I had occasion to walk around the local shopping centre in Livingston, West Lothian, today. The so called ‘designer outlet’ is quickly emptying as shops are closing down and giving up the ghost. The Tory cuts are having effect in this area. As the OP points out, it is not just pound shops and those types of things that are closing down, quite the opposite, in fact, shops that have ‘middle class’ clientele are getting hit too. Perhaps the middle classes are beginning to realise that if those in lower incomes stop earning, they will suffer he knock on effects as their businesses also suffer. Unemployment is rising and the demand for labour appears, as best I can tell, to be loosening.

“take away my job, and I will spend less. Companies will lose money. Jobs will go.”

Or… Take away public sector jobs, tax burden reduces, companies/individuals keep more of their income, foundations are laid for growth/wage rises/increased employment.
We cant continue having a public sector as proportionately large as it is to the private sector, its madness and just isnt any more feasible than me retiring off my credit card. Sorry, tough love.

Cotton prices are up massively because there was no money in the crop for years and lots of farmers moved into different crops. Moreover, some of the cotton shortages are exacerbated by small Chinese farmers who have their houses full of cotton that they don’t want to sell. They are hedging Chinese inflation and hoping for even higher prices.

Last summer the Coalition told us they had to restore confidence to the economy. Since then almost every confidence indicator has headed south. There was about six profits warnings from retailers last week alone. John Lewis because they release weekly sales numbers are used as a barometer for the UK High St., and they just had their worst week of the year. Even manufacturing which is relatively booming showed a slowdown in the purchasing managers index yesterday. I think the economy will recover in spite of the Coalition, but the confidence argument does not appear to be working out very well. The worst thing they have done is the VAT rise. The next six months could be a bumpy ride and it is noticeable that the LibDems are rediscovering that they are liberals and in some ways trying to distance themselves from the Coalition.

http://www.youtube.com/watch?v=X2DRm5ES-uA

this film, Inside job is going to be excellent.

[commenter deleted and banned]

For information, “General Government Final Consumption” in OECD countries as a percentage of national GDP:
http://www.oecd-ilibrary.org/docserver/download/fulltext/3009141ec013.pdf?expires=1301779115&id=0000&accname=guest&checksum=1679CD9D6F9C201ADE4BCD23A824909D

As the chart shows, General Government Final Consumption in UK in 2008 as a percentage of national GDP was marginally higher than the average for the whole Euro area.

This news release, dated November 2010, is the latest I could find on the pay of, and numbers employed in the Civil Service:

Full-time civil servants’ median pay, excluding overtime or one-off bonuses, was £23,680 in March 2010, up from £22,850 a year earlier, according to the 2010 annual Civil Service statistics released today by the Office for National Statistics. Median pay for all civil servants was £22,850 in March 2010, up from £22,100 in 2009.

Full-timers made up 79 per cent of the Civil Service in 2010 – 417,770 out of a total of 527,480 – though the proportion of full-timers was down from 80 per cent the previous year.

@6 relates:

Unfortunately, this together with the link got chopped off:

Women made up the majority of civil servants (53 per cent of the total). This proportion was unchanged on 2009. Although women remain a minority in middle and senior management posts, the proportion of women in more senior posts has continued to increase, with women making up 34 per cent of the Senior Civil Service compared with 33 per cent in 2009.

Nearly three-quarters (73 per cent) of civil servants worked outside London and the South East, with 10 per cent based in Scotland and 7 per cent in Wales.
http://www.statistics.gov.uk/pdfdir/csnr1110.pdf

Just 4 points:

1. Yes, the Coalition’s cuts will reduce consumption. Sadly, for the postholders, many public sector non-jobs will come to an end; and so they will no longer spend their inflated salaries in local shops…But, in the longer term, we simply cannot build a viable UK economy on the public sector, on services and on high-street consumption….Growth must be export-led; and it will take a long, long time for the readjustment to take place. It has taken c.60 years of failure to get to this point. Let’s just hope that the next government does not take the easy way out and bribe us again with our own (borrowed) money…which is just deferred taxation and so an inter-generational injustice!

2. Speculation is perceived forward-pricing. Speculation rations finite resources by price. It would be lovely to ration finite resources by need but there is no system yet invented that can do this, as the failure of socialism has shown. So speculators do us a favour by raising the price of a commodity well before it runs out — sending price signals to us all to curb consumption of x because supplies of x are threatened or reducing. Famines don’t occur in undistorted markets.

3. “Last year, the thousand wealthiest people in this country got about a third richer”. I don’t care. Good luck to them! My concern is to maximise the minimum, not to minimise the maximum (Rawls, not Marx!): to ensure that however society is organised economically, the people at the bottom get the best deal available (which is why I support the NMW). And taxing the mega-rich too much will simply drive the mega-rich and their companies away from the UK…thereby creating more unemployment.

4. “It is a lie that the state has no money left”. *sigh* Deficit denial is infinitely tedious, as even Ed Millipede will tell you. We have a huge national debt, though as a % of GDP it has been larger — unless and until we take into account the massive PFI debts incurred by the last government, which make the picture far, far worse. The UK effectively went bust in the 1970s running a budget deficit of 6% of GDP, while today we are running a budget deficit of 10-11% of annual GDP. The Coalition has calmed the markets by its fiscal policies, for the moment. Yet the cuts will take public expenditure back to only 2008/9 levels! And no government/country can survive for long spending (and so borrowing, which is deferred taxation!) more than it raises in tax receipts.

blanco @ 5:
And what does your inane and abusive comment add to the discussion?

“It is a lie that the state has no money left. But next time a Tory tells me that lie, I think I’ll reply with a simple question: “Who got it all?”.”

Some evidence please that the state has no money left.

As to who got it, well the biggest elements of public spending are Social Welfare payments & the NHS.

Dave Bones

you can watch the doc here for free

http://documentaryheaven.com/inside-job/

paul ilc@8

when did policeman, nurses and binmen become non jobs?

@8: “2. Speculation is perceived forward-pricing.”

Really? And what is mis-selling financial securities?

“The Financial Services Authority has hit Barclays with a record 7.7 million pound fine for mis-selling two income investment products to more than 12,000 clients who lost money during the financial crisis.” [January 2011]
http://uk.reuters.com/article/idUKLNE70H03B20110118

And Insider dealing?

A City banker who amassed almost £600,000 through insider trading with his wife and a friend has been jailed for three years and four months.
http://www.bbc.co.uk/news/uk-england-london-12345373

@2 Dirk

It’s this thinking that has the economy nose diving. It might sound tough but it’s stupidity at it’s best. There is no historical reference to suggest such austerity measures work. In fact the three euro contries that have tried happen to br Ireland Spain and Portugal now just remind me how their economies are doing!

500000 less public sector workers, 500000 less tax revenue, 500000 more claiming off the state, 500000 not spending on the economy. Just how is this good for growth exactly?

13. Skooter, 8. paul ilc explains the situation far better than i can. Presumably he didnt go to a collectivist comp like i did, or if he did then he paid more attention than me.

Greece, Portugal and Spain all had/have to implement austerity measures after they had/have already screwed up by bloating the public sector and, having taxed their private sectors into a crawl, relying on massive borrowing to pay for it.

Irelands situation is a little different, less to do with its public sector and more to do with the Banking crash and its over exposure to the property market, again though its austerity measures are a response not a cause.

Saying theres no precedent for austerity measures working is like saying being frugal with your household income wont save you any money and get you out of debt, its nonsense.

How exactly does a redundant public sector worker cost the taxpayer more on benefits than when they were employed? Obviously they cant.
How exactly does the private sector miss their own taxes being paid back to them by the public sector when they no longer have to pay those taxes in the first place? Obviously they dont.

Its also worth noting that with Greece, Portugal and Spain all three of them are Socialist governments, doing what socialist governments do, milking people of taxes to buy electoral grace, and borrowing what they cant tax so peoples taxes can pay it off later, its all a massive con, criminal.

“It is a lie that the state has no money left”

Only because it owns the printing presses and can create as much money as it likes – which is what Gordon Brown did, printing £200 billion and lending it to the banks at near-zero interest rates.

In terms of income vs expenditure, the state has less than 0 left each year – because it spends more than it receives in tax revenues. To cover the difference, when it’s not printing money, it borrows in world financial markets by selling ‘gilts’ – interest bearing bonds.

The problem for the UK is that this interest has to be paid – and the bonds also have to be repaid on their maturity date. I think something of the order of £50bn will go on interest alone in 2011.

I really would have thought a posh chap like yourself would be aware of these things. Don’t they do economics at Fettes any more ?

paul @ 8

As to your points.

1) Who the fuck are you to describe anything as a ‘non job’? Just because you are too stupid to understand the value of the work, does not necessarily mean that the job being done has no value. Try and remember, you are just a Tory fuckwit. You have no understanding of the term ‘society’ so; it does not appear on your radar, that is a problem with your radar, not our society.
2) In other, less convoluted words, as long as yuppies are making loads of money out of other people’s abject poverty, then everything is alright?
3) Again! Fuck the poor, they have it coming to them? Er, we are told that big business is being stifled and are unable to make profit? Yeah, how does that square with the fact these cunts are making millions more than the typical worker? I think you scum have managed the laws of this Country quite well, if the greedy Tory scum are now making millions whilst the rest of the plebs are taking wage cuts.
4) Yeah, about that. The same people who tell us that the Earth is cooling since 1998 and Global Warming are now telling us that we are living under a huge deficit that can only be removed with massive cuts. You believe what happens to square with what you wish to be true.

