If stores shut & food / water is disrupted ? Does anyone plan to keep say 3 months worth of food & water & basics for emergency ?

4. What can we do ?

5. Only one thing. Look after ourselves. Move value into / out of asset classes, at right times, to profit from a crash, to preserve wealth. Trust no one asset class, and above all, do not trust the governments. Right now, stocks are good in the fake rally, and pre crash one should convert to gold or whatever. Food commodities, water, and basics will rise in value over the next 5 years, as will necessities. Property will crash, money will be devalued, equities decimated, and bond holders be stuffed with bad debts of bankrupt governments. Pension funds & investment funds ALL represent peiople's wealth & will suffer. Get ready for porridge.

6. China & others will be forced to save us, to save itself, as it is the world factory. If we're ruined, so will they. But be assured, the deal will be painful for the West, and favourable for China. Only the US millitary might can dominate & redress balance. However, if West is bankrupt, its doubtful how that power play will spin out, its anybody's guess

7. The consequences of depression are bad. Poor & desperate youths in particular will turn allegience to any Hitler type who promises riches & new order. Crackheads exist all over the globe, and the Mid East tinderbox is ready to explode anytime. The cost of new wars will ruin us.

On a separate note, while I'm still ranting :) any global crash will probably give rise to a new global world currency , and every country in order to be saved, submit their fiscal & tax freedoms to a "global committee" New Order, or Illuminati etc, who will tax us to death, and rule us mercilessly, while making trillions in Swiss banks. Or was this all planned in the first place ?? Hmmmm.... does make one wonder as to why such reckless policies have been pursued for the past 20 years by the emperors ... ??

Anyway, enough !!

I hope my fears & rants are just that ...

But instinct tells me that this time, unless the kings are very lucky with spinnning away $50 trillion of debt, we the peasants will get stuffed.

Anyone with a brain should start taking their own corrective actions now, for money & basics like food etc, else risk dire poverty & serfdom.

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Anonymous 2 needed this 'off the record'

Nov 22, 2012 at 04:28

Borrowing money to finance 'growth' is not growth at all, problem is West trying to live beyond its means, and people not prepared to pay for services eg health, schooling etc. Britain's productivity hopeless too.

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an elder one

Nov 22, 2012 at 11:22

Bharesh Sutaria, you scare the sh1t out of me; it's all too plausible; mayhap there are aliens already on this earth waiting their chance. At my age I shall be gone before all that though (I hope!) but then, what of my grand children.

However I am encouraged by a notion that civilisation has survived and nurtured with toil and conflicts over thousands of years thus far, even despite the recent proliferation of nuclear armaments.

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Jonathan

Nov 22, 2012 at 11:56

Bharesh Sutaria

I was just wondering about your point 6. China & others will be forced to save us, to save itself.

Surely if the Chinese can raise the living standards of their own population and they have bought enough natural resource sources during this time of rapid growth and export they won't need to export much to other countries? They can produce goods for themselves. There is no point in producing masses of goods, causing loads of pollution, and exporting it to nations that have nothing they need or can use to pay for the goods.

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an elder one

Nov 22, 2012 at 12:11

Chaps, it's all conjecture, but we do love to frighten ourselves don't we; we might get hit by an errant comet!

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Geoffrey Ashby

Nov 22, 2012 at 12:12

Anonymous writes of 'Growth' - in fact it is not increased production, new favctories etc No, it is merely increased spending, which used to come from splurges on Credit Cards , re Mortgaging for new Kitchens etc - all artificial and generating tax but to no avail when it comes to putting down foundations for the future - commentators seem unable to understand what is really meant by 'Growth' - and so do the Markets!

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Alan Morrice

Nov 22, 2012 at 12:32

We've been here many times before. Governments and peoples have borrowed too much. All will be solved by the usual expedient - soon Governments will let inflation rip for a while so they can pay back their debts in devalued cash. History teaches that this always happens.

As has been pointed out by many commentators recently: The weakness of democracy is that electorates soon realise that they have the power to vote for politicians who in exchange for their votes promise to give them other people's money.

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Atheist 2

Nov 22, 2012 at 13:56

We should all thank Robert Brown for his common sense, so sadly lacking in so many others.

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Philmo

Nov 22, 2012 at 14:04

an elder et al

IMHO Bhavesh has it absolutely correct and it's crystal clear for all to see through the smoke and mirrors produced by HMG and the FS industry, who, of course, surprise, surprise, have a vested interest!

Bring back altruism!

There are several prime reasons why we're in this mess:

1 The banks were greedy and were suckered into buying (apparently) lucrative US debt bundles which proper DD would have shown were toxic. Bundles created by devious/greedy US politicians and banks. Nobody learned from Midland Bank's error in this arena back in the 70's except HSBC who bought out the remnants of Midland! And the Yanks still haven't finished churning out the toxic bundles - their courts do not have the balls to bring them to brook.

2 Politicians insist, in their own self interest, on preening voters with easy debt, and ALL HMG's continue to run UK plc on a payday loan basis, borrowing to pay interest.

3 M Thatcher started the rot in volume, even after clear warnings from Churchill, by using N Sea royalties and tax income to create a vote winning easy life for the shareholders of UK plc, facilitating yet more debt, instead of re-investing the money into UK infrastructure and paying down the national debt to secure the longer term.

4 There are apparently insufficient of us prepared to sacrifice a little easy life for the sake of our children and grandchildren.

5 HMG and FS generally have accepted/created a myriad of cobbled up financial products, derivatives, hedges, bonds, call them what you will, all synthetic assets which are merely a means of shifting risk onto unsuspecting suckers who get involved and almost inevitably at some stage get their fingers burned. It's a fundamentally dishonest trade, effectively using inside knowledge, and should be knocked on the head. We should then have a surplus of lawyers and accountants who could be redeployed in FS industry export trade.

etc

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Bhavesh Sutaria

Nov 22, 2012 at 14:45

Philmo. You nailed it on the head; the system is corrupt in its nature & setup, with a zillion vested interests. And has been for centuries.

The amazing thing is that UK never invested its oil revenue into a national fund like I think Norway did, and who have hundreds of billions built up in a war chest for all sorts of emergency purposes. We have, er, nil.

