davywavy | Sense of security, my pockets jingling.

Sense of security, my pockets jingling.

I couldn’t help but see a certain amount of irony when I learned that the currently highly fashionable “Make poverty history” white wristbands from Oxfam are being made in a Chinese Sweatshop by workers earning 9p a hour.

We, in this country, in this generation, are phenomenally lucky. We live in a society where the number of people who do not have access to every single material good that any reasonable person could ask for a fulfilled life is vanishingly small as a proportion of population. This is not to say that there aren’t any people who don’t have access to such goods, but I’ll come onto them. My point is simply that pretty much everyone has access to pretty much everything a reasonable person could possibly want. Society and the economy is now at a point wherein we are all so rich that realistically nothing we could reasonably ask for is out of our reach.
It is unarguable that this is due to the long-term triumph of Thatcherite economic reforms. This is demonstrable in the real world simply by observing that after eight years of ostensibly ‘socialist’ government, the mines remain shut, the railways are still privatised, PFI hospitals are springing up like mushrooms in Autumn and the stock exchange is still deregulated. There’s a reason for this – it’s called economic efficiency.
What this means to us is that, despite the cries of the mainstream press, the economy was not a major factor in the last election. It can’t have been, really. Considering that the difference in the manifesto pledges of the two main parties was less than 2% of each other, economic policy could not have been a major factor. So what was the major factor? Once a person has all their material needs satisfied, they start to look for their emotional needs to be addressed and the fact is that Tony Blair is simply better at making people ‘feel good’ about voting for him, and interestingly both the Conservatives and the Liberal Democrats seem to have completely missed this. If who you vote for isn’t going to make much of a difference to what is in your pocket, then other factors come into play, and somehow Tony has got the market cornered in self-satisfaction. He’s done this by lying, admittedly, but frankly what should anyone care about that?* It’s funny foreign johnnies with towels on their heads who are getting the sharp end, and the recent evidence suggests that they don’t really matter when Joe Voter is weighing up his options.
Sadly, this isn’t going to last. There is a theory (quite a convincing one, too) that the Conservatives didn’t make as much political capital as they could have done in the last election because they didn’t actually want to win it. Why not? Because they can see an economic crash coming and they don’t want to be in power when it happens.
And economic crash, you ask? Yep. The evidence is starting to point towards it – and here’s why.
A few years ago, Gordon Brown removed tax relief on pension funds. I reckon that this may have been one of the most evil acts perpetrated by the current administration, mainly because you and me won’t even notice just how much it’s affected us until long after Tony & Gordon have scuttled off to a comfortable retirement in Tuscany. The net effect of this change in the tax rules was to pull £5,000,000,000 a year out of the stock market. This is a cumulative sum, so Gordon has pocketed about an extra £25,000,000,000 as a result of this little wheeze, not that you’ll notice any extra benefits in your life as a result. However, this also means that the UK stock market is about £25,000,000,000 worse off, and that’s a major reason why share prices have been surprisingly depressed in recent years – there is just is less money being invested. This has had two effects, which have compounded each other.
Firstly, as personal pensions are no longer a good, tax-free way for people to plan for the future, the only way people can save money for retirement without the exchequer plundering it is by putting it into property, and so that’s where the house-price boom has come from. If you’re thinking about this, you’ll be amused by the hypocrisy of the government blaming the unaffordability of housing to first-time buyers on property speculators when it is their own economic policies which have driven those speculators from their traditional stock market hunting ground into property.
Secondly, businesses have always used the stock market to raise funds either through share allocations or raising loans based upon their stock value. As stock values are depressed this is no longer a reliable way of doing so, and so low interest rates have become a necessity for raising money efficiently. There’s just one problem with this – individuals borrow cash as well as companies, and low interest rates have fuelled the personal debt boom to in excess of £1,000,000,000,000, fuelling the property speculation boom (above) as well as individual debt.
Of course, this cannot last.
Like all bubbles, it’s got to burst some time and the evidence suggests that we’re getting close. Interest rates are creeping up and look likely to continue doing so. Personal bankruptcies have risen tenfold in the past two years, and repossessions are on the up. If you bought a house in the last three years, I’m very sorry, but the economic indicators are that you’re fucked.
In the last election, Labour used a poster which read “I remember the day they took our house”; a reminder of repossessions in the last property crash in the early 1990’s, and as a warning not to vote Conservative. Well, in a year or two’s time, Tony will have retired, Gordon will be PM, and he’ll be busily shifting the blame for the next housing crash onto the previous incumbent of the role and suggesting he could have done better.
When he does, just remember who took five billion quid a year out of the stock market, and ask him what you’ve got in return for it.
Because it won’t be a pension.
Frankly, if I were Michael Howard, I wouldn’t have wanted to win either.