Note to decent people, if this deficit is SO bad, why aren’t the Tories demanding that the rich take pay cut? Why is no one among the sub human demanding that Wayne Rooney takes a pay cut from his two hundred grand a week? Why is it that shop worker is earning six quid is over paid, but a banker on two million is perfectly acceptable?

They hate you and everything you stand for. As long as the rich are pulling the money in, the rest can fuck themselves.

@16. Jim “Note to decent people, if this deficit is SO bad, why aren’t the Tories demanding that the rich take pay cut?”

Well because the wayne rooneys of this world (though i agree their pay is obscene to say the least) are not paid with taxpayers money, and its none of the governments business telling companies what they pay their staff. Socialists always seem to have a problem understanding that concept for some reason.

I can’t believe Marks and Spencer is suffering in any kind of down turn.
Didn’t Stuart Rose praise the Tory policy of not raising National Insurance, (ie Labour’s “Job Tax”,) before the election, and suggest that all would be well for business and the economy in general once Cameron and co were elected? Didn’t he lead all the businessmen writing to the papers promising growth? Even though the rest of us knew that without a rise in NI there would be a rise in VAT, which would hit spending? Even though we knew that the public service would be decimated? Even though we knew that wage freezes were likely, cuts in benefits were certain and that employee contributions to NI would probably go up?
And most people in the middle won’t see the real effect of this government’s economic cutbacks until their pay goes in at the end of this month.
Some of us are still quite fortunate not to be too badly affected yet. But that doesn’t mean we’re rushing out to buy things. Especially not at Marks and Spencer. Business leaders who want to keep customers on board should not get involved in politics. We don’t all agree with Tory economic policy.

I waiting for someone to fill me about the valuable social contribution of banks mis-selling financial securities and insider trading by bankers – both highly remunerative activites by the accounts in the links @12.

It is challenging and costly to prove mis-selling and insider trading for obvious reasons. Unsurprisingly, the informed view is that there is a great deal more of both that goes on which doesn’t hit the headlines and which isn’t prosecuted.

In case you forgot about news report from a year ago:

Goldman Sachs, the Wall Street powerhouse, has been accused of defrauding investors by America’s financial regulator. The Securities and Exchange Commission (SEC) alleges that Goldman failed to disclose conflicts of interest. . . The SEC alleges that investors in the mortgage securities, packaged into a vehicle called Abacus, lost more than $1bn (£650m) in the US housing collapse.
http://news.bbc.co.uk/1/hi/8625931.stm

@ Dirk

Were the conservatives not in control of Greece until the election of 2009? They were also the ones who lied to the EU about the government finances.

Spain had a fiscal surplus until the financial crisis. The conservatives were the government in Spain until 2004. Did their bubble just appear when the lefties took over?

@ Laban

As much as Conservatives blame Mr Brown for every minutiae of the British economy, QE was absolutely nothing to do with him. It was an MPC decision that just required rubber stamping by the chancellor. QE was a very successful programme and we may need more of it in the future. If interest payments are what worries you then QE saves a lot of that bill, since nearly one fifth of the interest bill goes from the Treasury to the BoE and back to the Treasury at the end of the financial year. A bit of a free lunch. I think you misunderstand QE. It has nothing to do with lending to banks’ at ‘near-zero interest rates’. The purpose was to inject high-powered central bank money into the financial system by buying assets from predominately pension funds and insurance companies. Banks’ were only bit players in the process as they hold accounts for the other financial institutions. All money ends up on the balance sheets of banks, where else but under someones mattress could it possibly go? The banks benefited from the BoE special liquidity scheme but not especially from QE. And you are correct it is impossible for Britain to run out of money.

@20. Richard W

Yes google tells me it is so, but also that for the past 30 years they had only had a majority for 7, the other 3 principle parties during that 30 period seem to be the Socialists, the Communists and the Coalition of the Left. No wonder the countrys gone the dogs.

21
LOL so you think socialism is the reason for the problems in Greece. Just for the record please let us all know of any country present or past that has operated a socialist system.

Dirk @ 17

What possible difference does that make? He, and thousands of others in the super rich bracket are still doing very nicely out of the backs of the rest of us, be it from a tax source or not. This isn’t ‘magic money’, this comes out of everyone’s else’s pocket. Whether that is legitimate means or not is simply not relevant, the fact is a Country where the rich are getting vastly richer whilst the poor are getting poorer is not ‘skint’ or anywhere it.

People like you never understand the real issue here, whether you like it or not every penny the rich earn is taken from the poorer people in the chain.

Had you looked at the so called Arab spring, you will have seen at the heart of uprising is not disquiet about the nature of how the small elite got the power, but the fact that the small elite seem to be prospering whilst the rest of the Country are losing out.

Essentially, when you strip out all the garbage, when you remove all the rhetoric and ignore all the side issues. What we are seeing in the Middle East is the same as every other uprising. It is about the people at the bottom of the heap getting angry at the people at the top apparent wealth at the expense of everyone else.. It may be the ‘politics of envy’ if that is what you want to call it, but unless the Tories get their head round it, then I believe there is every chance that we will see the same riots we did the last time these cunts where in power.

An instructive perspective:

“The Governor of the Bank of England warned yesterday that living standards may never recover from the financial crisis and that households were only just starting to feel the full impact of bankers’ mistakes.

“Mervyn King told MPs that ordinary people were not to blame for the pain ahead and that he was surprised there had not been more public fury.” [2 March 2011]
http://www.independent.co.uk/news/business/news/king-says-living-standards-may-never-recover-from-the-crisis-2229570.html

This was the headline in the FT on 28 June 2006 – a year before the financial crisis started:

“Fears over surge in high risk mortgages”
http://www.ft.com/cms/s/0/e8f9d3b2-060e-11db-9dde-0000779e2340.html

Anyone for 125% loan-to-value mortgages?

Nearly two years further on, this was the headline on 8 April 2008 when the financial crisis was already well underway:

“Lenders withdraw no-deposit mortgages”
http://www.ft.com/cms/s/0/dd76f4f2-04d6-11dd-a2f0-000077b07658.html

“Vince Cable attacks bankers as ‘spivs and gamblers’

“Vince Cable has attacked the ‘spivs and gamblers’ who he claimed are more of a danger to the economy than militant union leaders.” [22 September 2010]
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8018194/Vince-Cable-attacks-bankers-as-spivs-and-gamblers.html

The money bankers gamble with isn’t theirs – it’s mostly yours and mine.

Average growth in share price for FTSE 100 companies 2010: 9%
Average growth in boardroom pay for those companies 2010: 55%

[8] Paul, can I just pick you up on your third point? You say you are relaxed about how mega-rich anyone gets. As I’m sure you know, there have been cases of individuals effectively buying small islands in the Caribbean and elsewhere and setting themselves above the law.

This is one of the flaws in your logic (there are others, notably about the role of speculation): for markets to work as the theory describes, there has to be the rule of law. But if an individual becomes rich enough, they can use that wealth to buy political power for themselves and the rule of law breaks down.

@21 dirk

You appear to be choking on your own argument here dirk but in true Cameron style you introduce your straw man to try to evade your original point. Here is part of a quote from Johann Hari who states the position more eloquently than I can.

Our debt is not high by historical standards, and it is not high by international standards. For example, Japan’s national debt is three times bigger than ours, and they are still borrowing at good rates.

David Cameron claims that, despite these facts, they need to cut our deficit by slashing our spending because the bond markets demand it. If they do not obey, then our national credit rating will be downgraded, and we will have to pay much higher interest on our loans. But here’s the flaw in that plan. That’s not what the bond markets say. Not at all. Professor Paul Krugman, the Nobel Prize-winning economist whose predictions have consistently proved right through this crisis, says Cameron is conjuring up “invisible bond vigilantes” who “don’t exist.” Who is the bond market really punishing? It’s the countries that cut too fast, and so kill their economic growth. The last two nations to be down-graded were Ireland and Spain, who followed Cameron’s script to the letter.

It turns out that cutting our deficit rapidly doesn’t cause an increase in “confidence” and so save the economy. Professor Krugman mocks this idea by calling it “The Confidence Fairy,” and goes through the historical record to show she doesn’t exist. Cutting doesn’t create fairy-magic. No: it has a very different effect.

“However, that’s not the whole picture. Because if speculation is helping drive the food and fuel price inflation that most of us are suffering from, then someone must be doing the speculating – someone must be benefiting.”

Sigh.

Speculation is a zero sum game to those doing the speculating. For every person that makes a profit speculating someone else must, be definition, have made an equal and opposite loss.

No, the money does not go from those paying the higher food prices to make the speculators rich. Speculators get rich from guessing better than other speculators.

If you cannot grasp this point about commodity and futures markets then you’ve really no business at all commenting upon them.

“Speculators get rich from guessing better than other speculators.”

I, for one, am so glad that our economy is linked to such a perverse form of gambling. Also @2 has it spot-on, the “trickle down” theory of wealth creation has done so well whenever and wherever it has been tried! That’s why in the ’80s the income gap got so much smaller, you see.

~

The willfull blindness of right-wing commentators would be hilarious if they didn’t run the fucking world.

@27

“Our debt is not high by historical standards, and it is not high by international standards. For example, Japan’s national debt is three times bigger than ours, and they are still borrowing at good rates.”

We will soon be at 100% of GDP – that is not high by historical standards???

Japan is an unusual case. Japan is basically bankrupt. The only people buying Japanese Government debt are the Japanese because they have good savings habits. The Japanese people think they have all this saved wealth which will fund their retirements. Unfortunately the Japanese people also owe this money. As more Japanese retire they will spend their savings – the Japenese Government will then struggle to refinance its debt.