The other thing which is incredible, is that when the NI system was setup in 1950, it was never an investment model i.e. people pay % of salary into pension fund, which then used exclusively to pay their pension. But a payment model i.e., one months NI was used to pay next months benefits ! Now the seniors live longer, the taxpayers % is reducing, the burden on the next generation is too much. The government WILL renege on its promises, or make us work till 75, and hope we pop off soon after !!

Jonathan raises an interesting point about China being self sustaining. The figures we hear of are massaged. In China right now, there is great wealth, but also hundreds of millions poor. The demise of the West would put 100 million + out of work & destabliise it dangerously. Having the West under their yoke is much more preferable & profitable. They are playing the same tactics in many 3rd world countries for resources.

As Alan Morrice says, its the usal solution; inflate & devalue, and since everyone's at it, they see nothing wrong. In a way he is right, and its the only hope we have left that the tower of cards not collapse.

Reminds me of Animal Farm; nothing ever changes. There are Kings, and Bishops etc who enjoy. Millions of Pawns or Peasants sacrificed in the game. The money lenders, now the banks, always win, as usual :)

Some animals are definitely more equal than others ... :)

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Denis Goddard

Nov 22, 2012 at 15:20

Mr. Marshall should get his facts right before stating that the economy has flat-lined this year because of the governments's austerity measures. The increase in governmen spending in 2012 is greater than the rate of inflation and October's public spending was 9% greater than that of October 2011. Some austerity!

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Alan Morrice

Nov 22, 2012 at 15:52

For the last few years the only real issue in politics has been 'Which party will give us the most money raised by any means and from any source other than from us'.

Any party which attempts to place reasonable limits on the growth of public spending on social security payments, state pensions, the Health Service, Public Sector pay, etc, is on a hiding to nothing. Any Government which genuinely tries to impose 'austerty' of any kind is toast. That is the reality of politicians encouraging then trying to ride the tiger of an entitlement culture.

Inflation, here we come! It always comes.

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an elder one

Nov 22, 2012 at 15:53

selfishness and greed were ever rife, there is no rational remedy; if we could find a czar with all knowledge to work it out thus though, they couldn't be trusted. History shows solutions - such as they were - have only ever arisen out of severe conflict; for a time.

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Geoff Downs

Nov 22, 2012 at 15:57

Philmo,

Yours is a well written post and I certainly agree with your point 5.

Bhavesh Sutaria,

No one can dispute that your predictions could come true. The fact the US and UK have their own currencies is a factor in their favour though.

Not sure I agree with your advice on gold.

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Geoff Downs

Nov 22, 2012 at 16:06

Alan Morrice,

Am with you totally on paragraphs 1 & 2 of your post.

Can't agree with your comment about inflation though. I know 99% of the posters on here think inflation is coming, but I don't.

Nevertheless it will be interesting to watch what happens.

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James B. Johnson

Nov 22, 2012 at 16:11

Robert Brown

Well said Mr. Brown...the voice of reason.

A welcome change from some of the loony far-right brigade.

Before the last general election, the governor of the Bank of England said, "Whoever wins this election will be out of power for a generation".

Dear God, lets hope so!!!

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Geoff Downs

Nov 22, 2012 at 16:25

James B. Johnson,

Turning this into a political argument undermines the real arguments.

The last Government oversaw the biggest credit bubble in our history, hence the unravelling that is now taking place.

No Government will be able to sort this mess out without huge pain.

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William Phillips

Nov 22, 2012 at 17:16

Bhavesh- I broadly agree with your premonitions and sometimes don't feel like crawling out of bed in the morning. But with two provisos:

(a) Why hasn't gold gone roaring off to the moon already? Many if most people feel in their bones that QE is at best a sticking plaster, at worst a compounding of the problem. Why so little panic?

(b) China has a huge, underdeveloped home market and regional customers (e.g. Indonesia) and so is SOMEWHAT shielded from our fiat-money woes, despite its increasing export potency. And it has a half-millennium heritage of minding its own business, with leaders who dread getting too close to 'foreign devils'.

So I don't think the Chinese will rush to give the West a Marshall Plan, punitive terms or not. In 1945 the USA believed it had to become the hegemon of international finance and currency to push Stalin back. China has no such enemy to stand up to. It can afford to stand aside and watch us failing to sort ourselves out.

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Alan Morrice

Nov 22, 2012 at 17:23

Geoff Downs,

Thanks for your kind remarks!

Interesting that you don't think we face a period of inflation. Do you have any historical parallel in mind, ie a time when governments and societies were over-indebted and yet refrained from letting inflation do the hard work of sorting the problem.

Inflation robs those who save in order to shield those who over-borrow. Isn't that just the case we're experiencing at present? The retired and those with savings are receiving derisory returns in order to save the bacon of those who took out foolishly large mortgages. Even at present inflation is stubbornly high, even in times of recession it's been for a long time above Treasury guidelines. Newspapers are full of articles bewailing the impossibility of savers receiving a positive return after inflation and tax.

I suggest this is just the beginning. Government debt is increasing rapidly.

Will future governments allow inflation to run up to 6%? To 8%? to 10% even? After that all bets are off. The genie is well and truly out of the bottle, the situation out of control. How many remember the dreary decade of the 70's with inflation reaching 26% in 1976?

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Jonathan

Nov 22, 2012 at 19:13

Alan Morrice

I don't think the government care about the size of the debt, their main concern is the interest on it and selling the current deficit in bonds. If they had a debt of x trillion pounds they wouldn't care it's just how much they have to repay and whether they can sell bonds for the whatever the current deficit is. When they either can't sell all their debt or they can only sell it at really high interest rates are their concern. There seems to be a denial by the BOE that QE is inflationary, this lie has even sunken into the heads of the likes of Geoff Downs who seems to be of the impression that the biggest worry is that inflation is something that is really difficult to achieve, even though history tells us that inflation is the easiest thing to create, just print money. He also seems to think that the low interest rates on bonds is something other than the government using QE to buy all its own debt. Really all QE is doing is funding the deficit everything else is a side-effect of that. i.e. high inflation, devaluation of the GBP, erosion of peoples savings and erosion of peoples debt. Some of these are desirable and some undesirable depending on a persons individual debt/savings.

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Geoff Downs

Nov 22, 2012 at 19:55

Alan Morrice,

Firstly I looked at the Wiemar Republic and then Zimbabwe. In both those cases the circumstances looked different to me than those facing Western Governments.

I then moved onto Japan and that looked almost identical to me with our present crisis. Japan in the 80's had a massive asset boom, caused by easy credit. Their stock market reached 38000+, and property prices boomed.

