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Outlook for the economy in 2010 and beyond

Discussion in 'Speaker's Corner' started by dirtydog, Jan 3, 2010.

  1. muon

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    Remember the amount of shares outstanding was far far less. So such share prices were actually realistic. RBS and Lloyds combined were never worth £450bn (i'm guessing).
     
    Last edited: Jan 4, 2010
  2. Dolph

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    Sadly political pressure is already impacting the ability of RBS and Lloyds to attract and retain the best staff and act in the appropriate way to be among the best banks.

    Not to mention we've yet to suffer the loss of large parts of our financial industry due to Brown/Darling's irrational tax attack on the finance industry showing that you can never trust the UK not to screw you over in future...
     
  3. rypt

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    Growth can only occur if we find an alternative resource to fulfil the job that the finite resource was doing, or if the job becomes obsolete, or if we devise some other way of getting the job done.

    The problem arises when the "resource" is energy (in this case oil), and when it is vital (as oil is) to our way of life and economic growth.
    The problem gets worse when we have not prepared to use an alternative resource (in this case nuclear power) to allow us to transition to an alternative. We are at least 20 years away from having nuclear power stations (it takes 5-8 years to build one, and the major component suppliers are fully booked by orders from China for the next 10 years). The problem is that oil demand from China and India will drive up prices to silly levels by then.

    The problem is further compounded by the fact that we have a large debt, a debt that has to be repaid via tax income. This means the government needs to tax us, but they also need to tax fuel less if the prices start to rise, but they can't tax it less because not only do they need to tax it more to pay off the debt but they also need to tax it more to meet their "green" targets.

    I generally agree with your views, but I think what you've just said is a bit silly.
    The Darling tax measures are supposed to be aimed at the lot who are already earning very good money, so unless they are purely driven by greed why would most of them leave?
     
    Last edited: Jan 4, 2010
  4. Rich_L

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    I'm not sure, Lloyds reportedly has assets in the region of £1.2 trillion, RBS double that at around £2.4 trillion - they are both epically big companies whose total assets are around 3 times that of the UK's GDP.
     
  5. muon

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    Even if their isn't an alternative, combined with certain assumptions, the market actually cleverly ensures that we wind down usage in such a way that when it does run out, we make a smooth transition rather than a crash and then continuous growth. If there is uncertainty and for this resource there is no alternative, and people incorrectly predict the amount of say oil we have, or how much technological progress will be, then the transition won't be smooth. How much the initial instantaneous drop (at the point oil finishes) in GDP is depends on how wrong predictions are.

    In addition, there won't just be a massive crash if predictions are off. The reality will be that over time predictions of oil left in the ground will get more and more accurate. Therefore, the price of oil will change now accordingly to ensure smooth usage of oil.

    However, afterwards there will still be growth.

    edit:

    The key idea involved here which is used by Joseph Stiglitz in his paper posted above is known as the Hotelling's rule.

    http://en.wikipedia.org/wiki/Hotelling's_rule
     
    Last edited: Jan 4, 2010
  6. dirtydog

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    I think you just answered your own question?
     
  7. muon

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    The thing is, you have to understand how leveraged these banks were. (Also RBS assets have grown since government injection)

    For example, (not actual figures)

    They had £2400bn of assets and say £2360bn of liabilities. Making the company worth £40bn. Now imagine what happens when your assets aren't worth as much as you thought it was? Solvency problems ensue. If the banks had lost £450bn in actual capital between them, then what the government is doing would be pathetic.

    Lehman Brothers had assets in the trillions at the time of bankruptcy.
     
    Last edited: Jan 4, 2010
  8. Rich_L

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    Yeah of course absolutely :) Just musings really, who knows how things will turn out, but if the market generally recovers taking the banks with it, the government of the day will be sitting on a hugely valuable asset which makes a bit of a mockery of the borrowing and money spent during the recession.
     
  9. Dolph

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    Because many people who work in the city of london are not UK born people working for UK companies. They are international staff working for international companies and can easily move elsewhere. We have attracted this income by being friendly to the businesses, we can lose it just as easily.

    Why would you (either as an employee of a multinational company, or as a multinational company) stay in a country that passes random measures with no evidential backing on a whim to punish people for something they didn't actually do, when there are other countries you can go to who don't do such irrational things?
     
  10. Rich_L

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    Because money isn't everything, to everyone?
     
  11. Dolph

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    Is it enough for the people who are generating these profits (and therefore tax revenues) working in the financial sector?
     
  12. muon

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    Indeed. People are willing to pay taxes to live in a country which allows you to lead an enjoyable life. But there is still a limit, and money does matter as well as other things.

    The real problem is conveying that this is a one off tax. Is it really? The banks do probably believe this, they are just annoyed. They are also annoyed by what the FSA are defining as bankers and therefore who the government will tax.

    If you are to do business in Europe then as long as this is a one off tax, London is the best place to be.
     
  13. dirtydog

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    :D this is the investment banks we're talking about here. Do you really think greed isn't the primary motivator for them and the people that run them?
     
  14. rypt

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    We cannot grow when the price of oil is very high as oil is a requirement for almost all of our transportation. Which means that when the demand for oil drives the price up, something else has to give as we only have a finite amount of money to spend per unit time.
    If we have to spend more on transportation, we have to spend less on goods and services.
     
  15. rypt

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    I don't know, as I'm not one of those people - but to me there would be a point above which extra money would be just that, extra that I could not find a use for and hence would not care if I didn't have.
     
  16. daz

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    The 50% tax and bonus taxes will raise a pitiful amount of revenue, whilst angering those who might look to move here for job opportunities.

    It's simply a move designed to make the government look like they're doing something to penalise high earners.

    VAT to 19-20% is the only long term choice that is feasible.
     
  17. Rich_L

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    Exactly. The way the tax is structured it is not even an attack on the individuals, which the Tories' proposed bonus tax was, and would likely have resulted in seriously upsetting said individuals - the companies can still pay bonuses if they want, after all it is the company which pays the tax, not the individual.

    I see a lot of annoyance, I don't see much evidence of companies upping sticks yet anyway.

    Actually it sounds like quite the opposite, it might pull in a decent amount of cash, according to Peston anyway.

    I don't see how it would deter people from moving here either, it's (AFAIK) a one-off based on profits in 2009, any profits generated afterwards won't be subject to the tax.

    Interesting point too
    If that is the case, I can't see a 5-12% reduction in your bonus being a sufficient reason to uproot from one of the financial centres of the world, which just happens to be one of the best countries (and cities) in the world too.
     
    Last edited: Jan 4, 2010
  18. muon

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    We can grow, when there is no oil. I don't understand your point.
     
  19. dirtydog

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    JPM publicised their anger about it recently although whether it was an idle threat to leave the UK, only they know.

    If this tax became permanent I think an exodus would follow. Investment banking can be done from anywhere in the world and there are many alternative countries who would welcome them with open arms.
     
  20. dirtydog

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    That is your opinion, which makes little sense to me as it flies in the face of reality.