@16 Jim:

“paul @ 8
As to your points.
1) Who the fuck are you to describe anything as a ‘non job’? Just because you are too stupid to understand the value of the work, does not necessarily mean that the job being done has no value. ”

Most public sector jobs carry out a worthwhile function. however we can never be sure – they get paid by the taxpayer whetehr they are of value or not, unlike the private sector.

“Try and remember, you are just a Tory fuckwit. You have no understanding of the term ‘society’ so; it does not appear on your radar, that is a problem with your radar, not our society.”"

Very helpful and constructive.

” 2) In other, less convoluted words, as long as yuppies are making loads of money out of other people’s abject poverty, then everything is alright?”

You clearly don’t have a clue. As Paul explained, speculation provides a very useful benefit to society. Speculating yuppies don’t automatically make lots of money! For every buyer of a financial profduct there is a seller.

“3) Again! Fuck the poor, they have it coming to them? Er, we are told that big business is being stifled and are unable to make profit? Yeah, how does that square with the fact these cunts are making millions more than the typical worker? I think you scum have managed the laws of this Country quite well, if the greedy Tory scum are now making millions whilst the rest of the plebs are taking wage cuts.”

Did you read what Paul actually wrote? He believes in maximising the minimum. This may well have the side effect of individuals getting very wealthy. People getting wealthy because people agree to pay for the goods and services they provide is good. Bill Gates and Steve jobs are both very rich thanks to the products they developed – people want to buy their products because it greatly improves the quality of their lives. How terrible.

“4) Yeah, about that. The same people who tell us that the Earth is cooling since 1998 and Global Warming are now telling us that we are living under a huge deficit that can only be removed with massive cuts. You believe what happens to square with what you wish to be true.”

Really helpful. So you believe their is no drficit and no National debt? Do you believe the earth is flat? Instead of prattling on about climate change why not provide some evidence that there is no deficit?

@ 11: “when did policeman, nurses and binmen become non jobs?” I never said they were. I was thinking of the Assistant-Chief-Strategy-Coordinator-type posts… There is plenty of fat that can be cut in the public sector: value for money from public services fell by 3.2% between 1997 and 2007, an annual average fall of 0.3%.
http://news.bbc.co.uk/1/hi/business/8091458.stm

Bob B @12: Mis-selling financial securities is a criminal offence. Speculating in commodities, like oil or wheat, is legal and has some important public and global benefits – like warning us of impending shortages, encouraging new entrants into the market to boost production and supply (and so averting famine)…

Jim @ 16: I think you forgot to take your medication!

Jim @ 23: “People like you never understand the real issue here, whether you like it or not every penny the rich earn is taken from the poorer people in the chain.” Where is the evidence for this? If it were true, would living standards for the poor as well as the rich have been rising for the last three centuries? Economics is not a zero-sum game.

MK @ 26: “if an individual becomes rich enough, they can use that wealth to buy political power for themselves and the rule of law breaks down”. Not sure that the rule of law breaks down, but I take your general point. My answer is that we have to be vigilant – a free press helps here – and to regulate appropriately. What would your answer be? Harsh taxes on the super-rich? And, of so, what do you imagine that would achieve?

Scooter @ 27: Hari’s article is very, very silly. 4 points:
1. JH does not seem to understand the difference between the national debt and the budget deficit. (Do you?) You can run a large national debt; but only if you have near-balanced or in surplus budgets.
2. The figures for the national debt do not include the scandalous amounts of money that the Labour government burdened future taxpayers with under the PFI schemes. Some estimates indicate that the PFI’s double the national debt, though admittedly we are not servcing that debt yet.
3. JH’s understanding of the Great Depression is lamentably superficial. Keynes’ General Theory was not published until 1936(?); and Keynesianism was not established until the 1950-60s.
4. As for Krugman, the markets have received the Coalition’s measures favourably. And JH’s comparison with the euro-countries is utterly misplaced. Of course, the PIIGS are in trouble, as they cannot devalue to boost growth by exports and tourism…. Thank God, Gordon Brown, for all his other incompetencies (including selling off the UK’s gold reserves at the bottom of the market!), had the bloody-mindedness to keep the UK out of the Euro.

[31] By your own account, not everyone who is mega-rich is an entrepreneur. In fact, most of them are speculators in either commodities or financial products. So cherry-picking an atypical couple of names comes under the heading suggestio falsi, suppressio veri.

And don’t come that “for every buyer there’s a seller” crap, either. What happens is that the risk is passed on over and again – churned, if you like – until you get down to the small fry who are fed misinformation (again, BTW, contrary to the preconditions for an effective market system, according to economic theory) so that they buy shit and lose out.

The Big Lie of right-wingers here and elsewhere is that the assumptions of neo-classical microeconomics apply in the real world. They don’t. Nothing like it. Take, for instance, the struggles between Putin and the oligarchs in Russia – medieval history is a better guide to what gives than Alfred Marshall and co. And Russia is a pretty important player in the energy market…

Eh?

What is there in this:

http://www.econlib.org/library/Enc/bios/Marshall.html

That is in any sense in opposition to the medieval politics of the current Kremlin?

Just what is it that you don’t like about neoclassical economics? Marginal utility? The theory of value? What?

@33

I suspect not many of the mega rich are speculators. And even if they are – so what? As previously stated speculators provide a very useful service. The point is anyone who makes money legally does so by providing a benefit to society (unless the Government interferes of course). People give them cash for a reason.

Who are these small fry you are talking about? Most transactions in the financial markets are done by the big players. If you are a ‘small fry’ and you play, then you know you are taking a risk.

@32 Paul

I guess krugman should just deferr to your superior knowledge and economic wisdom. Job done eh?

If Cameron told u the moon was made of cheese would you ask him for s slice?

@35

“The point is anyone who makes money legally does so by providing a benefit to society”

Tobacco.

@37

People who smoke tobacco choose to do so. They do it for what they see as their benefit.

* Growing Income Inequality in the USA. http://motherjones.com/politics/2011/02/income-inequality-in-america-chart-graph

I guess the UK would look similar. We’re being bled dry by the oligarchs and told it’s our fault. Looking at the comments here and elsewhere, they’ve even convinced some idiots that it really is our fault – or Labour’s for funding the NHS.

Here’s another graph that exposes that lie – note slight blip at end of 2008:

* The economic crisis is due to the banking crash and bailout. http://www.guardian.co.uk/news/datablog/2010/oct/18/deficit-debt-government-borrowing-data

Mr S Pill @ 29:
“the “trickle down” theory of wealth creation has done so well whenever and wherever it has been tried! That’s why in the ’80s the income gap got so much smaller, you see.”

Actually, trickle down works well – which is why, according to the UN, the proportion of the world’s population living in poverty has fallen from 52% in 1981 to 26% in 2005 (see today’s Sunday Times, p.17). And, if you reflect for a moment, you will realise that a widening income gap is perfectly consistent with rising overall income levels…Unfortunately, your principle of distributive justice seems to be ‘minimise the maximum’ or perhaps outright egalitarianism, whereas mine is ‘maximise the minimum’. You can’t help the poor by penalising the rich.

Skooter @ 36: Is sarcasm the best you can do? Krugman made a judgement about the UK deficit: all I’m saying is that the markets seem to have preferred the Coalition’s policies to Krugman’s judgement. In any event, Hari’s article, on which you seem to place so much reliance, is worthless, as I have amply demonstrated. Your deficit denial is intellectually bankrupt.

@35 Fungus: “Who are these small fry you are talking about? Most transactions in the financial markets are done by the big players. If you are a ‘small fry’ and you play, then you know you are taking a risk.”

The small fry are citizens who hold money in a high street bank in a current or deposit account or an ISA. They understand, more or less, that their money will be loaned to others to pay their interest or transaction costs for ATMs and cheques. They may even understand that their money is loaned multiple times, that the bank is dependent on people repaying loans and that the bank does not hold enough cash in hand to pay out every account holder.

That model worked when high street banks operated in markets that they understood, loaning money to people who took similar risks as their account holders. The model broke when high street banks loaned low risk savings to high risk borrowers.

Remember, the financial crisis was identified when high street banks were about to run out of money. The expression “too big to fail” has thus come about; it is a misnomer; “too close to citizens to fail” is more appropriate, because it was not about size of failure but proximity.

@28 Tim Worstall: “Speculation is a zero sum game to those doing the speculating.”

That is entirely true. It is worth recalling, however, that the speculators at the bottom of the pile are producers. Futures markets guarantee an income to producers, but producers are specialists in farming or milling or weaving. There is an inequality of knowledge there between producers and speculators; I presume from your past writing that you believe this inequality will diminish owing to improved education and communications. I think that you are right in the long term.

There is also an inequality of power. A buyer might offer an appealing price on condition of taking 100% of the crop; the seller might prefer to sell 60% at the guaranteed price and 40% on the open market.

@40

“Actually, trickle down works well – which is why, according to the UN, the proportion of the world’s population living in poverty has fallen from 52% in 1981 to 26% in 2005 ”

Brilliant. Nothing to do with the various anti-poverty/debt relief campaigns that have been growing steadily & making gains since 1981, of course – it’s all down to those millionaire cigar-chompin’ fatcats. Seriously, you right-wing nutjobs are beyond parody.

@38

Sure, but that’s not benefitting “society”. it’s benefitting the individual, arguably at a cost to society (health problems etc). I’m a smoker, btw.

Speculation is a zero sum game to those doing the speculating. For every person that makes a profit speculating someone else must, be definition, have made an equal and opposite loss.

No, the money does not go from those paying the higher food prices to make the speculators rich. Speculators get rich from guessing better than other speculators.

If you cannot grasp this point about commodity and futures markets then you’ve really no business at all commenting upon them.