Then the bubble burst and for the last twenty years Japan has been in a recession and has battled deflation. There have been times when they appeared to be winning the battle, only to sink back into the mire.

Japan used QE, especially between 2001/2006, in the same way the US and the UK have, with little effect. They exited the first programme in 2006 without disruption to the financial markets.

In the West we have also had the biggest credit boom in our history, leaving the Government and citizens with major debt.

The politicians which to create inflation by getting banks to loan, similar to before the 2008 crisis, but consumers are already in debt and are trying to pay that back. To create inflation out of QE bank lending would have to continue to expand indefinately, or people would have to be given money by the Government for free.

I know devaluation will be mentioned, but I do not see that as being proof that inflation will come about. The UK devalued the pound in the nineties without inflationary consequences.

I may be toatally wrong of course, and others who see inflation, may be correct.

Time will tell.

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Geoff Downs

Nov 22, 2012 at 19:56

totally, sorry.

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William Phillips

Nov 23, 2012 at 00:04

The Japanese analogy is a good one. There comes a time when an economy is so glutted with debt that trying to cure it by feeding it more produces only nausea and vomit. Or when shooting heroin into a junky kills him with a smile on his face.

Excess demand in the days of the gold standard was corrected by the tightness of money, credit and higher interest rates operating on a quantum of money that grew only as fast as miners could dig out the metal. What went wrong from about 1914 onwards was that mining became too efficient-- too much gold-- and the mobocracy which had been kitted out with the vote demanded its 'right' to unearned goodies paid for by the thrifty, hard-working,enterprising or those with inherited wealth.

That threatened social stability and solidarity as Lord Salisbury for one had foreseen. It made the country less at ease with itself. The maggot of 'progress' at others' expense had got into working-class tiny minds.

Under the gold standard, cost-push inflation, from bad harvests or disruptions to trade such as wars, was quickly corrected during the business cycle. It never became deep-seated or virulent. The UK went through the entire 19th century of industrial revolution, financing a vast growth of population, the accumulation of the largest empire ever and considerable improvement in living standards, with zero net inflation.

In the long run, though abetted by fighting gratuitous wars in 1914 and 1939, Britain's national finances were undermined far more, if slowly, by the creeping growth of the welfare state mentality. The elite, fearing dispossession by the proles, bribed them not only with their own earnings (tax yields proved not to be enough) but by printing paper money and borrowing more and more on the surety of future generations' work.

The 20th century has been the first in which the working class is fatter than the privileged, if less healthy, and the first in which parents have robbed their posterity.

Not only direct government spending but the contriving of a high standard of living by making borrowing easy and bankruptcy 'no-fault' (like divorce, the parallel killer of social and inter-generational cohesion)-- these have created a fantastic atmosphere of deluded entitlement, such as Bhavesh described. The bitter wind that will blow on the heirs to luxuries and opportunities their grandparents could not dream of will be all the harsher because of the supposition, prevalent since 1945, that every day in every way the common man is entitled to get richer and richer without any notable extra effort.

The wake-up call will be brutal; the morning after will be longer and more horrible for having been so often deferred. The mass public already feels cheated because its 'affluence' has stopped growing. Plebs are disillusioned with politics, sometimes rioting but more often sullen and potentially poujadiste, since the lower middle class of swing voters predominates in the UK.

Perhaps this middle section of the country, whose bible is the Daily Mail which once backed Mosley, is waiting for a demagogue to 'go viral' and overthrow an established order whose utter corruption and cynical greed can no longer be concealed. Indeed, the elite has become more and more brazen during the last 50 years of widening social and economic inequality. One wonders if it senses the game is almost up. Is it stealing and swindling while it still has the chance, like looting rioters at the far end of the social scale?

In the 1930s depression there was more respect for leaders, more deference, more noblesse oblige and remarkable peace in the UK compared with other large powers-- as well as a shallower slump. Britain renovated its industries and even clawed back its share of exports against America. We went into WW2 with adequate industrial muscle to defend ourselves.

None of those things could be said about Britain in 2012. In 1939 we fought suspecting it might bankrupt us and lose the Empire; today we are all but bankrupt already, have no Empire and dare not fight except for silly brushfire campaigns against provoked pseudo-enemies, at the behest of the USA. I do not think military belligerence and success are the best indicator of national health-- I prefer a Swiss or Norwegian analogy for our future, an end to neo-imperialist nostalgia-- but they are one measure of it.

Could the children of the comprehensive school lads who travelled 12,000 miles to yomp over the Falklands in defence of British subjects do the same? Probably not, if only because the Task Force could not be assembled any more. No aircraft carrier, and the heir to the throne spends his days far from the Taliban, pretending to rescue people.

The banksters and their political minions go on backing QE and trying to convince us that a dose of deflation is the worst possible outcome. But we had deflation in Britain for about ten years until 1934, and as I have said emerged in better economic shape than any other great power. Japan has had it for 20 years, is still the third largest economy and has preserved its cohesion: look at the wonderful example of self-help it showed the world when disasters struck.

Inflation will line spivs' pockets and rob savers; no wonder the bonus boys of the City would like a little bit more, and then a little more on top. I too remember the 1970s, the shabbiest decade of modern times, and I would rather try a bout of falling prices this time.

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Bhavesh Sutaria

Nov 23, 2012 at 01:05

Some really interesting points made by lots of you guys, esp the Japan analogy, and the fact we have our separate UK currency

Gold. Thats a curious beast. Its gone up with inflation, and with every money printing session, I believe, for a long time.

Recently, gold price cooled off a bit, but its picking up. The issue is the Euro crisis, which has panicked funds to buy US bonds, Dollars & T Bills to protect from inflation. The dollar is still the reserve currency, and the least evil beast. Its gained from Euro fear, NOT its own strength.

But the world is controlled by the Dollar. When the US monetary system hits its cliff, the world sees the US can't pay interest on bonds & T Bills, as rates rise over next couple of years, and then watch the panic start

Its anybody's guess what will really happen.

Logically, in a scenario where one currency can't be trusted, people will first move assets to other tradeable currencies. Which ones ?

Which country will remain safe & strong ? It has to be an open tradeable currency. Possibly China, Swiss franc, Krona or Sterling. If China senses doomsday is near, it may open up the Renminbi, and people may take the cue & buy that. But China rules autocratically, not democratically. Would one really trust them ? Rules can be changed anytime by autocrats, one needs to see fair play for long time before trust develops.

