The Bewilderness

Time to kill QE

Ian McCafferty, former economist at the Confederation of British Industry and newest member of the Monetary Policy Committee, has laid bare some of the differences on that body. The good news is that he articulates the growing scepticism on QE that distinguishes the Bank of England from its counterparts elsewhere. In part, this is due to the poor inflation record of the Bank: impoverishing many with its lax monetary policy.

But with good news comes bad news. Economist have lost none of their confidence in viewing human behaviour via a mechanistic prism. Identify a "problem" and you could set up a specific solution to "solve" it. Is this not the Brownite tinkering that we have seen throughout all parts of government? One must hope that minor tinkering can be borne if the Committee concludes that QE has run its course. I suspect that many members remain to be convinced.

Crack Pipe Markets whore € paradise

I use the terminal font for € posts from now on. Unsurprisingly. The currency is bouncing dead cat highs on thin rumours and fat fingers. Do traders hang round chat rooms waiting for the latest: ooh, Fat Freddy's Cat says Draghi could be capping yields or yielding caps or something. There's no LSD trip quite as light fandango as that alternate reality we see before our eyes: sparkling € diamonds more lustrous than gold. And they even greece their optimism.... 

Financial ferrets in a regulators' sack

Until now, the public has received little or no evidence of collusion between banker and regulator in relation to the manipulation of the markets. Nor have they understood the wider political framework within which such contacts took place. The FSA's investigation of Barclays bank has revealed ambiguous communications between the bank, Bank of England and unnamed parties within Treasury. 

The speculation is forthcoming but this could have profound implications for the Labour party, if the parliamentary investigations uncover evidence of co-operation between government and banks. Miliband's cynical distancing from the last government will be undermined by a reminder that Labour were in hock to banks, just as they are now in hock to Unite.

Nor does this let the government off the hook. Osborne's judgement may prove even more flawed when it becomes clear that his chosen vehicle for clean-up is besmirched by the antics of his predecessors. The Bank of England will suffer reputional damage and the FSA has one final triumph: kicking its rivals after they have succeeded in eviscerating its role.

We can look forward to a few weeks of kicking lumps. 

The Old Lady inflates her title

The Bank of England has successfully resisted external scrutiny on its role in the financial crisis. Tory actions to erase Brown's legacy, combined with personable relations between the party's leaders and the Old Lady's executive suite, has led to excessive powers with little transparency or accountability. Such a paramount financial power has excited Parliament.

The Bank of England is culpable of debasing the currency, undermining thrift and engaging in 'not so stealth inflation'. Its managers have constantly underestimated the rate of inflation and, with the connivance of Treasury, ignored its hard won statutory duty to maintain that level. Such a policy suite, alongside QE, has contributed to stagnation and easing the pain of public sector cuts.  

Now, pushed by the House of Commons, the Court of the Bank of England has announced an inquiry into the role of the Bank from 2008. Such a move may meet some of the short tail criticisms but, if this institution is unable to maintain a hawkish stance on monetary matters, it should return its powers to politicians. Better that Osborne takes decisions, blatantly Tory-led, than have a figleaf of authority from the inflationistas of Threadneedle Street, whose hapless intervention has extended our decline.

We will lose control of spending, it's like the weather

Sir Nicholas Macpherson, Permanent Secretary to the Treasury, appeared before the House of Commons Public Accounts Committee and divulged that a number of departments "lost control" of spending under the previous government. The admission was immediately taken up by Coalition attack dogs and refuted by the Opposition who denounced any deviation from the policies of the previous government as "waste".

Macpherson retreated to impartiality by stating that this tended to happen under all governments, every decade, and was not really a problem. I would beg to differ.

Macpherson insisted that over any 10-year period in the past century there were financial problems in Whitehall on the same scale and Treasury sources said his comments did not amount to a judgment on the last government's record. 

The scale of the deficit and the underlying miscalculation on tax revenues is unprecedented. That the Permanent Secretary to the Treasury can admit that systemic control of public finances is so poor that it is lost every decade amounts to an admission of failure. The actions necessary to cut back on spending must be radical and prolonged. Macpherson either does not recognise this or is complacent (with a nothing to see here utterance).