Vaguely clever misdirection.

Derivatives are a bet between two parties, somebody will win and somebody will lose (until someone takes out huge numbers of bets and can’t cover the losses, then society loses, see: AIG).

Futures are not a zero sum bet, that’s what the OP is talking about as you well know.

[34] The theory of markets begins with a whole set of assumptions that don’t apply in the real world. And when you relax them, you can’t make the mathematical models work. My own likes and dislikes don’t really have anything to do with it, Tim.

@43

Please carry on smoking. The taxes on tobacco are substantially more than the extra healthcare costs. In adddition you are likely to die younger resulting in less state old age support. As a non smoker you are a benefit to me. Also ideally healthcare costs would be linked to lifestyle choices, unfortunately in the UK this is not the case.

“The theory of markets begins with a whole set of assumptions that don’t apply in the real world. And when you relax them, you can’t make the mathematical models work. ”

How wonderful Mike. You’ve just destrouyed the entirety of economics. For of course it’s not just neo-classical, or market, models that face this problem. It’s all and every model about the economy faces it.

Well, except for just the one, Hayek’s. For his central point was that the only model we actually have able to calculate the economy is the entire economy itself.

I take it you will be describing yourself as a fully paid up neo-liberal from now on then?

@41

but surely people who deposit funds in a bank realise that they are only protected up to the Government guarentee?They know there is counterparty risk.

@46

Hohum, your point was that every legal transaction benefits society. To recap: “The point is anyone who makes money legally does so by providing a benefit to society (unless the Government interferes of course)“. You didn’t mention taxation, and indeed it looks like you specifically condemned it (I’ll guess you see tax as “government intereferance”). So… if the only benefit to society that comes from my smoking/purchasing tobacco is due to the government intefering, I think you’ve rather blown your own argument apart.

Good-day.

@48 Fungus: “but surely people who deposit funds in a bank realise that they are only protected up to the Government guarentee?They know there is counterparty risk.”

Indeed, it is wise to spread your money around.

The people who queued up for their savings outside Northern Rock didn’t have a clue. They wanted their money, cash in hand, which caused a run on the bank. They wanted the £3,500 that they had saved for a house improvement and did not expect that it was backing up £30,000 of risky deals.

counterparty risk: Nope. If I put money in a savings account, deposit or ISA it is a low risk investment. That is the entire principle; low risk and modest returns.

Mr S Pill @ 42:

“Nothing to do with the various anti-poverty/debt relief campaigns that have been growing steadily & making gains since 1981, of course – it’s all down to those millionaire cigar-chompin’ fatcats.”

Anti-poverty/debt relief campaigns might have helped, but I doubt they have made more than a small contribution to this massive change. I do know that capitalism and free(er) markets are lifting some 200,000 people a day above the UN’s poverty threshold.

And characterisng all wealth-creators as “millionaire cigar-chompin’ fatcats” is stereotyping of the most feeble kind. Why don’t you engage with the arguments rather than resorting to abuse?

@ 16 Jim

” Who the fuck are you to describe anything as a ‘non job’? Just because you are too stupid to understand the value of the work, does not necessarily mean that the job being done has no value. ”

Hear fucking hear. Although I should say I’m agreeing with the argument in general, not the idea that Paul is an idiot.

Commodity futures markets are a net good and they certainly do help farmers in poorer countries. For a futures market to work requires speculators so someone will always be making money on paper contracts and someone else will be losing money. However, I accept that lefties because they find it distasteful that people speculate on the price of food will never accept that futures markets are good. In saying that, it is just outright denialism not to accept that sometimes speculation can lead to bad situations in some commodities. Storable commodities are particularly vulnerable and the price of cotton has clearly been driven higher through speculation. A fact accepted by ICE.

http://www.bloomberg.com/news/2011-02-02/ice-may-alter-rules-to-curb-cotton-speculation-ft-reports.html

http://www.bloomberg.com/news/2011-03-28/cotton-declines-by-limit-on-speculation-production-to-advance.html

Leads to hoarding like this that drives prices higher and leads to more hoarding.
http://online.wsj.com/article/SB10001424052748704680604576110423777349298.html

However, just to blame speculators for the run up in commodity prices and as a consequence food is to ignore the clear signal that the market is sending us. We need more food or at least use food more efficiently. One can’t blame speculators for climate events leading to shortages of some crops. They are the canary in the coalmine.

Commodity futures markets are a net good and they certainly do help farmers in poorer countries. For a futures market to work requires speculators so someone will always be making money on paper contracts and someone else will be losing money. However, I accept that lefties because they find it distasteful that people speculate on the price of food will never accept that futures markets are good.

Valid hedging (be it commodities or those rare occasions where even naked shorting is motivated by legitimate fears) is worthwhile, I doubt you’ll get many people on here disputing that.

There is, however, a massive chasm between a ‘traditional speculator’ (that is, somebody who actually takes physical delivery of the commodity, holds it and shoulders the risk of future price fluctuations) and goldman sachs et al lobbying to be declared a ‘physical hedger’ when they’re quite clearly not.

@49,

You voluntarily agree to spend your cash on tobacco – the tobacco companies are providing you a benefit, meeting your need. You are part of society – society is made up of individuals such as yourself.

Well, Monsanto will be OK. Wonder how THEIR shares are doing?!

Should we not analyse that headline: “So who took all the wealth?”

A lot of investment pots were created. The pots offered much more money than you would earn from gilts. All financial organisations bought some of those pots. Enron created many pots and failed in 2004. It took four years until the organisations that had previously purchased Enron pots concluded that their mortgage pots were going in the same direction.

So where did the money go?

Perhaps bankers are culpable for buying crocks of crap. Perhaps bankers don’t care as long as they achieve their bonuses. Bankers earned a load of dosh.

But not as much dosh as others. The serious money went to the people who sold the crock pot to bankers. Bankers believed in crap sold to them by con men.

Bank workers took money from banks. Bank workers convinced bank managers that grass would become saffron.

So where did the money go?

To the people with magic investment pots.

The wealth does spread around however. If your pension plan sold off shares at the right time, you’ll be winning.

@32: “Bob B @12: Mis-selling financial securities is a criminal offence. Speculating in commodities, like oil or wheat, is legal and has some important public and global benefits – like warning us of impending shortages, encouraging new entrants into the market to boost production and supply (and so averting famine)…”

If speculation is beneficial, why was shorting of financial stocks banned in 2008?

“The UK markets regulator on Friday revealed a list of 29 financial services companies it was seeking to protect from short selling as part of the latest efforts by the authorities to combat the global financial crisis.” [18 September 2008]
http://www.ft.com/cms/s/0/16102460-85a0-11dd-a1ac-0000779fd18c.html#axzz1ITknTJ00

“SEC Halts Short Selling of Financial Stocks to Protect Investors and Markets” [19 September 2008]
http://www.sec.gov/news/press/2008/2008-211.htm

How come this?

“Angela Merkel’s ban on naked short-selling is brave, not naive

“The German chancellor knows that the EU is locked in a power struggle with financial markets over the debt crisis.” [23 May 2010]
http://www.guardian.co.uk/world/2010/may/23/angela-merkel-short-selling-ban

“There is, however, a massive chasm between a ‘traditional speculator’ (that is, somebody who actually takes physical delivery of the commodity, holds it and shoulders the risk of future price fluctuations) and goldman sachs et al lobbying to be declared a ‘physical hedger’ when they’re quite clearly not.”

Where did you get this idea of “traditional speculator” from? Those who take physical delivery (say, Cargill) are more commonly known as merchants, not speculators. The “speculators” have always been those who live in the clouds of paper and derivatives.

You know, like Keynes did in his day….yes, he was a large speculator in wheat.

DoTW, ultimately hedging requires someone to hedge against. There needs to be another party who is willing to take the other side of the hedge.

Imagine a commodity producer who does not want to be exposed to the risk that future physical prices are less than the cost of producing the commodity. So they find someone who is willing to buy their future produce of commodities at a price of 1, regardless of the actual physical prices at that date. The forward seller is hedged but the forward buyer is exposed to the risk that a glut of supply might lead to physical prices falling to 0.8 etc. The physical forward buyer wants prices to rise but is exposed to the risk that they fall. Therefore, the forward buyer wants to hedge their risk with someone not taking physical delivery.

Hedging amongst people taking physical delivery is just transferring risk, it is not dispersing risk between lots of participants (speculators). If hedging was not dispersed to people outside the physical market the original forward seller would find it difficult to find someone to forward buy. Hedging is obviously always two participants taking the opposite views about future prices. The forward buyer in our scenario can’t hope to forward sell at 2, unless someone else thinks 2 is too high and prices will be lower at a given future date. Outside of hoarding situations, prices are being set in the physical market by supply and demand for that commodity. The speculators in paper contracts that have no intention of taking physical delivery is where risk is being dispersed away from the physical participants.

“DoTW, ultimately hedging requires someone to hedge against. There needs to be another party who is willing to take the other side of the hedge.”

@60. Which is presumably why Goldman Sachs were creating trash derivatives and selling them onto gullible clients while betting against them.

And then there were the ratings agencies stating derivative investments were AAA grade when they were a pile of sh*t (and getting paid by the sellers).