Some people, usually ones who dribble a lot and use their finger to help them read, seem to think that Gordon Brown is in some way a good Chancellor of the Exchequer. This is preposterous to say the least. He’s done one good thing (the independence of the Bank of England), but he has somehow managed to run up a budget deficit of at least £37,000,000,000 whilst not only raising 99 separate taxes but also robbing your pension, and sucking £22,000,000,000 out of the UK telecoms industry and effectively crippling it as a competitor on the world stage.
Where did this money go?
Well, at least the coming economic black hole means that Brown stands precisely no chance of winning a general election when he takes over from Tony, but that, unsurprisingly, is small consolation.

Anyway, earlier I said I’d talk about the people who don’t have access to the goods and services of a civilised society. As a proportion of society, there aren’t very many of these people, and they’re comprised of two sorts – 1) The people who can’t interact with society meaningfully, and 2) the people who won’t.
As a civilised society, it is our responsibility to give group 1) all the help they need. As far as group 2) go, society is governed by rules of give and take, and if someone who is capable of 'giving' to society refuses to do so then they can whistle for the 'take' part as far as I care. There’s the difficulty of a hazy dividing line between the two groups, I admit, but at least one acquaintance has told me that she only works one day a week as she doesn’t want to ‘engage with the system’. Or rather (more accurately it seems), she doesn’t want to ‘engage with the system’ inasmuch as it involves working, but she’s happy to engage with it when it comes to claiming benefits.

I wonder why I bother at times, I really do.

*

wicked_wish has a good old rant about this today as well, which is what kicked me off.

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If you bought a house in the last three years, I’m very sorry, but the economic indicators are that you’re fucked.

Yeah, I'd noticed. I'll just bend over now, shall I?

(Though to be honest, I'm hoping that I won't lose as badly as I could - my house was astonishingly cheap because of the area's bad rep, but houses are getting more popular there as the rep disappears...)

the only way people can save money for retirement without the exchequer plundering it is by putting it into property

Did you know that from next tax year, the regulations on pension funds are getting relaxed, and people will be able to save money in a pension and instruct the pension fund to investing in things like buy-to-let property?

So there's going to be even more speculators buying up property...

That's pretty shrewd on ol' Gordons part. Currently property investments aren't taxed until capital gains are realised - but as penion funds are taxed and they'll be looking to make profits from their property portfolios...you guessed, they'll be taxed! Huzzah for economic prudence!

Yes, they'll be taxed when the property is sold because the pension's being cashed in - but they'll only be charged capital gains in the middle if they buy & sell repeatedly. The idea is that you buy a property on it, let it so the rent goes back into the fund & the fund (plus any ongoing payments that the individual makes) pays off the mortgage (same as any other buy to let set-up) - and the proportion of the house owned by the fund, rather than the mortgage company, gradually increases - so the final value of the fund is significantly more than it started at.

Where this gets *fun* is that they (IIRC) haven't actually closed the loophole of being your own landlord - ie, instead of taking out a mortgage on money you've saved up from your net salary, you invest it (pre-tax) in a pension fund - and get the fund to buy your house (saving 1). You then make rent payments as any tenant would (otherwise you'd have to admit it on your P11D as a benefit in kind) - but your pension fund can charge very reasonable rental rates - they'd still have to cover the mortgage payment, but compared to the amount you'd pay when going through a letting agent or something, you've got a very reaosnable landlord (saving 2). This means, you have lower outgoings from your net salary - so you can afford to keep a bit more aside each month to pay into your pension fund, paying that mortgage off as fast as possible so the amount the fund will pay in total for the mortgage is reduced - saving 3 - and don't forget, that extra pension payment is taken off your gross salary, not your net - saving 4!