What else is left ? Which leaves Gold as the final reserve which can be used in a rough & ready format as a store of value & currency, and which is globally trusted knowing it can;t be hexed by the Emperors

There is an interesing theory that the DOW & Gold are inversely linked.

Right now, the DOW/Gold price ratio is 7:1. The theory is that in a crash, the DOW/Gold ratio hits 1:1. The down projection for the DOW in a crash is around 5,000, so Gold should hit that in theory. At that point, one should ( if brave enough ! ) convert all Gold to Equities / currencies, and benefit from the long slow recovery, as the DOW/Gold ratio rises with recovery

The formula is to benefit from a crash, by switching money into whatever is rising, e.g. gold, to protect us from huge falls in currency values. If some of us can benefit like this, we are blessed, and god help the rest.

The other formula is a global new currency, maybe Gold will be a short lived phenomenon for the crisis period only. To join all the bankrupt West nations devalue massively, and the strong nations control the game. The power control shifts from Basel, and go east towards Beijing ??

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Geoff Downs

Nov 23, 2012 at 10:08

Some key issues raised here and my view would be as follows:

1. China's huge growth story will be hugely hit by the economic problems in the West, especially the US.

2.The Dollar will remain the dominant currency in the world for a long time yet.

3. The US will not default. Countries with their own currency can deal with the issue through devaluation.

4.Deflation is going to be the problem, not inflation.

There is no doubt very serious economic problems are ahead with real dangers. All asset classes face a sharp decline, stocks, property and commodities.

A bust always follows a boom, and I agree that measures currently being taken could make the bust much worse.

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Jonathan

Nov 23, 2012 at 12:08

Geoff,

When you say: "3. The US will not default. Countries with their own currency can deal with the issue through devaluation. "

I take it you mean by printing money which in turn will cause devaluation?

And when you say "4.Deflation is going to be the problem, not inflation. " Why do you keep saying deflation is going to be a problem? The previous line you said debt can be coped with by devaluation.

When you devaluing a currency you create inflation, by definition!

Your argument is inconsistent with itself.

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Geoff Downs

Nov 23, 2012 at 12:24

Jonathan,

It's not my intention to continue to debate this with you forever. I gave you an example in the 90's when Britain was in the ERM. During that infamous week the pound lost around 10% of it's value and no inflation followed.

I have admitted I could be proven totally wrong and that my logic is flawed.

You should be confident of your own view and observe what takes place.

Of course if you are investing in products that anticipate inflation I can understand why you may be concerned.

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Jonathan

Nov 23, 2012 at 12:41

Geoff, It's nothing to do with my worries just your logic. I can't understand how you can say that countries that have their own currency can pay back their debt by devaluation (printing the money) and then in the next sentence say it will be difficult to get inflation.

Can't you see that these two statements contradict each other?

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Alan Morrice

Nov 23, 2012 at 23:24

Geoff,

Given that at present prices in the UK are rising, ie inflating, too quickly for it to be possible for savers to protect the real value of these savings when do you suggest that the situation will suddenly flip into deflation? Next month? Next summer? 2014? Since 2007 have there been any signs whatsover that deflation threatens? If there have been I for one have missed them!

Inflation is already here and doesn't look to be ending soon.

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an elder one

Nov 24, 2012 at 00:19

My understanding - admittedly not great but from what I think I've read - is that inflation results from excess of demand over supply, if the extra printed money is not getting into the hands of the populus to spend on goods and services but pay off debt and the government is doing likewise, then there is no tendency to inflate.

The corollary would seem to be that inflation is caused by excessive borrowing. Following that logic if the money supply becomes insufficient then deflation comes about.

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Jonathan

Nov 24, 2012 at 00:50

an elder one,

The idea that inflation is caused by the market forces of supply and demand is something that the BOE would like you to believe is the only cause of inflation. I recently went to an open day at the BOE and they have a museum with a video that explains what inflation is and it gives exactly this point of view. They totally fail to mention that printing money affects inflation. If supply and demand was the cause of long term inflation how do you explain the fact that everything is 10 times the price is was in 1975? and also wages are 10 times the amount they were in 1975?

Is a loaf of bread 10 times more in demand and its supply more limited than it was in 1975? The answer is a plain and simple NO.

The ONLY cause of long term inflation is printing money.

Also, the new money will always eventually work its way into the economy it's just a matter of how long it takes. The current printing of money for QE is going straight into the economy by basically funding the government deficit.

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Dave Buchanan

Nov 24, 2012 at 09:28

Supply and demand are the causes of inflation, and as you say printing money increases the supply of same. That will work its way into the economy and market forces will respond to keep supply and demand in balance

Depending on the source then average income has risen by a factor of 10 during the period from 1975 so cause or effect, or just shifting the price curve? People are 'willing' to pay 10 times more so suppliers respond and you have inflation but as both sides of the equation have moved in parallel so the impact is limited or nil. QE causes inflation and once balanced the only thing that changes is that the debt is cleared.

This of course is over a period of time and ignores the hardship caused to individuals while the supply and demand are out of balance. It also feeds the myth that growth can continue for ever based on this form of arbitrage.

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Nobby Clark

Nov 24, 2012 at 10:19

Dave Buchanan - I don't know whjere you live Dave but if you ever get a chance to visit the Triumph factories in Hinckley (or even those they have in Asia) you'll see that whilst they do make parallel twins, they're nothing like the old Meriden Bonnevilles! Their new twins and their triples are selling like hot cakes all over the world, unlike the Jap bikes which are stalling in comparison.

My point was really that British companies should, wherever possible and if practical, buy British goods - Triumph are as good if not better than anything else on two wheels yet the police buy Honda etc. Scandalous.

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Nobby Clark

Nov 24, 2012 at 10:21

Anonymous 1 - Funnily enough they were, during the war, by our friends in Europe. Now then, sort out that little mystery.

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William Phillips

Nov 24, 2012 at 11:48

Alan Morrice wrote: "Since 2007 have there been any signs whatsoever that deflation threatens?"

The early phase of the banking crisis, when the system was clearly signalling that it could no longer cover up the all-round sourness of loans, was accompanied by a drop in aggregate demand-- as it always is, if politicians and central bankers let things play out naturally.