@61

Let’s not overlook the significant contribution that the four big auditing firms made to facilitating the recent financial crisis:

House of Lords report attacks ‘complacency’ of Big Four auditors in financial crisis, urges competition investigation

House of Lords has recommended that Britain’s competition authorities investigate the world’s “Big Four” auditing firms who failed to warn regulators about banks before the financial crash.
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8415860/House-of-Lords-report-attacks-complacency-of-Big-Four-auditors-in-financial-crisis-urges-competition-investigation.html

The public are being led to believe that the UK’s public debt is somehow worse than anywhere else. This is a barefaced lie. George Osborne says the UK was “on the brink of bankruptcy” when the coalition took over and that “we have the
@40 Paul

It’s interesting to note that up until his road to Domascus moment Clegg himself was aspousing that Tory defecit strategy was flawed, ask his 8 year old?

Heres what Mike Simpson, lib Dem candidate for Surrey, had to say in October 2010 well after the election.

“The public are being led to believe that the UK’s public debt is somehow worse than anywhere else. This is a barefaced lie. George Osborne says the UK was “on the brink of bankruptcy” when the coalition took over and that “we have the largest budget deficit in the developed world”. Sounds apocalyptic doesn’t it? And of course if his assertions about government debt were true it would help Osborne to argue for ‘savage cuts’.

There is an alternative approach comprising much more modest cuts in government spending; maintaining and significantly increasing major infrastructure projects; massive investment in green technologies (which could in time create hundreds of thousands of jobs) and international action to levy a ‘Robin Hood Tax’ on the banking sector. Before we all get locked into the madness of ‘savage cuts’ let’s consider these alternatives and take heed of the warnings coming from the economic disasters of Ireland and Hungary where ‘savage cuts’ have bled their economies dry.

@63

Try this illuminating brief on Britain’s national debt – dated: 26 March 2011
http://www.economicshelp.org/blog/uk-economy/uk-national-debt/

“UK public sector net debt was £875.8 billion or 58% of National GDP – (note this excludes financial sector intervention.)
Source: Office National Statistics

“If all financial sector intervention is included (e.g. Royal Bank of Scotland, Lloyds) , the Net debt was £2,252.1 billion or 149.1 per cent. This is known as the unadjusted measure of public sector net debt.

“The PBR (annual government borrowing) forecast for 2010/11 is for net borrowing of £149 billion or 12.6% of GDP.”

National debt incurred by the financial sector intervention can be paid down as when government held shares in Northern Rock, RBS, Lloyds etc are sold back to the private sector.

For comparison: A report released today by the International Monetary Fund asserts that Japan’s government debt will reach 250% of GDP in 2015. The IMF suggests that Japan increase its consumption tax by 5% as a step towards reducing its public debt. [14 May 2010]
http://www.japaneconomynews.com/2010/05/14/imf-on-japans-debt/

How wonderful Mike. You’ve just destrouyed the entirety of economics. For of course it’s not just neo-classical, or market, models that face this problem. It’s all and every model about the economy faces it.

Well, except for just the one, Hayek’s. For his central point was that the only model we actually have able to calculate the economy is the entire economy itself.

Well, perhaps you could supply a quote so I know you haven’t misinterpreted him. On second thoughts, don’t bother. The statement is true but trivial: absolutely nothing follows from it. And yes, you have understood my views on economics very well. I am not alone: http://www.paecon.net/PAEReview/

Skooter,

“The public are being led to believe that the UK’s public debt is somehow worse than anywhere else. This is a barefaced lie. George Osborne says the UK was “on the brink of bankruptcy” when the coalition took over and that “we have the largest budget deficit in the developed world”. Sounds apocalyptic doesn’t it? And of course if his assertions about government debt were true it would help Osborne to argue for ‘savage cuts’.

Firstly, debt != deficit.

We did have the highest deficit (as % of GDP) in 2010. Yes, higher than PIGS. You can check the figures here.

(I make no comment about whether it is right or wrong to reduce the deficit in such a way – merely that Osborne was correct to say we had the highest deficit.)

“And yes, you have understood my views on economics very well.”

Well, OK, but that pretty much kills economics as a method of suggesting what we do next then, doesn’t it? So, erm, what are we going to use to help us make economic decisions then?

As to that magazine you direct me to. I note that Dean Baker is a contributor. I disagree with him on many things, but he is a neo-classical economist, all the same. As he would describe himself.

61. gastro george

” Which is presumably why Goldman Sachs were creating trash derivatives and selling them onto gullible clients while betting against them.

And then there were the ratings agencies stating derivative investments were AAA grade when they were a pile of sh*t (and getting paid by the sellers). ”

Goldman claim they lost money net on those deals. Although they were short the securities that they were selling to clients, they were also in other parts of their business long the same instruments. Goldman operate by taking both sides and make money by complicated hedging strategies. People should never forget the simple old adage about not buying what they do not understand. Financial markets operate like an echo chamber and there are a lot of sheep in any market. I learned years ago that people at heart are lazy and rely on the opinion of others. Buying securities because a rating agency says they are triple A is laziness. Especially when there was a computer bug in Moody’s progamme. Do your own homework would be my advice. However, I agree that selling a security and paying a rating agency to rate it is an obvious conflict of interest

http://bankingeconomics.blogspot.com/2010/09/moodys-cleared-on-technicality.html

@64 bob,

Interesting links you have provided. According to the first one UK debt will be around 100% of GDP by 2012.

Just because Japanese debt is at 200% of GDP does not mean the UK should go down this route. Here is an explanation of why Japan has managed to survive until now.

http://www.telegraph.co.uk/finance/recession/7393155/Why-the-sun-looks-poised-to-set-on-Japans-era-of-cheap-government-debt.html

At the time of the article Japan’s debt refinancing were costing 20% of Government expenditure – and this is with interest rates at 1%. Once the Japanes people stop saving (as they will as more and more retire) the Japanes will need to refinance from foreigners who will want a lot more than 1% on such risky debt.

I wouldn’t want to be invested in any sovereign debt.

@ 69. Fungus

According to the OBR forecasts who analyse the government budget plans the public sector net debt is expected to peak at around 70%.

“The Government has a supplementary fiscal target for public sector net debt
(PSND) as a percentage of GDP to be falling at a fixed date of 2015-16. In our
latest forecast, PSND is projected to rise to a peak of 70.9 per cent of GDP in
2013-14 and then to fall to 70.5 per cent of GDP in 2014-15 and 69.1 per cent
of GDP in 2015-16.”

Table 4.26: page 148
http://cdn.budgetresponsibility.independent.gov.uk/economic_and_fiscal_outlook_23032011.pdf

According to this: http://www.guardian.co.uk/business/2011/apr/03/private-benefactors-wont-be-enough-to-balance-the-books

Interest payments on the debt add up to about 3.5% of GDP. About the same as they were in the last years of the Major government.

Furthermore, as a large percentage of the debt is held by UK residents. A lot of the debt payments are recycled back into the UK economy.

Many thanks to all for the links to illuminating sources.

This is the only way IMO to stop the government and the bankers from lying – and it’s very clear that we have been lied to time and again. As most folks don’t know their way about online official and independent sources of information to check, they get taken in. Some politicians and other parties with vested interests rely on that. We are played as suckers. Besides, it greatly helps to have many critical eyes independently scanning the sources.

I was fascinated to see how dismissive of banks and bankers were members of the HoC Treasury Select Committee in their recent report on: Competition and Choice in Retail Banking:
http://www.publications.parliament.uk/pa/cm201011/cmselect/cmtreasy/612/612i.pdf

That link is worth preserving as I had more difficulty in locating it than I expected to have – the most obvious links are to individual chapters in the report in HTML format, which become very tedious to download and save.

Worth seeing this academic submission to the “independent” Banking Commission, chaired by Sir John Vickers, on: Competition and the Structure of Banking Markets:
http://bankingcommission.independent.gov.uk/bankingcommission/wp-content/uploads/2011/01/David-T-Llewellyn-and-Tom-Weyman-Jones-Issues-Paper-Response2.pdf

For all the endlessly repeated claims by bankers about how competitive is the retail banking market in Britain, the accumulating evidence points to Britain not only having a more concentrated structure of the retail banking market than in peer-group countries, but that market concentration has increased further in recent years with acquisitions.

@ 73. Bob B

A nice story, Bob. Any chance of some evidence with a comparison of costs between the UK and peer-group countries ?

Oxera research reckoned in 2006 that UK consumers enjoyed the cheapest banking in the advanced world, but what the hell do they know.

http://www.oxera.com/cmsDocuments/Agenda_December%2006/Price%20of%20banking.pdf

Certainly been a lot of concentration in recent years and businesses might not be getting as good a deal as overseas. However, evidence rather than anecdotes that UK consumers are paying more than overseas would be interesting.

@74: “A nice story, Bob. Any chance of some evidence with a comparison of costs between the UK and peer-group countries ?”

I’m not turning out any story. The members of the HoC Treasury select committee evidently weren’t impressed at all by the claims bankers made about how competitive the retail banking market in Britain is but I’ll wait to see the evidence submitted to the Banking Commission and what conclusions it comes to. The Commission is due to publish an interim report on 11 April, which will soon be with us.

By reports, British banks are unusually profitable in comparison with the banking systems in peer-group countries. Had the retail banking market in Britain been competitive, we would expect the profits to be competed away through better services to customers, lower bank charges and so on. And there is no doubt from the comparative data I’ve seen in various sources that the structure of the retail banking market in Britain is highly concentrated and more so than in peer-group countries.

Apart from the market concentration issue, there are also matters of customer complaints as well as the mis-selling, insider trading and conflicts of interest which I’ve already commented on @13, @20 with links to media reports.

In the autumn of 2008, I had an interview with what my bank calls “a personal investment adviser”. Apropos nothing I’d said, she assured me early on in a pronounced Scots accent that “the Scots make good bankers”. “Oh!” I replied, “why is it that RBS and HBOS [still independent of Lloyds plc at that stage] have felt it necessary to make rights issues?” Curiously, she quickly changed the subject.