Then (although as you point out, you will have to pay capital gains on the property/pension fund when it's cashed in) - that property belongs to the pension fund - so it's arguable(*) that if you were to personally buy another house, that would be your first property, and shouldn't be taxed for capital gains - so you could let your initial (small) property, and buy yourself a larger property to match your needs, while your tenants kept adding to your pension fund for you...

(*) This is one of the things that was being argued about, don't think it was set in stone when I was told about it so I don#t know what got decided.

Of course it's taxable - most things that make money are.

But the important thing to remember about paying tax is, it's usually good value to pay an accountant to show you how to pay less ;)

(And this is proof I was actually paying attention when our in-house IFA was explaining this...)

Where did this money go?

I'd venture to say a lot of that money went to subsidizing the ever increasing private/public partnerships. BBCi and Network Rail are two very good examples ways to waste a shitload of money.

I couldn’t help but see a certain amount of irony when I learned that the currently highly fashionable “Make poverty history” white wristbands from Oxfam are being made in a Chinese Sweatshop by workers earning 9p a hour.

Where did you learn this? I just checked the oxfam site.

This product is made in China in line with Oxfam's ethical purchasing plan

http://shop.sandbag.uk.com/MakePovertyHistory/Store/DisplayIndividualItem.html?ID=207&CatID=

That policy can be found at: http://www.oxfam.org.uk/about_us/suppliers/ethicalpurchasing.htm

It includes; Wages and benefits paid for a standard working week meet, at a minimum, national legal standards or industry benchmarks, whichever is higher. In any event wages should always be high enough to meet basic needs and to provide some discretionary income.

OK, that can be read in a number of ways but I do get the feeling that Oxfam may well be a fairly employee frendly orginisation.

I'm to tired to propperly read the rest of this post, see you later! :)

Well, there's here (where the story broke):
http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2005/05/29/nwrist29.xml&sSheet=/news/2005/05/29/ixhome.html
and here:
http://news.pipex.com/Pipex/News/Story_Page/0,13319,5337_495198,00.html

Which seem to sum up the story pretty effectively.

Reading those two articals, espically the second one, it seems to me that there is disagreement between Oxfam and who ever did those audit reports regarding the Fuzhou Xing Chun Trade Company...

An audit report on Fuzhou Xing Chun Trade Company, in Fujian province, included workers being paid below the local minimum hourly wage of 2.39 yuan (16p), down to 1.39 yuan (9p) in some cases, overtime work not being paid properly and with hours beyond the legal limit, no paid annual leave, no guarantee of a day off per week, and workers being deducted for disciplinary reasons.

But a statement from Oxfam says: We can reassure people wanting to support the campaign that all white bands sold in Oxfam shops meet the standards of our ethical purchasing practices.

Rather interesting. I think I may well delve deeper.

The irony that the people making 'make poverty history' bands are paid less than workers who work for organisations like Nike and Starbucks does not escape me at all.
This is what happens when bleeding heart liberal hypocrisy comes face to face with the actual effects of it's actions.
Free Trade. It's the only way to make a difference.

This is what happens when bleeding heart liberal hypocrisy comes face to face with the actual effects of it's actions.

You're right, companies that sell fair trade clothing and the like are a bunch of idiots who never make any profit and are actually exploiting every one of the workers who produce their items.

Come on now Dave, as I pointed out, there is a discpepency in the two statements given. Not only that but both articals say that the orginisations, now that they are awear of the problem, are making a conserted effort to change the working standards.

Free Trade. It's the only way to make a difference.

Is also one of the objectivies of the Make Poverty History campaign. Glad to see you support it. I sugest tie a white Nike lace around your wrist.

You're right, companies that sell fair trade clothing and the like are a bunch of idiots who never make any profit and are actually exploiting every one of the workers who produce their items.