The Retail Prices Index turned negative in March 2009, 0.4% lower than a year before. This was the first officially reported deflation since the 1930s, and was followed by seven consecutive months of falling prices. By June reported inflation was minus 1.6%.

But we have an economy dedicated to the inflaming by advertisement of demand for mass-manufactured and mostly imported rubbish; the fostering of indebtedness as a means whereby the elite enslaves the people; and the adulation of 'GDP growth'. defined as including waste and pollution. The idea that goods and services might become cheaper, benefiting the provident saver, is anathema to the debt junky and his lenders. to the politicians who want to inflate the national debt down, the home 'owner' with a gigantic mortgage on a rabbit hutch. Somehow the fact that savers vastly outnumber borrowers, and are more likely to vote, being older and more conscientious, never stops the leaders kicking us in the teeth.

The money printing press was therefore set to work. the cost of debt reduced to a joke and the terrible danger of deflation staved off... until the system has its last heart attack from hardening of the credit arteries and can take no more of this 'stimulation'.

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Jonathan

Nov 24, 2012 at 11:54

Dave Buchana,

I think you have a misunderstanding of the term "Supply and demand" the word supply applies to the supply (amount) of goods not the supply of money. So for example if there is a poor harvest the "Supply" of grain goes down. If everyone buys and internet television the demand for high speed broadband goes up. The supply and demand refers goods not money regarding inflation not the supply of money, certainly not in the BOE's video of inflation where the supply of money is not mentioned.

Of course individuals with savings would not be affected if the interest rate on savings and pay increases followed inflation. It's the difference in these that is important to them. Currently with QE we are getting high inflation and low interest rates. Added to that people are getting lower than inflation pay rises.

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an elder one

Nov 24, 2012 at 12:43

The low interest rate and increased money supply from virtual printing still enables demand to exceed supply (inflation) despite worsened individual incomes. Thus it would seem a depressed or dying industry - next step deflation - is to blame. The UK exists within a global industry, which has an effect to an extent beyond our control.

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an elder one

Nov 24, 2012 at 13:09

As regards the global industry we don't seem to produce ENOUGH wanted product at competitive prices aggressively marketed at present, to improve our lot; add to that the UK carries too large a burden of unproductive people on benefits.

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Dave Buchanan

Nov 24, 2012 at 13:13

Jonathan - agree I was being quite simplistic and missing out a lot of steps. Thanks elder one for a better precis.

My 'favourite' term in economics has always been ceterus paribus - though the 'rational' consumer comes a close second :-)

Nobby - I was being facetious, agree that Triumph has been a real success story, especially the triples. Personally I prefer Ducati's though I raced Yamaha's and Kawasaki's.

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an elder one

Nov 24, 2012 at 13:25

Inflation is an inevitable concomitant of growth and has ever been with us since the notion of credit came about in order to invest benefit in the discoveries of science in all its facets, leading to advances in technology and medicine which so improve living standards and quality of life, ie, growth, in a word. The trick is to control growth about a norm of reasonable natural expectation; the mess we are in today is because the people responsible for that, screwed it.

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an elder one

Nov 24, 2012 at 13:45

And I should have added to technology and medicine, all the means of identification and exploitation of the fruits and nature of mother earth.

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an elder one

Nov 24, 2012 at 14:06

I wonder, perhaps the genes of rape and plunder in the British pscyhe brought in by the invading tribes of our heredity, that carried with them the impulses of adventure and enterprise and desire, are weakening or leaving us to go to other fields; or are being brought low by democracy, as it's called. At least, that of desire remains it seems.

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Nobby Clark

Nov 24, 2012 at 15:00

Sorry Dave - thought you might be a philistine..!

Had a 916 a few years ago, brilliant but a bit too focussed for me now, like the 675, so settled for an early R3 and a Thruxton now, though there's been a 55 T'bird in the shed until recently. All brilliant, more than I can say about the 961 Norton.

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Nobby Clark

Nov 24, 2012 at 15:03

Creative Destruction - Was talking to a serious football fan last night and he reckons that's exactly what's going on at Chelsea, no stability keeps everyone on their toes. There again, stability seems to work at Old Trafford.

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Pagoda

Nov 24, 2012 at 15:46

No comment

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an elder one

Nov 24, 2012 at 16:01

sorry, psyche

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Bhavesh Sutaria

Nov 24, 2012 at 19:49

One point is clear. The Emperors have messed it up, as they always have done, do , and will continue doing. So, best not to trust their pathetic bull, and its up to every man / woman to do what's best for his / her own position ...

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Philmo

Nov 24, 2012 at 23:44

OK Bhavesh

So do we follow the politicians' and FS industry lead and accept that anarchy is the best policy?

Perhaps we should rise above that easy route!

How does one champion the return of altruism?

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an elder one

Nov 25, 2012 at 12:39

Philmo, I think Bhavesh Sutaria means, in despair with poor governance, that it is simply a matter for the individual, of survival by whatever best means; not the easy route, but the only one left; that, does not necessarily rule out altruism.

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an elder one

Nov 25, 2012 at 15:14

Altruism comes in various forms; specifically, at the personal level it is simple charity and in the human psyche; and by national governance through the benefits system. By the latter in its present form we are arguably over-burdened and it is thus part of the criticism of our governance.

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an elder one

Nov 25, 2012 at 15:27

The benefits system encourages too many people otherwise fit enough to contribute with their industry, to offer none; seemingly that is now being addressed by government.

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an elder one

Nov 25, 2012 at 16:34

The difficulty arising in the issue of my previous point is that of finding profitable things for the unemployed to do, a matter not helped by all the red tape imposed on industry through present day governance.

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Nobby Clark

Nov 25, 2012 at 18:53

Whilst an elder on is dead right on both his last two posts, there are many of us with skills, who unfortunately find ourselves out of work - myself for example after 40 plus years with barely a sick day off - who have much to offer and are willing to offer it, but find ourselves banging our heads against frustratingly solid employment walls because of our age. What's more, the waiting list for collecting supermarket trollies is as long as your arm!

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Nobby Clark

Nov 25, 2012 at 19:01

As regards an elder one's point about finding the unemployed something profitable to do, they (we) could at least be found tasks which are at least worthwhile. For example, keeping the grass verges tidy, cleaning the streets, removing graffiti, grinding up the tons of chewing gum patches on the pedestrian ways, emptying public litter bins etc, etc - in other words a public service. At one time, for example, the estate surrounding Rampton top security Hospital (prison) allowed low grades (half wits) to mow the grass, trim the hedges, sweep the streets, clean the bus shelters etc, all under supervision of course, but the shiny arses in some office or other reckoned it wasn't safe to have them out with the public (though it's ok to have child killers etc out on day trips to Meadowhall shopping mall, in Sheffield), so they were kept inside. The estate now looks like the worse council estate imaginable!