Imagine a commodity producer who does not want to be exposed to the risk that future physical prices are less than the cost of producing the commodity. So they find someone who is willing to buy their future produce of commodities at a price of 1, regardless of the actual physical prices at that date. The forward seller is hedged but the forward buyer is exposed to the risk that a glut of supply might lead to physical prices falling to 0.8 etc. The physical forward buyer wants prices to rise but is exposed to the risk that they fall. Therefore, the forward buyer wants to hedge their risk with someone not taking physical delivery.

Hedging amongst people taking physical delivery is just transferring risk, it is not dispersing risk between lots of participants (speculators). If hedging was not dispersed to people outside the physical market the original forward seller would find it difficult to find someone to forward buy. Hedging is obviously always two participants taking the opposite views about future prices. The forward buyer in our scenario can’t hope to forward sell at 2, unless someone else thinks 2 is too high and prices will be lower at a given future date. Outside of hoarding situations, prices are being set in the physical market by supply and demand for that commodity. The speculators in paper contracts that have no intention of taking physical delivery is where risk is being dispersed away from the physical participants.

We don’t disagree do we? I mean you’ve discounted the secondary market and the role of index/passive speculation which is where the problem arises but aside from that.

The issue is that in 2008 (which was the most productive year for wheat according to the international grain council) goldman sachs did infact hoard wheat futures, they went long and then rolled over each contract by buying calendar spreads. Lo and behold a commodity that for a hundred years traded between an adjusted $3-$6 ended up at $20 in February 2008, there was quite obviously no underlying structural factor that could account for that (the Centre for Economic Studies in New Delhi claimed that wheat demand from China and India fell by 3% during this period fwiw) so it must have been a contango market caused by speculation.

This hedge fund manager explains it better – http://hsgac.senate.gov/public/_files/052008Masters.pdf

What’s also worth mentioning is that physical producers themselves can engage in exactly the same activity in a contango market by holding onto supply.

@ 75. Bob B

Politicians look for people more unpopular than themselves shock. It is like two bald men arguing over a comb.

” By reports, British banks are unusually profitable in comparison with the banking systems in peer-group countries. ”

They really are not you know, they are just larger.

” Had the retail banking market in Britain been competitive, we would expect the profits to be competed away through better services to customers, lower bank charges and so on.”

Which is what happened.

” And there is no doubt from the comparative data I’ve seen in various sources that the structure of the retail banking market in Britain is highly concentrated and more so than in peer-group countries. ”

Yes it is more concentrated. Comparative data in relation to costs for consumers would be nice.

For those with a really dedicated interest in topical banking issues, the accessible written evidence submitted to the Independent Banking Commission can be downloaded from here:
http://bankingcommission.independent.gov.uk/bankingcommission/responses/

I see from the menu that a fair spread of heavyweight names is represented but I’ve not had time so far to read through. Key issues IMO will be the market structure of retail banking and concentration, the contestability of the banking market by potential new entrants, factors influencing profitability and, importantly, how to make banks and the UK economy more resilient to stresses on banks and future contingencies of bank failures – in more graphic terms, what to do about the “too big to fail” syndrome.

The Commission has promised an interim report in a week’s time on 11 April and there will be a further round of consultation after that before a final report in September.

From the press, I read that the EU Commission has required Lloyds Bank to dispose of 600 branches on competition policy grounds so as to reduce the market presence of the bank and, possibly, facilitate new entry. That may seem impressive but in my local district shopping centre, the local Halifax branch is only a few doors away from the local Lloyds Bank branch and I can’t think why the Lloyds Group, which absorbed HBOS (Halifax Bank of Scotland), would want to retain both anyway. There must be many similar situations across the UK.

@ 76. DisgustedOfTunbridgeWells

The politicians want to get themselves off the hook where often their policies have negatively impacted commodities. Therefore, they turn to others for scapegoats and Michael Masters offered them a convenient target. The Jews used to get the blame, but that is no longer considered appropriate in polite society so ‘ speculators get demonised. They so want it to be true that the rest of us are supposed to suspend belief in mechanisms in order to accept the story.

Krugman rubbishing Masters.

“The short answer is that I think his testimony is just stupid. Here’s what he says:

Index Speculators’ trading strategies amount to virtual hoarding via the commodities futures markets. Institutional Investors are buying up essential items that exist in limited quantities for the sole purpose of reaping speculative profits.

That quote pretty much epitomizes what’s wrong with a lot of what people say about speculation. Buying a futures contract for oil does not reduce the quantity of oil available for consumption; there’s no such thing as “virtual hoarding”.

” And Masters really is confused about the difference between paper contracts
and physical stuff. ”

“I’m willing to listen to serious arguments about how speculation might be affecting the price, but you do see a lot of dumb stuff. And this is really, really dumb. ”
http://krugman.blogs.nytimes.com/2008/06/21/calvo-on-commodities/

So a lefty Nobel prize winner thinks Masters is stupid and really, really dumb.

In 2008, global wheat stocks were at a thirty year low. US stocks were the lowest since 1948. The world was plagued with droughts.
http://news.nationalgeographic.com/news/2008/05/080529-food-australia.html

http://www.pecad.fas.usda.gov/highlights/2008/05/Syria_may2008.htm

http://www.pecad.fas.usda.gov/highlights/2008/05/Iran_may2008.htm

China and India imports may have fallen but everyone else was importing more.
http://www.ers.usda.gov/briefing/wheat/trade.htm

An economics 101 lesson for Masters.
http://www.investingdaily.com/tes/16404/dont-buy-oil-speculation.html

So who is short Mr Masters?
http://www.interfluidity.com/posts/1211940323.shtml

Fun with the Masters charts.
http://themessthatgreenspanmade.blogspot.com/2008/05/fun-with-michael-masters-report.html

Physical hoarding of commodities by speculators can undoubtedly raise prices. Moreover, speculative trade in paper contracts could induce others to physically hoard. However, we would see that effect in inventories. Virtual hoarding is just a silly concept. One does not need to see a doubling in demand for a doubling in price if there is tight supply. Just marginal changes to supply or demand would be suffice.

What we are being asked to believe is that betting on something happening makes it happen. If lots of people bet on Arsenal to win a football match then the bettors supposedly increase the chances of it happening. I don’t see the mechanism from the betting (paper contracts) to the physical ( actual game). We could set up a paper contracts market on climate change and if enough people were short CO2, we could stop physical climate change just by betting on it to stop.

Bush’s wars and huge unfunded tax cuts seen the USD dramatically depreciate from around 2002 as the US ran huge deficits. Commodities are priced in dollars so their nominal price in dollars could only go up. The real price of commodities over the last decade in local currency would depend how strong the local currency was.

” What’s also worth mentioning is that physical producers themselves can engage in exactly the same activity in a contango market by holding onto supply. ”
Well yes. Cutting your oil production from the maximum and leaving the oil in the ground is hoarding.

Dirk , what about all the public sector jobs which are lost? Where do those people go? They don’t just evaporate into thin air, they will be a burden on the state so therefore money won’t be saved because they will need to claim benefits to live and they won’t be providing any services. Investment in all levels of society is the only way for economic growth. The crisis is not as bad as politicians are making out in the first place. Japan had a GND three times the size of ours but weren’t concerned because they invested back into their economy and therefore it was growing. To cut public spending is a huge economic error and countries such as spain and Ireland who did that were the first to go under.

@80 Jayne,

A couple more articlers on Japanes debt:

http://www.csmonitor.com/Business/The-Daily-Reckoning/2011/0110/On-the-worthlessness-of-Japanese-government-debt

http://www.economicshelp.org/blog/economics/japanese-national-debt/

Unfortunatley the UK has to pay a higher interest rate than Japan and it is also reliant on foreign buyers. Debt at 200% of GDP is not an option for the UK (and many people believe Japanese debt is not sustainable – see first link).

Also keeping people employed just to avoid welfare payments is a rather dubious policy.

So…

I can’t help but get a nagging feeling that this roundabout of quoting economists from different schools of thought is essentially a do-si-do around some basic historical facts, to whit:

1. The last time the world economy (effectively the US economy, all other western economies having been ravaged by the First World War) was left to the notion that regualtion was unnecessary because the financial and business wizards would act rationally based on their own self-interest, we ended up with the Wall Street Crash and the Great Depression.

2. The indirect result of the Great Depression was World War II, and after the dust had settled and millions died the powers that be decided, understandably, that regulation to prevent such a thing happening again would be in everyone’s interest.

3. The investment classes then spent the next 35 years looking for an opportunity to undo those regulations and enrich themselves at everyone else’s expense again. They found their wedge with the aid of economists like Alan Greenspan, whose philosophy stemmed from an extreme interpretation of Hayek, coupled with a bunch of adolescent romance novels written by Ayn Rand, and they managed to get a hold on the levers of power in 1980 by using ageing actor Ronald Reagan to play the Ronald McDonald to their Ray Kroc.

4. Ever since then, the basic tenets have remained the same and even moderate political leaders have been too afraid to go up against the gargantuan PR machine fielded by the financial elite. The result has been scandal after scandal, starting with the Savings & Loan debacle in the US, Black Wednesday in the UK, then going on to the tech crash and housing market crash which have affected things on a more global scale.

5. Every time, the wealthy have largely got away scot-free and paid either a token price with money they could easily afford, or paid no price at all. Meanwhile the middle and working classes are told by their leaders that they must shoulder the burden created by the foolhardy actions of the rich in the form of cuts to public services and a general economic contraction (lower wages, higher unemployment etc). Meanwhile the rich buy up what’s left at knock-down prices, build up another bubble, rake in the profit and do it all over again.