I'm against 'fair trade', for the simple reason that it isn't. The number of producers who can sign up to the fair trade programme is limited, and they are paid 'a fair price' for their product. This 'fair price' is decided by the purchasers, and is higher than teh going market rate in the local market of production. In Europe, we call these 'subsidising'. The problem this creates is that in unbalances local markets as the heavily subsidised fair trade producers can out-compete other local producers who are not signed up to teh programme.
This has led to non fair trade producers being forced out of business. Hardly fair, hmn?

Sadly, the peope who seem to be supporting 'make poverty history' tend (generalising, but accepting exceptions) to be the same people involved in the anti-globalisation/anti-free trade movements, which just goes to show how ignoant people can be.
Personally, as a capitalist, I want free trade. I want protectionist tarriffs and production subsidies outlawed. because, as has been demostrated throughout history, trade not only makes people richer, it makes culture and society richer too.

What with being amazing and all I am smart enough to know that the campaign DOES support Free Trade, which I agree with. I'm not sure that a lot of the people who go on the May the 1st rallys and the like are anti fair trade, more that they are anti orginisations claiming to encourage fair trade but are actually simply helping to keep the poor poor most of the time, I know that that is why I woudl go. However, as I'm not in there minds and I've never actually been to one of the rallys I can't say.

I feel that the agrument you have used against fair trade is an interesting one as it is exatly the kind of thing the MPH campaign is fighing to prevent, except that in this case those benifiting from the unfairness are those who have, in the past, been shafted, rather than those benifiting from the kind of subsidies American, British RICH governments give out tend to be, well, those of us in a rather better situation. In Europe we subsidise and then dump our nice, cheap product on markets in developing countries and kick the crap out of local producers anyway. There is no difference except in quantity and in the type of person profiting.

Gosh, yes, subsidies and tarriffs of pretty much any form are pretty nasty; IMO the Common agricultural policy is one of the great works of evil of the last century, but try telling that to the French.
The adjunct to all of this is that of 'food miles'; it may be cheaper to grow (example)corn in (insert country here) and import it (and better for the global economy to boot), but what of the environmental costs of transporting to us? It starts getting complicated then, and I don't have an answer.

Personally I'm rather up for things like organic boxs and the like, remember SEASONAL fruit and veg?

We do not have free trade at all. If it WERE implemented then, in my pink and fluffy liberal world, pretty soon we would see poor countries making a lot of head way against the poverty that has been inflicted upon them.

As for the environmental costs, yes, that is a problem, a great problem indeed. Basically I think people have to decide that buying those amazingly cheep, out of season peaches from TESCO just isn't worth it. As to the effects that may have on the poor farmer in Dirt Town Africa, well, if we have true free trade he'll ba able to grow crops that can support his family, not ones that we in the rich weat desire at a low cost when ever we feel like it, and also should have enough to sell on at a local market no longer flooded by cheeply imported rice, corn, god know what and the like.

Become a capitalist. I'm serious. Support the free movement of capital and goods accross national and international boundaries. Encourage people to own something of what they produce. Encourage individual responibility.
A rising tide, after all, lifts all ships.

Support the free movement of capital and goods accross national and international boundaries.

Never said I didn't.

Like pretty much all theoretical sociological philosophys Capatilism does indeed work in theory. The problem is practice. Capatilism relies on someone wanting to own something. That is their motivation to work. However, you then get human nature and people wanting to own far more than they could possiably ever need. Becasue of this the rich seek to get even richer, even if they don't actually need to be that rich. That money has to come from somewhere. And it is at that point that capatilism stops working. Individual responsibility is a lovely idea, however it is also a big pile poo. We are not responsiable, far from it, we always want more and we want it now. That is why human nature stops TRUE capatilism working, we want more than we could possiabily need and, thanks to a capatilist system, the more you have the easier it is to continue to keep getting.

In theory, every political and economic system works. In practise, however, no system yet devised by humanity works better than western, liberal capitalist democracy.
As soon as the poorer, more coprrupt nations of this world realise that the quicker a lot of their problems will be solved and poverty will become history a great deal faster as a result.