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Philmo

Nov 25, 2012 at 23:07

AEO need to go to Specsavers - ask for a pair which bring "tongue in cheek" to focus.

Nobby - great start to a list - oop north we also need dry-stone wallers and grasses on fly-tipping builders!

Re shiny arses - yes ingenuity and calculated risk taking have been replaced by "couldn't be arsed" and "cover my arse"! Oh and "public service" - what's that?

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an elder one

Nov 26, 2012 at 09:42

Philmo, ditto child; personally I prefer Boots.

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Bhavesh Sutaria

Nov 26, 2012 at 11:54

What can a person do ? Same old prudent stuff I guess. Save more, spend less, invest smart, pay down debt, fix mortgage at good rate if applicable.

For those who feel capable, invest in asset classes likely to gain from a crash. Examples are: gold; energy & water assets. One can bet on a currency, index or stock to go down from the peak, and gain ( if one can identify the peak ! ). Cash generative blue chips & good investment funds are a good bet, all the usual stuff which does well in the downturn cycle to come.

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Philmo

Nov 26, 2012 at 13:08

Bhavesh

I agree completely - most thinking people will have those in place and be steering in those directions.

I was thinking of the broader spectrum ie UK plc, persuading its BoD to think longer term and more altruistically.

I've long held the view that the key to all future good is through education, raising moral, cultural values, but even the laudable progress review evaluation feedback process outputs (used in any rational enterprise) are these days sidelined into misleading league tables - instead of their intended use, to improve staff effectiveness and internal education processes.

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Bhavesh Sutaria

Nov 26, 2012 at 14:33

Philmo

Your sensible logic is great. If only governments would listen !!

Call me an old cynic, but things rarely change. Its the 80:20 rule, 80% of people are ignorant or not in position to do anything. Yes, we and other 20% who have awarenes or education are blessed indeed

You can't teach those who dont want to or can't learn ...

The BoD of UK plc ? Full of vested interests surely :)

As a young accountant, I'd get terribly excited at news and business & tax laws etc. At budget time, I'd study the FT at 6am to see how we would all be affected. I'd read widely, all intellectual journals etc. Grand national develkopment strategies excited me. Aaah, days of ignorance ...

Then ... one day the penny drops ... none of it matters

It's what Philmo plc does which matters, not UK plc.

Look after yourself. The basics of life is: how to fatten our wallet & lighten someone else's. Of course, this does not apply to social work, love, health, arts, etc, thats another formula. The government governs, thats all. Rarely a character like Thatcher come along and changes things ...

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Nobby Clark

Nov 26, 2012 at 17:42

Bhavesh - You're dead right, especially your final paragraph. Maggie did it right, sorted out the country and our position in Europe and gave Bliar and Broone 18 years of Tory thrift to fritter away before bailing out with their own nests nicely feathered.

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Robert Brown

Dec 16, 2012 at 22:08

Nobby your'e well named. It was Thatcher who got rid of credit controls and deregulated the City.The ground was laid for the build up of debt and the eventual banking crash. Deregulation of the financial sector both here and in the USA over a period of twenty years led to the global financial crisis. She also destroyed the manufacturing base of this country for good measure because of her ideological campaign against the unions and labour. Wake up and smell the coffee Nob.

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Nobby Clark

Dec 17, 2012 at 00:53

Nah Bob, not having that. As far as many - including me of course - she did it right. Manufacturing in general was over manned and obsolete in dinosaur factories from a century earlier, a legacy of winning the war. They couldn't make it pay because of weak management and militant unions, so they had to go. That's life - sad but true.

Alf had it right over in Germany in the 30s, he sorted them all out , no messing about. Trouble was he got a bit too over excited in the early 40s - by then he couldn't make it pay either, so he had to go. That's just the way it is.

You leftie types will always have an answer so we'll agree to differ on this one, there's no need to get personal or rude - and I prefer tea thank you.

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Bhavesh Sutaria

Dec 17, 2012 at 01:42

The Labour government between 1997-2010 over spent hugely ( as they usually do ) , and weakened the GB finances very badly.

Poor control on public expenditure; immigration; regulation of the City; scams & scroungers skimming off the State, etc, etc, left GB with high debt, the coffers empty when they lost power in 2010.

Following the global crisis in 2007, without the Tories & the policy on austerity, GB would be half bankrupt, and interest rates sky high like Greece or basket case EU countries, and us going with a begging bowl to IMF, and the poor people would be poorer than ever.

Over spending means trouble. Labour have rarely understood this, and their populist policies rely on high taxes for the rich, to win votes.

The 1997 Labour government were lucky in timing; the years of previous recession & economic control by Tories badly disillusioned voters, and paid off for Labour, who took the credit when the boom started in 1997. They basically surfed the wave, and let credit expansion & irresponsible policies rip like never seen before. We are all now paying the price, and the credit for sorting the mess lies with the Tories, thank God.

Smell the real coffee, Robert. Labour usually screw up financially.

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Nobby Clark

Dec 17, 2012 at 02:32

Nice one Bhavesh - I would mention three names here. 1 Dennis Healey (Screwed up the country in the 60s and had to go to the IMF with the begging bowl. I'll never forgive him for pulling the plug on the world's most technologically advanced aircraft TSR2) 2 James Callaghan (presided over the worst situation the country had seen since the general strike - the winter of discontent 78/79. 3 Gordon Brown (screwed up the country ....) What have they all in common? Labour. What a relief neither Foot nor Kinnock had a go!

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Jonathan

Dec 17, 2012 at 14:50

It seems to me most parties in power screw things up whether it's selling the family silver or just being incompetent.

Thatcher: sold off council houses cheap and didn't rebuild any. Blair let in millions of economic immigrants and didn't build any new houses. Result: Not enough houses for the population, local authorities have to now go to the private market to pay exorbitant rent on properties for people on benefits.

Blair went to war with Iraq and Afghanistan cost tens of billions with little to show for it.

John Major privatised the utilities, now we have private companies making billions from UK house holders and failing to invest sufficiently in the nations infrastructure.