What’s worse is it seems that we fall for it and acquiesce every single time. To borrow a phrase from the incomparable Driftglass, these people are a clusterfucking menace to humanity.

To inject some reality:

Cuts? Check out this news report in Monday’s press:

Hundreds of sacked NHS staff could be re-employed in a multi-million-pound fiasco, it emerged today.

At least 1,400 redundancies have been made at [NHS] primary care trusts in the capital, some of them on Friday. But health chiefs said many may be re-employed after walking away with generous payouts.

It came as David Cameron signalled a delay in the NHS reform Bill in a bid to win more support for the controversial changes.
http://www.thisislondon.co.uk/standard/article-23938236-nhs-staff-fired-on-friday-set-to-be-rehired-david-cameron-u-turn-costs-millions.do

Do they really believe that will give us renewed confidence in the government?

@83

I know that in one London NHS Trust, one of the consequences of the cuts was a move to replace senior nursing staff in outpatients with healthcare assistants. The knock-on effect of this policy was that doctors simply refused to allow many procedures to be performed in outpatients, thus forcing hospital stays and trying to cram the workload into their already overburdened clinics.

Several of those senior nurses ended up taking retirement rather than redundancy, and no matter how Cameron tries to paint it, that’s a lot of expertise that we’ll never get back.

There are some highly salutary lessons from all this for all political flavours:

What seems to make great sense on paper can end up as shambles if the paper plans fail to anticipate how the people affected will respond – the competitive response.

A great deal could have been learned from tapping into the more liberated discussion in the Soviet press in the 1950s, after Khrushchev denounced Stalin in 1956, about the failings of the Soviet planning system .

I recall from the early 1960s attending a seminar of the late Prof Nove, a native Russian speaker, who was banned from visiting the Soviet Union but who read the official Soviet press – such as Pravada and Izvestia.

One of his many illuminating narratives was about the consequences of setting official planning targets supported by bonus payments as incentives for state enterprises to fulfil or, better still, surpass plan targets. He had an example from the official target for “roofing material” set in metric tonnes. Less work was needed on the part of state enterprises to make “heavy duty” roofing material to fulfil the plan target than for making more units of “light duty” roofing, so enterprises tended to focus on making heavy duty roofing – leading to the familiar outcome of shortages of light roofing. Nove had a copy of a delightful cartoon in the 1950s from Krocodil – an official Soviet satirical magazine – showing a nail-making factory wheeling out its annual nail by crane – because the nail target was set in metric tonnes.

If only New Labour health ministers and their colleagues had bothered to read about the failings of Soviet planning we might have been saved much trouble. Come to think on it, bankers could have something to learn too about unintended consequences of bonus systems. Of course, few universities “do” courses nowadays on Soviet planning. I mean, who wants to learn about a failed system?

One reason why shops are not doing so well is the fact that they are selling badly made rubbish and we refuse to pay for it such as the cheap badly made clothes. (but not cheap prices) All of them. Marks and Spencers, Next, Topshop etc are all importing crap and think we are stupid enough to buy it. We are not. Another reason is the fact that it is hell to go shopping now. You queue to drive to the shops, queue to park, queue to walk, queue to try them on and then queue to pay for the rubbish. I now hate shopping and do not see why I should go through this and pay £4.00 an hour to park for this privilidge. I feel as if I live in an overcrowded dump.
This is apart from the greed of the fat men in suits, politicians,bankers etc stealing the money and being unable to manage the economy.

@Richard W.

The politicians want to get themselves off the hook where often their policies have negatively impacted commodities. Therefore, they turn to others for scapegoats and Michael Masters offered them a convenient target. The Jews used to get the blame, but that is no longer considered appropriate in polite society so ‘ speculators get demonised. They so want it to be true that the rest of us are supposed to suspend belief in mechanisms in order to accept the story.

McCain blamed the 2008 oil prices on Obama’s apparent reluctance to drill in the US (“Senator Obama thinks we can achieve energy independence without more drilling and without more nuclear power. But Americans know better than that. We must use all resources and develop all technologies necessary to rescue our economy from the damage caused”) Obama blamed it on the oil companies (“They are not necessarily putting that money into refinery capacity, which could potentially relieve some of the bottlenecks in our gasoline supply. And so that is something we have to go after. I think we can go after the windfall profits of some of these companies.”) though Obama would later make reference to speculation during the 2008 campaign, just last month he tried to pin it on China (Three years ago, before the recession hit, a combination of factors, including rising demand from emerging economies like China, drove gas prices to more than $4 a gallon. The worldwide recession and the decrease in demand pushed prices back down. But over the past year, as the economy has picked up steam and global demand for oil has increased, prices have increased again. Turmoil in North Africa and the Middle East has added uncertainty to the mix and lost production in Libya has tightened supply.” – http://www.marketwatch.com/story/transcript-of-obamas-press-conference-2011-03-11). Whilst Krugman also blamed it on forruns (“This tells us that the rise in oil prices isn’t the result of runaway speculation; it’s the result of fundamental factors, mainly the growing difficulty of finding oil and the rapid growth of emerging economies like China).

Despite Krugman’s claims of it all being driven by fundamentals, six months after he wrote that column (http://www.nytimes.com/2008/05/12/opinion/12krugman.html) prices would fall from almost $140 to $40.

Though there was this in 2006 – http://hsgac.senate.gov/public/_files/SenatePrint10965MarketSpecReportFINAL.pdf

“In sum, while industry and regulatory economists and analysts do not agree on the extent to which market speculation has affected energy prices, it is beyond dispute that speculation has increased. CFTC data as well as numerous industry reports indicate that speculators have injected tens of billions of dollars into the energy commodities markets. Although the absence of data makes it impossible to precisely quantify the effect of these speculative investments on prices, it appears from the CFTC data, market data, and the comments of a number of well-respected analysts that this increased speculation has fundamentally altered the relationship between crude oil inventories and prices. The purchase of long-term futures by speculators has provided a financial incentive for oil purchasers to build inventories and store oil for future use; this has resulted in a market characterized both by large amounts of oil in inventory and high prices.”

“Although it is difficult to quantify the effect of speculation on prices, there is substantial evidence that the large amount of speculation in the current market has significantly increased prices. Several analysts have estimated that speculative purchases of oil futures have added as much as $20–$25 per barrel to the current price of crude oil, thereby pushing up the price of oil from $50 to approximately $70 per barrel. Additionally, by purchasing large numbers of futures contracts, and thereby pushing up futures prices to even higher levels than current prices, speculators have provided a financial incentive for oil companies to buy even more oil and place it in storage. A refiner will purchase extra oil today, even if it costs $70 per barrel, if the futures price is even higher.”

Good job it’s all ‘on paper’ and nobody in the real world has to pay those prices isn’t it.

Incidentally, the CFTC has the legal mandate to limit all this (as FDR did with position limits) post Dodd-Frank but won’t do it, good ol’ politicians out to get the nasty speculators.

Krugman rubbishing Masters.

“The short answer is that I think his testimony is just stupid. Here’s what he says:

Index Speculators’ trading strategies amount to virtual hoarding via the commodities futures markets. Institutional Investors are buying up essential items that exist in limited quantities for the sole purpose of reaping speculative profits.

That quote pretty much epitomizes what’s wrong with a lot of what people say about speculation. Buying a futures contract for oil does not reduce the quantity of oil available for consumption; there’s no such thing as “virtual hoarding”.

There doesn’t need to be if index funds just keep rolling over contracts and this is what you’re struggling with I think, Frederick Kaufman in Harpers;

“In fact, the structure of commodity index funds ran counter to our normal understanding of economic theory, requiring that index-fund managers not buy low and sell high but buy at any price and keep buying at any price. No matter what lofty highs long wheat futures might attain, the managers would transfer their long positions into the next long futures contract, due to expire a few months later, and repeat the roll when that contract, in turn, was about to expire—thus accumulating an everlasting, ever-growing long position, unremittingly regenerated.”

Basically, they never need to close their position, they just keep buying, that’s what you’re not getting.

You need a subscription to view it on the Harpers site, but there’s an interview with Kaufman here – http://www.democracynow.org/2010/7/16/the_food_bubble_how_wall_street

Professor Jayati Ghosh explains that rolling over contracts is what drives spot increases and this is what Krugman ignores or doesn’t understand – http://www.youtube.com/watch?v=QZ17D9ICj1M (between eight and ten minutes).

Something I didn’t know about was this – http://peakoildebunked.blogspot.com/2008/07/366-futures-prices-determine-physical.html

“Low volumes of crude oil available for spot trading make price discovery problematic and increase the vulnerability of markets to squeezes, distorting prices and undermining market confidence. A squeeze refers to a situation in which a trader goes long in a forward market by an amount that exceeds the actual physical cargoes that can be loaded during that month. If successful, the squeezer will claim delivery from sellers who are short and will obtain cash settlement involving a premium. It is true that all markets are prone to squeezes and in the last few years there have been occasions on which the Brent market was subject to successful squeezes. But it is also true that it is easier to squeeze thinner markets.

[...]

To deal with this problem, many key oil exporters shifted away from the spot market, and began to use futures prices as the benchmark in formula pricing.”

Platts also admit to factoring in future prices – http://www.platts.com/IM.Platts.Content/MethodologyReferences/MethodologySpecs/alignmentmethodology2009.pdf

“Critically, in those markets where commodities trade at differentials to futures, the prevailing futures’ value as assessed by Platts at 3:15 pm ET will be used in the assessment process. These physical markets typically may trade as differentials/exchange for physical (EFPs) to futures contracts and, therefore, both the futures value and the spot differentials are considered in the physical assessment process. For the assessment to be robust and fully reflective of spot values, both the EFP as well as the underlying futures value must be established at the same time.”