I always like reading your posts, if only because they give me something to disagree with! But where to start? - Unfortunately I don't have time to respond in quite the level of detail you managed!
Three points to start:
Between 1 January 2003 and 31 December 2003 the market value of the Stock Market increased by £213 billion to £1,368 billion, representing a rise in value of 18.5 per cent.
http://www.statistics.gov.uk/cci/nugget.asp?id=107
So £5bn extra tax p.a. represents only 2.3% reduction in that increase.

Interest rates are expected to go down, not up.
http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2005/06/05/urates.xml&sSheet=/portal/2005/06/05/ixportaltop.html

The Poverty and Social Exclusion Survey of Britain is also the first national study to attempt to measure social exclusion, and to introduce a methodology for poverty and social exclusion which is internationally comparable.
Britain has become an increasingly polarised nation in the last two decades. The report shows that the proportion of households living in poverty increased from 14 per cent of households in 1983, to 20 per cent in 1990 and over 24 per cent in 1999.
http://www.bris.ac.uk/poverty/pse/welcome.htm

More later - once I've done some more work!

1) "Between 1 January 2003 and 31 December 2003 the market value of the Stock Market increased by £213 billion to £1,368 billion, representing a rise in value of 18.5 per cent."
What Broon has done is ensured that the only way to save tax-free for the future is in property; not only has his taxation of pensions taken a cumulative minimum of £5b p.a. out of the stock market, he has also driven investors away from teh markets and into property, worsening the housing boom. And then he has the untold gall to criticise people for saving in the only tax free way available for their retirement for driving the boom when it was thw inevitable result of his own economic policies.

2) Interest rate movement is a matter of speculation at best - I can quote the IOD or the Economist back at you as predicting interest rate rises, and the view is split. I expect a rise, and your argument has not made me alter that position.
In some ways, it doesn't matter as the seeds of a consumer credit crash have been sown: lowering rates will simply postpone the inevitable, whilst raising them will bring it on sooner. It is undeniable that the consumer economy has borrowed more money than it can repay. Can't blame peopel for doing so really, but I can blame Brown for putting the conditions in place to make this inevitable.

3) The people you quote on poverty seem to claim that they're creating an 'absolute' measure of poverty accross all cultures and economies, based upon things like lack of access to sanitation, shelter and education, but their definition of 'poverty' in the UK includes factors like 'not owning a car', and 'living in rented accomodation', by which definition I'm living in poverty.
I quote: "The lack of a car is a proxy for low income and indicates a household's accessibility to goods, services and jobs. It could be seen to be a more critical indication of deprivation in a rural area. East Sussex has a large proportion of the population living in rural areas. Non home ownership (rented) is another proxy for income and also can be taken as a reflection of wealth. Townsend et al. (1988) argue that, taken together with no car, it offers a good reflection of income levels."

To use such measurements to develop a system which claims to be an absolute yardstick of pverty accross cultures is, bluntly, just plain bobbins.
We're rich. Astonishingly so. The number of people in this country living in 'poverty' as defined by having no shelter, education or sanitation is a vanishingly small propertion of population. When someone starts claiming that someone is living in poverty because they rent their house and don't own a car you know that the priorities are getting loose somewhere.

I've been paying quite a lot of attention to interest rates and their likely moves recently as I've just been re-mortgaging. I think it highly unlikely that there will be a real downturn in the economy in the short-to-medium term, and hence house prices will at worst stagnate. As for interest rates, well provided the public continue to moderate their spending, interest rates will be down before the end of the summer. And remember, even 5% would be considered post-war to be a low rate, so for them to be peaking at this level is actually an incredibly good performance. (I'd love to remind you of the Tories record on this, but I'll save that for another time.)

IoD
Monday, 09 May, 2005
Rates freeze expected, says business

The Bank of England’s decision to leave interest rates on hold for May had been widely anticipated the Institute of Directors said today.

Graeme Leach, Chief Economist at the IoD said:

“The decision to leave interest rates on hold was as expected. The latest Business Opinion Survey of IoD members pointed towards a clear softening in the economy over recent months. The outlook for consumer spending and business investment has weakened and against this background the MPC was unlikely to push up rates to 5%.