Tolerance of fiscal incontinence is clearly embedded within Whitehall. Root and branch abolition of state activities is required to drive this monster back, or the bond markets will do it for us. Then, Mr Macpherson will be very unhappy.

State pensions are a Ponzi scheme, as we all know, Now you are forced to contribute whether you like it or not. Look at Argentina: they sequestrated your assets.

ECB in a mood over rating monopoly

The Eurozone, like the National Association of Insurance Commissioners, in the United States, is toying with the idea of establishing their own rating agency. Spiegl reported some days ago that Eurozone Ministers were concerned that Greece depended upon the rating of a single agency.

The first objection to this obtuse proposal is one of conflict of interest. Why would buyers of debt take heed of a rating agency controlled by the debtors? Well, they wouldn't...

And their objection to a single rating agency is less than it appears. There was competition, but the other two agencies had already junked Greece's ratings:

Under existing rules, the ECB can only accept euro-zone sovereign bonds as collateral when lending money if at least one of the three main rating agencies gives the country issuing the securities an A- rating or better. Moody's is now the only main rating agency that still gives Greece an A2 rating; Standard & Poor's and Fitch have already lowered their grades to the BBB level....

"It is a very unfortunate situation that a single agency has got so much influence over whether the ECB accepts a security as collateral or not," Deutsche Bank chief economist Thomas Mayer told Handelsblatt.

Moody's have, inadvertently, gained a monopoly through the rules set by the European Central Bank, and they don't like it. So, they would rig the rules and allow debt ratings to drift from their true price through a pet rating agency. They don't distrust monopoly, just one they don't run.

Broon's tough love turns to self-abuse

The European leaders recognise that there is a crisis brewing. The debt concerns of the markets are having a material effect upon the budget deficits of the countries concerned. To call them PIGS is insulting, even if they have pigged out at the trough of debt. Yet, now the biggest debtor is wallowing in his hypocrisy:

The Prime Minister will preach a “tough love” message for Greece and along with the other major leaders will urge the country to slash its spending over the next three years.

They will be presented with an agreed plan which will demand that the deficit has to be cut from 13 per cent to 2 per cent by 2013.

That will mean large scale cuts in spending and a new drive to take on the public sector unions that many hold responsible for many of the country’s problems. The unions are planning to strike over the level of cuts planned.

If the problem is not tackled the International Monetary Fund could be called in to bail out the stricken economy.

There is a crisis brewing...and let us hope that Brown faces the same crisis that he failed to recognise. Then his tough love will be self-abuse for us all.

US regulation may again save the City

Inflation is up, car production is down and living standards are now declining. It is a measure of the government's failure that the scrappage scheme has lifted car production in December, bringing forward future sales. Car production rebounded by 15.7% in the second half of the year and commercial vehicle output rose 15.6% in December. After the fall in sterling and the savage decline in production, it would be astonishing if there was no rebound to a level of growth.

One bright spot on the horizon is the debate about banking reform begins to steer away from peremptory and savage regulation undertaken for populist support by the Americans. A moronic hitch on the Obama bandwagon was soon abandoned by the Conservatives after they realised the level of economic damage attached to the proposal. Whilst politicians cluck in public about the need for international agreement, the inaction of the G20 is becoming a useful figleaf to lever regulatory arbitrage for Britain's advantage. Such profitable opportunities would only be enhanced if we took a semi-detached view of the EU.

The after action cycle

Good ideas for improving organisation and embedding continuous improvement can come from many sources, especially if your organisation has reached that critical mass where formality exceeds informality. A good one is imported from the military: the BAR and the AAR: the Before Action Review and the After Action Review. It sets a bar, creates a consensus and institutionalises improvements.

Some businesses take a more regimented approach, adopting a practice from the military. The U.S. Army is famous for its rigorous debriefings, known as after-action reviews, or AARs. To borrow the Army's definition, an AAR is "a professional discussion of an event, focused on performance standards, that enables soldiers to discover for themselves what happened, why it happened, and how to sustain strengths and improve on weaknesses."

Charles Parry, a partner at Signet Research & Consulting who teaches after-action reviewing to corporate clients, prefers the term action review cycle. That's because the process wraps around an entire "action," which might be as simple as a client meeting or as elaborate as a yearlong business-development project.

It provides a better process for dealing with clients and projects.