Who Needs Gunpowder?

Several centuries later Mr Fawkes should have been an investment banker because he could potentially have achieved the same (apart from the Regicide) without the need of a flickering taper in a dark cellar but rather just with the sale of a toxic bond or two. In comparison gunpowder seems rather tame – when watching fireworks explode this week try not to make too many comparisons with the global economy.

The recent events week by week are quite astonishing in both their number and significance. It is therefore quite understandable for people to be mesmerised by the news and to completely lose track of what actually is going on. If I may be as clear as possible – the UK economy is in recession and the question is now about whether it develops into a slump rather than just an unpleasant recession. The global economy is slowing down and again it is the quantum of worries that will determine its depth and length. On current reading, the augurs do not read well, but this has not been for want of trying by various authorities.

Last week saw another round of interest rate cuts led by the US and with Asia seeing Hong Kong and Taiwan also taking action and even the Peoples’ Republic of China cutting another 0.27% down to a rather worrying number of 6.66%. For those of a nervous disposition, bringing in the number of Satan must add little to their confidence. Additionally the Japanese have just cut their rate from a diminutive 0.5% to 0.3% - their first cut in seven years. Some may recall that they did this before in order to encourage economic progress, but sadly to little effect. This then is the rub – cutting rates on its own does not guarantee any recovery – as consumer and corporate sentiment is so low, just cutting rates will not solve the problem.

Additionally cutting rates does not necessarily cut the cost of money – for most companies and for those on mortgage trackers, it is likely to be the 3 month LIBOR rate that will be more important. Although there has been some movement here to around 5.91% this is still well above the current Base Rate of 4.5%. With UK rates due to fall this week (if they have not already done so by the time you are reading this) by potentially even a whole 1%, further pressure must be applied to get the LIBOR logjam broken to have any real effect.

So what else can be done apart from rate cutting, to try to ameliorate this difficult situation and to prevent a recession becoming a longer term slump? Firstly, encourage people to carry out at least some spending and not just to stop dead in their tracks as seems to be occurring in some areas of the retail market. This may be encouraged through lower interest costs and even potentially tax cuts as well. That could be too far for our Government – but probably a necessary and needed action.

Secondly, where the banks are reluctant to lend to companies, the Government could bypass them completely, as we have seen in the US, and provide direct financial support to the corporate sector via their bonds. It is amazing – we have recapitalised the banks, given them extra facilities and even swapped some of their rubbish debt for gilts and still they don’t want to lend. To be colloquial – damn them - just bypass them.

Thirdly, we must encourage those countries that now have the surpluses to encourage its circulation – that is to say encourage expenditure. It is only through increased demand that the global economy will start to move.

There was actually an encouraging and important sign I noted and that was the US providing facilities to some of the emerging economies who have been hardest hit. The world, and especially the US, cannot afford to turn its back on these nations at this time and repeat the damage we saw back in the 1990’s when the likes of the Indonesian and Thai economies were decimated by an earlier currency crisis.

You cannot say that action is not being taken – the question is will it work? The fuse has been lit, the taper is burning – but will the Catherine Wheel go off?

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I suppose I should add a note about my new local shopping centre in West London. Westfield is apparently one of Europe’s largest shopping centres and is shortly, I suspect, to become Europe’s largest white elephant. Although an excellent development on the old bomb site of White City and the Anglo French Exhibition of 1908, it has been completed with all the unfortunate timing of an inopportune North Atlantic iceberg encounter.

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I must just add a personal note of congratulations to a dear friend of mine Tjalke Boersma, who despite all logic and against all financial headwinds has managed to not only raise half a million pounds of capital for his business but also able to float it last week. To achieve this in the teeth of a financial catastrophe is nothing short of remarkable. I wish both him and his colleagues at Bright Futures Group every success.

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And finally........................one of the more unlikely occurrences on a train has come to light when a passenger on the TGV to Paris managed to lose his mobile phone down the loo. A shame, but not the end of the world. However, his attempts to get it back resulted in his arm being hermetically sealed by the suction system down the loo pipe itself. He was later stretchered away from the train with the toilet bowl still attached to him, following which it was finally cut off. So it is not just your mobile phone that gets cut off on trains.

Have a good weekend,