“The key question is whether the recent softening in activity is sufficient to prevent a future interest rate rise, given that the economy is operating at or close to capacity and inflation is only just below the 2% target. It is still too early to rule out completely a 5% interest rate in the current economic cycle.”
http://www.iod.com/is-bin/INTERSHOP.enfinity/eCS/Store/en/-/GBP/IODDirectLink-Start?Type=Content&TemplateName=Advice/VPO.isml&ShowOldMenu=true

So the IoD think it is more likely that interest rates will go down than up.

I couldn't find anything in last week's Economist about interest rates.

As for house prices, from the Telegraph (since you are more likely to accept it than the Guardian!)
Fionnuala Earley, the Nationwide's chief economist, said it was now unlikely that house prices would fall steeply. "There are some gloomy views about the market. Our view is that the market is underpinned by the relatively strong economic background," she said.

Howard Archer, at Global Insight, said: "There seems little likelihood of a sharp correction in house prices in the coming months, unless the economy slows markedly and unemployment starts to rise significantly."

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2005/06/03/cnhouse03.xml&menuId=242&sSheet=/money/2005/06/03/ixcity.html

You've lost me here - the piece you're quoting above indicates it's too early to rule out an interest rate rise to 5%, so why is that people predicting a decline?
I'm confused :)

As for declining consumer spending, I'd argue this supports my basic contention - that the consumer credit boom is ending and we're coming to a sharp readjustment which will hurt a lot of people.
And the responsibility for this Brown's.

"It's too early to rule out completely" = overall more likely to go down.

For someone who believes in personal responsibility, it's a bit surprising for you to be blaming the chancellor for personal borrowing decisions.

No, I'm blaming him for creating the circumstances under which it would become inevitable in the first place. I actually specifically say that I don't blame people for taking advantage of it.

What did Brown do to make the conditions for high personal borrowing inevitable? We have low interest rates because we have a strong, stable economy (one of the best in the world over the last decade). Cheap imports plus smart interest rate setting have helped keep inflation down. The actual cost of a house (purchase price plus finance cost) has not gone up anything like as much as the headline purchase cost, because with sustained low interest rates, the balance between the two has changed. This has been compounded by high employment plus shortgage of stock in desireable areas. None of these factors are going to significantly over the next few years unless the global economy contracts.

It's an increasingly competitive market combined with the dotcom boom hangover that have depressed profits and hence returns - as a capitalist you should be pleased by low profits in a strong economy, as excess profits occur when the market is failing to drive proper competition (as you will know being a Thatcherite). Finally, in a £1 trillion pound economy, £5bn is not much money.

PS If you think property is overvalued, why are you saying you'll invest in it?
PPS Really have to do some work now!

"Can't blame people for doing so really, but I can blame Brown for putting the conditions in place to make this inevitable."

And as for house prices, these people make some very good points:
http://www.housepricecrash.co.uk/index.php

I think you are a little confused about pensions. They are tax free. Again, I should know as I've been in two pension schemes over the last 4 years, and I don't pay tax on my contributions. As I save about 10% of my pay, I estimate it reduces the amount of income tax I pay right now by about 15%. I am certainly going to maintain a pension as the primary part of my retirement investment because it is tax free.

I'm not cofused on pensions; I'm simplofying for sake of argument. tax relief on pension funds have been removed, which is taking appox. £5bn p.a. out of the private pension pot; this is reducing not only the investment capital of the pension providers, who are major investors, but also damaging the long-term payments you and I will receive from those private pensions.
As someone who would like an income when I'm old, I'd seroiusly consider going into property to stop brown getting his mitts on a fair slice of the profits of any saving I may try and do to ensure that.

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Sense of security, my pockets jingling.

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You want free(er) trade?

Re: You want free(er) trade?

Re: You want free(er) trade?

Oh dear

Re: Oh dear

Re: Interest rates and house prices

Re: Interest rates and house prices

Re: Interest rates and house prices

Re: Interest rates and house prices

Re: Interest rates and house prices

Re: Interest rates and house prices

To quote myself, not half an hour ago:

Re: Interest rates and house prices

Re: Pensions

Re: Pensions