Brown saw through the PFI initiatives as an example it now costs the taxpayer £600 in fees to the private stakeholders of hospitals just to hang a picture on the wall in a corridor. This is not for the picture but for putting a hook in the wall and hanging it!

Brown sold off the majority of the nations gold, tonnes of it, at $270 per oz.

The list goes on... and now the BoE and government are going to give up on an inflation target which will give them free rein to print as much money are they like through QE to finance any government deficit.

Zimbabwe here we come.

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Nobby Clark

Dec 17, 2012 at 15:10

Zimbabwe here we come, cool. Book me a chalet in District 9, I rather like prawns...

Rhodesia used to be a pretty nice place once..

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Robert Brown

Dec 18, 2012 at 22:45

Nobby/Bhavesh

You both blame the last Labour government for the state of the UK economy in May 2010 when the Coalition took power.

The Coalition has also constantly blamed the last Labour government for the state of the UK economy. The mantra of ‘cleaning up Labour’s mess’ has been a constant throughout the Coalition’s term in office. The premise being if you ‘sling enough mud’ then some of it is bound to stick in the minds of the electorate.

For it all to be Labour’s fault then one of the three following propositions must be true:

• The Global Financial Crisis did not affect the UK

• The Global Financial Crisis did affect the UK but only slightly

• The Global Financial Crisis had a great impact upon the UK economy but it was caused by the last Labour government.

All three of the above propositions are false and preposterous.

The Global Financial Crisis had its roots in the USA and its direct cause was as a consequence of 20 years of financial deregulation. Even Alan Greenspan the Conservative head of the Federal Reserve throughout this period has admitted as much before a Senate Committee. The subprime mortgage market along with Lehman brothers collapsed and it spread like wild fire throughout the global banking system As the UK has three of the world’s largest banks and the bank with the largest exposure to the US subprime mortgage market then there was no way that the UK economy could not be significantly affected.

However, Gordon Brown took exactly the correct measures in providing state funding in order to prevent a complete collapse of the banking system. He also persuaded the Germans and the Americans to change course and follow suit.

When the Coalition came to power the UK economy was growing at a rate of 1.1% of GDP with an IMF predicted end of year growth forecast of 2.9% of GDP. The UK was at the top of the G20 for economic growth and recovery. The Coalition immediately began to strip demand out of the economy e.g. cutting the Schools building programme, increasing VAT and embarking upon a programme of austerity and Supply Side economics. Within 18 months the UK was at the bottom of the G20 for growth and recovery. Along with Italy the only country to experience a double dip recession.

Osborne's three tests of his economic policy: predicted GDP growth of 4.6% in 2012, cutting borrowing and maintaining the UK’s triple A credit rating have all failed. GDP growth in 2012 is 0.1%, borrowing has increased and not reduced and the Triple A credit rating has been put on warning and will most likely go within the next 6 months. The constant boast about cutting the deficit by 25% is correct but only if you stop including the figures after March 2012. It is actually only a 2% reduction and at what cost to the social and economic fabric of the UK?

There is a huge shortage of demand in this economy and in most of the rest of Europe. The Keynesian revolution was about the need to manage demand. As Martin Beck of Capital Economics points out, GDP in the UK is now about 14% below what it would have been if the long-run trend rate of growth had continued after the financial crisis.

In this new book, William Keegan of The Observer newspaper builds on his earlier best-selling examination of the political career of Gordon Brown, 'The Prudence of Mr Gordon Brown'. "Saving the World"? takes a fresh look at the later years of Gordon Brown as chancellor and prime minister. The new book, no hagiography, draws equally on the accounts of those who worked closest with him as well as those who he fought and feuded with and provides a balanced view of Brown the leader, arguing that, for all his acknowledged flaws, and policy errors, the degree to which 'it was all Gordon's fault' is much exaggerated. Brown is widely acknowledged, certainly outside of Britain, to have been the right leader, in the right place at the right time to rescue the world economy in 2008-09, a view supported by amongst others Paul Krugman and Amartya Sen; given the current absence of such impressive leadership in global macro-economic policy, it is a loss that Brown has largely withdrawn from policy issues. On the home front, his famous 'prudence' was always for a purpose, and as time goes on, it will be seen that he and his colleagues did more for public services in health, education and relief of poverty than has been recognised, although as Keegan shows, they did not do enough, with social housing a particular failure. "Saving the World"? It's time for a reassessment.

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Nobby Clark

Dec 18, 2012 at 23:13

Eh up Bob lad - your friendly neighbourhood coffee sniffin' Nob here again. Let's face it, you humourless, super serious leftie types are always going to say how well the Broon and his cronies did, whilst us fascist comedian types reckon otherwise, so that's all there is to it. No need to get all huffy-puffy about it, the facts are simple, whenever Labour get into power they spend up, screw up and leave a mess behind. Now, that'll have got you really revved up...

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Robert Brown

Dec 19, 2012 at 10:24

Nobby, Nob

I’ve tried using facts but they don’t seem to penetrate. You say you’re a comedian, well you certainly are Nobby, you make me laugh, my sides are splitting.

You say ‘the facts are simple’ well you want to try using one. However, I did get a sense of simple from your reply. The next time you use a fact could be the first. But don’t give up. Keep on trying. You may stumble upon one by accident, you never know. Debating with you is an oxymoron Nobby with the emphasis upon the moron. By the way, happy Christmas Nobby, no hard feelings.

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Dave Buchanan

Dec 19, 2012 at 10:59

So by the same logic then :

For it all to be Osborne's fault then one of the three following propositions must be true:

• The Global Financial Crisis is not affecting the UK

• The Global Financial Crisis is affecting the UK but only slightly

• The Global Financial Crisis is having a great impact upon the UK economy but this is being caused by the current coalition government.

All three of the above propositions are false and preposterous.

Governments of all hues are happy to claim the glory in a boom and blame someone else in the downturns. The large majority of 'leaders' just hope they are elected on a cyclical upturn as they know there isn't anything they can do to stop - as opposed to ameliorate the effects of - a downturn.

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William Phillips

Dec 19, 2012 at 11:30

It is a pity this thread has declined into silly political name-calling.

Britain's economic, social and ultimately moral malaise is not primarily a matter of who did or didn't do what in government in the last couple of decades. Our discontents mark the nemesis of a postwar consensus: that we deserved to indulge ourselves, to take it easy on our laurels. Understandable after coming through two world wars undefeated and a depression, but ultimately disastrous.