There are other ways to manipulate prices with futures, for instance you can conceal positions (which is easy as OTC transactions are opaque) which is what Arthur Cutten did in the 30′s (“Respondent’s purpose in concealing his position in the market was to manipulate the price of grain and thereby to make large profits. He systematically allocated purchases and sales of wheat futures to the various accounts in order to keep them under 500,000 bushels, and thus to avoid detection. He attempted to manipulate the price of grain.” – http://in.findacase.com/research/wfrmDocViewer.aspx/xq/fac.19351125_0040031.C07.htm/qx) or a supplier can simply a demand a higher than spot price from a panicked buyer without hoarding anything (this is particularly easy if you have something with few or no substitutes like oil or grain and obviously depends on the quantities involved or a buyer could just go elsewhere).

” And Masters really is confused about the difference between paper contracts
and physical stuff. ”

“I’m willing to listen to serious arguments about how speculation might be affecting the price, but you do see a lot of dumb stuff. And this is really, really dumb. ”
http://krugman.blogs.nytimes.com/2008/06/21/calvo-on-commodities/

So a lefty Nobel prize winner thinks Masters is stupid and really, really dumb.

As above, Mr Krugman has a nasty habit of getting it wrong on speculation, he seems to have taken an irrational, entrenched position on the matter.

Plenty of people think Krugman is dumb. Steve Hanke, a professor of applied economics at John Hopkins thinks Krugman’s authority is weighty but his arguments and evidence are slender.

http://www.cato-at-liberty.org/prof-krugman-is-wrong-again/

Doesn’t mean anything does it, pointless ad-hom.

(Krugman isn’t a lefty by any stretch, Chomsky is a lefty, Richard Seymour is a lefty, Krugman is an establishment liberal, that’s why he writes for the NY Times and not Mother Jones, well, that and it probably pays a lot more.)

In 2008, global wheat stocks were at a thirty year low. US stocks were the lowest since 1948. The world was plagued with droughts.
http://news.nationalgeographic.com/news/2008/05/080529-food-australia.html

Is that link supposed to be proof of your claim? Because it isn’t.

According to page 13 of this (which references the FAO) in 2007 wheat production rose by 14 million tonnes but supply fell by 9 million – http://www.networkideas.org/working/dec2009/08_2009.pdf

Also from the above – “Similarly, the dramatic rise in food and other primary commodity prices was also traced to real economic causes and processes, even though 2008 has turned out to be a year of record grain production internationally”

China and India imports may have fallen but everyone else was importing more.
http://www.ers.usda.gov/briefing/wheat/trade.htm

Again from Ghosh via the UN Food and Agriculture Organization – “Aggregate food use has increased very little, and is less than both production and supply.”

The following, imo, tells you everything you need to know (Hari mentions it here http://www.independent.co.uk/opinion/commentators/johann-hari/johann-hari-how-goldman-gambled-on-starvation-2016088.html but it’s not actually mentioned in Ghosh’s report so I don’t know where he’s got it from);

“FAO recently surveyed the depth and breadth of food price inflation in over 70 of the most vulnerable countries in the world. Cereal price inflation was overwhelmingly higher and far more widespread than for potato and other root crops.Unlike major cereals, potato is not a globally traded commodity. Only a fraction of total production enters foreign trade, and its prices are determined usually by local demand and supply conditions, not the vagaries of international markets. Moreover, being absent in the major commodity exchanges, there is no risk of potato bearing the ill-effects of speculative activity, which cannot be said of cereal commodities.” – http://www.fao.org/docrep/010/ai466e/ai466e13.htm#22

“There is so much investment money coming into commodity markets right now that it almost does not matter what the fundamentals are doing, The common theme for why all these commodity prices are higher is the substantial increase in [investment] fund flow into these markets, which are not big enough to withstand the increase in funds without pushing up prices.” – http://www.ft.com/cms/s/0/486eb096-c80d-11da-a377-0000779e2340.html#axzz1IUgrK22H

Investors flocking to commodities during times of financial crises is as old as the hills, in the words of Fadel Gheit, a senior oil analyst at Oppenheimer & Co said in 2008 “The market dynamics induced more and more financial players to move into commodities markets, It was a perfect storm. The Federal Reserve was cutting interest rates and people were running away from the dollar as it lost value. Hedge funds, pension funds and mutual funds started pumping money into commodities because they were the safest place and the safest of them all was crude oil. There were too many dollars chasing too few physical assets. That’s the bottom line.” – http://www.forbes.com/2008/09/23/energy-oil-washington-biz-cx_wp_0923energy.html

What caused food prices in 2008 to decline? The world development movement claims to have the answer – “Interestingly, the number of contracts held by indexes began to fall before the unusual and extreme drop in food prices in mid-2008.” – http://www.wdm.org.uk/sites/default/files/hunger%20lottery%20report_6.10.pdf

An economics 101 lesson for Masters.
http://www.investingdaily.com/tes/16404/dont-buy-oil-speculation.html

So who is short Mr Masters?
http://www.interfluidity.com/posts/1211940323.shtml

Fun with the Masters charts.
http://themessthatgreenspanmade.blogspot.com/2008/05/fun-with-michael-masters-report.html

Mostly ad hom, fwiw I think Masters has since described his math as ‘way off’ because he didn’t account for offset positions, but It’s not relevant to our discussion as I wasn’t relying on him or his numbers, merely the concept he was explaining, it’s like betting on a football game, or something.

What we are being asked to believe is that betting on something happening makes it happen. If lots of people bet on Arsenal to win a football match then the bettors supposedly increase the chances of it happening. I don’t see the mechanism from the betting (paper contracts) to the physical ( actual game). We could set up a paper contracts market on climate change and if enough people were short CO2, we could stop physical climate change just by betting on it to stop.

Nope, what you’re being asked to accept is that incentivising something makes it more likely to occur, to take your analogy it’s like the opposing team betting on Arsenal to win. In a contango market the physical suppliers, much like the opposition team, have an interest in getting higher prices, if the future price is higher than the spot price, why sell when you can speculate that the price will rise further.

@Richard W

The site is eating my reply, I think it’s too long.

Either way I put it here – http://pastebin.com/DSwNMKfR

A pretty comprehensive post, DoTW. I won’t respond to every point or we will be here forever going around in circles. I treat the Senate subcommittee findings with a large degree of scepticism because of the politics involved. The Republicans are quite happy to blame ‘ speculators ‘ because the last thing that they want is for anyone to believe that climate change may be affecting commodities. Climate change is all a hoax dreamed up by liberals so commodity price increases must be caused by speculators is the Republican worldview. Moreover, the US economy’s vulnerability to the oil price is exposed every time prices rise. The US economy more than any other economy is effectively long cheap oil due to urban sprawl etc. Therefore, again they need to blame speculators rather than accept terrible US policies have left them addicted to oil. That is, as I see it the context of the politics where these debates take place.

Irwin and Sanders OECD review of the literature report:

” Masters (2008) has interwoven investment and price data to create the most widely-cited bubble argument, painting the activity of index funds as akin to the infamous Hunt brothers‘ cornering of the silver market. He blames the rapid increase in overall commodity prices from 2006-08 on institutional
investors‘ embrace of commodities as an investable asset class. As noted in the introduction, it is clear that considerable dollars flowed into commodity index funds over this time period. However, the evidence provided by Masters is limited to anecdotes and the temporal correlation between money flows and prices. ”

“In sum, our results tilt the weight of the evidence even further in favour of the argument that index funds did not cause a bubble in commodity futures prices. The evidence in our study is strongest for the agricultural futures markets because the data on index trader positions are measured with reasonable accuracy. ”
http://www.scribd.com/doc/34267980/OECD-Impact-of-Index-amp-Swap-Funds-on-Commodity-Futures-Markets

Overseas Development Institute report.
http://www.odi.org.uk/resources/download/4987.pdf

What this really comes down to is people who believe correlation is causation. Lots of trade in paper contracts and spot prices rise so the paper contracts must have made the spot prices rise. Whereas, statistical tests, using Granger causality models fail to show any relation.

I don’t see how the dramatic plunge in oil disproves Krugman’s point. Global output slumped and the world looked as if it was heading for a Great Depression 2. The slump was temporary and as global output has increased the oil price has risen. As I said earlier in the thread, where there is tight supply marginal changes can have amplified effects.

Tim Harford postulates a good analogy of how things are driven from the margin in his book, “The Logic of Life: Uncovering the New Economics of Everything”, Imagine a supermarket in which men and women who agree to wed can present themselves at the checkout and share $100. Given equal numbers of men and women, say 20 apiece, one would expect couples to split the $100 down the middle. But assume there are 20 women and just 19 men. If the women are determined to get married, this shortage of males will cause a bidding war. None will want to be left in the aisles so they will agree to cut their share of the pot. In theory, the lack of just one male will mean the men get to keep $99.99 of the proceeds, leaving the women with one cent.

Similarly, in boom conditions commodity consumers will be so desperate to get their hands on raw materials that they will drive prices up to absurd levels, at least for a short time. When demand falters, or new supply shows up, the price bubble can evaporate as quickly as it arose, without a speculator in sight. ”

Of course, I understand rolling over contracts. However, we are back to this old correlation and causation issue that keeps cropping up.

Yes, in a contango market physical suppliers do have a incentive to hold for higher future prices. Except, not everything is storable and storage has costs. Moreover, we would see a huge rises in inventories.

“Transparency: it is the only thing that banks CANNOT afford”
http://wp.me/p16h8c-yM