We rested on our laurels, awarding ourselves welfare and health care we could not finance from a balanced budget. We maintained inflated post-imperial defence commitments and atomic weapons, failing to invest in and modernise our industries despite excellent theoretical knowhow in 1945 in such fields as television, computing, nuclear power and avionics. We debauched the value of sterling. We preserved a classbound snobbery against wealth creation.

The Conservatives of Eden and Churchill share responsibility for these lacks with the Labour Party of Attlee and Gaitskell. There was a general air of complacency, a feeling that we could muddle through in peace as in war and it was not done to be too keen on making money by selling stuff to foreigners.

The UK desperately wanted to go on being a great power, or at least best buddy of Big Brother America. Our foreign policy vacillated between the 'special relationship', the Commonwealth or the European Community, looking for allies that would let us kid ourselves we still merited a place at the top table if only in combination with them. We should have focused on streamlining our society for the economic battles to come-- with Russia and Asia-- and cultivated the spirit of self-reliance and the community of little platoons, like Norway or Switzerland. Instead we became addicted 'consumers' as well as welfare junkies, supposing that the cure for every currency and demand crisis was always more spending on credit at home, another housing boom, a further dose of stimulating inflation. Our local government wasted away, with Whitehall calling all the shots in a nation starkly more centralised than post-Nazi Germany. Individualism was sapped at every turn.

Thatcherism only palliated these pathologies. Her confrontation of consensus was mainly rhetorical. The State's share of GDP was not hacked back, many nationalised industries were flogged off in ways that chiefly benefited middlemen in the City. Manufacturing continued to wither and the notion that a gentlemanly nation could pay its way by not dirtying its hands but through 'invisible earnings' became the consensus.

As Labour bourgeoisified and careerised, it lost interest in the white working class which had made it a party of power and collaborated with employers, importers of cheap coloured labour, to depress British wages in the name of 'anti-racism', and to harvest votes from the new arrivals feasting on welfare. It was symbolic that the biggest fraud of the age, the NHS, should have taken the lead in doing this. Too sacred a cow even for the Coalition to touch, it offers a rotten service overstaffed by incompetents at the top and illiterates among the bedpans which has long ceased to be the world's envy, if it ever was. (A truly reforming Tory administration would have turned it into the mixture of public. private and voluntary provision that functions so well in Germany. Cameron 'ringfences' its money.)

Nowadays we have two sorts of traitor alternating in power: a Conservative Party owned by globalist financiers and businessmen who see Britain only as a place to make money and hide from their victims, as they avoid the social consequences of immigration and welfare-state chavvery behind their electronic gates; and a Labour Party which has made its peace with international finance capitalism and seeks only to palliate its worst rapacity with a lttle more confiscatory 'compassion', tax-wise. Two bunches of middle class professional politicians, deficient in patriotism and eager for expenses, rule us turn and turn about.

The people have finally grasped that this electoral choice is phony and become more apathetic than angry. They are too busy dealing with the consequences of three generations of spiralling self-indulgence: the vast burden of personal debt and the fear of losing their 'owned' homes to repossession keep them docile... for now. There is no mood for a revolution, for the old gods of statist collectivism have been as resoundingly discredited behind the former Iron Curtain as the neoliberal voodoo of 'free markets' has been by the near-dissolution of fractional reserve banking.

Perhaps a third way for Europe and North America will emerge by studying the contrast between the stagnation of Japan-- once touted as the next dominant economic hegemon-- and the awesome vitality of the semi-command economy that is the PRC.

Japan's postwar economy and society were reshaped by its conquerors in a western mould; China went its own way, and after appalling mistakes and suffering it tacitly renounced its imitation of communism and stumbled on a formula which has sustained its elite in power for 20 years after Tiananmen Square, without a whisper of concession to the 'democracy' and 'human rights' cant the white West has embraced to cloak the facts of its failure. Try lecturing the new leadership in Beijing about how one day China will be just like the United States and see how far that gets you. It is more likely that one day China will own the States.

Thanks to these Far East object lessons, we can see that the old categories of left and right, capitalism v. socialism, market forces v. planning, just do not map on to the problems mature economies face. Resource shortages, booming populations in the wrong places, rising reversion to religious fundamentalism in much of the world, are challenges that the exhausted liberal-secular vocabulary of the French and Russian Revolutions cannot begin to comprehend. The vacuity of such language echoes the degeneration of political imaginativeness and creativity. It is unequal to the situation. Worse: it is dishonest, and those who talk this way are dishonest. They lie about our prospects and steal from our posterity to keep their show on the road a little longer; they lie about their own affairs and steal from the public to support their legislative lifestyles.

As for the Punch and Judy show on this thread, it exemplifies how unreal and bankrupt the trickle-down vocabulary of lamestream media reporting has become in the mouths of those such as who regurgitate it without showing any sign of ever having had an original thought about the way the world is going.

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Philmo

Dec 19, 2012 at 11:45

WP

Take a bow!

Nail on Head!

Our biggest problem is to re-educate our children and grandchildren out of our slothful, ill-disciplined ways.

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Alan Morrice

Dec 19, 2012 at 12:56

Love the way Keynesianism gets bandied about. As a layman I've always thought that Keynes' big idea was that goverments should run defecits during times of economic downturn in order to inject demand into the economy but during boom times should run a surplus in order to cool things down.

Never did I read Keynes suggesting that in the middle of a boom governments should run with huge defecits, conveniently to build a client state. Gordon Brown should not allow Keynes to claim credit for this gem of economic management - he thought of it and did it all by himself.

I'm probably hopelessly wrong. I don't have the advantage of a Guardian subscription to teach me the correct 'progressive' line on this.

Next thing we'll be hearing is that in 1979 Jim Callaghan bequethed to Maggie Thatcher a succesful prosperous 'Rolls Royce' economy and the daft b**ch squandered it all with her tax cuts and union reforms. Perhaps I should start reading the Guardian. Better to be educated late than not at all.

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Nobby Clark

Dec 19, 2012 at 14:16

Oh Bob, come down off your po-faced high horse. You're left, I'm right, we're never going to agree, only thing is you're typically rude and I'm not. Will Phillips is quite correct, between us we've drifted off the thread. I hope you have a happy Christmas too, though I am quite surprised you actually believe in it... Enough already!

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