BUBBLE ABOUT TO BURST?

International Monetary Fund chairperson Christine Lagarde is highlighting that something needs to be done about Britain's housing bubble. The IMF are suggesting either a rise in interest rates, more house building, or a combination of both.

It's Friday. It's financial. It's Friday Financial with JULIAN SAYER.

Mortgage misery on the way for millions.

This week I want to give a quick recap on what's been happening since I started writing this blog back in February, both on the subjects I have covered, and geographically around the world.

First domestically. A few weeks ago I covered the problems building up in the housing market, and it looks as though it will become even worse than I had feared. The Bank of England even admits a housing bubble is forming, the bubble is out of control and when it bursts it will cause misery for all involved. This is the concern for millions, and if it does it will so damage the UK and its economy over the rest of this decade. This paragraph was taken from the article below which is well worth a read:

"The independent think tank raised the alarm about the most vulnerable 770,000 households already with mortgages, saying they were “doubly exposed”. Typically, they might have very low equity in their home (less than five per cent), might be self-employed or have an interest-only mortgage, making them less attractive to lenders. Secondly, it would take only a relatively modest rise in rates by 2018 for a third of their income to be eaten up by mortgage repayments."

http://www.independent.co.uk/money/mortgages/millions-face-becoming-mortgage-prisoners-as-rise-in-interest-rates-could-trap-to-23m-homeowners-9399137.html

How is this Governments gamble to ride the housing market to stimulate growth for the UK economy going to end? They will have to be very careful, it's already overheating and they have an extremely difficult balancing act ahead, but these housing bubbles don't tend to end well! As a whole the UK economy is growing, but it lacks of any real strength, which means it is very susceptible to outside shocks, and everywhere you look around the world, business is struggling and central banks are panicking.

HOME SWEAT HOME

A young couple look in horror through an estate agent's window at the ridiculous cost of buying or renting a home in Britain today.

It's Friday. It's financial. It's Friday Financial with JULIAN SAYER.

Millions are working themselves into the ground just to pay the the rent

IN EVERY facet of society the working population are finding it harder and harder to get on in life. I have looked at employment, pensions, tax, and inflation, and everything is going against a hard working person. This week I want to look at how difficult it is to get on the housing ladder, and who is benefiting from this artificial market.

Since Margaret Thatcher sold off the council houses and promised everybody should have the chance to own their own house, the UK has fallen in love with home ownership. We have seen over the years just how important the housing sector is to the economy. A booming housing market often means a booming economy. The solicitors, Estate Agents, removal  men, DIY stores, carpet shops to name but a few all benefit enormously when house sales are high. It's been an important part of this Government’s economic policy to try to help get the housing market moving again after the financial meltdown back in 2007.

After the 2007 financial crisis, lending changed overnight. The leveraged institutions simply could not get hold of funds in order to lend for mortgages. Employment became harder and salaries reduced and house prices fell. Demand dried up and they simply stopped building houses.

The wealthy were eager to buy every asset that the Quantitative Easing driven, low interest rate environment demanded. Housing is back in demand. With demographics, immigration and a reduction in supply, there is a huge shortage of houses.

The Government even realised there is a problem;

http://www.parliament.uk/business/publications/research/key-issues-for-the-new-parliament/social-reform/housing-supply-and-demand/

The problem is that with supply failing to keep up with demand, rents are rising faster than incomes in some parts of the country, meaning that a higher proportion of people's wages are spent just keeping a roof over their heads.

THE RISING PRICE OF DECEPTION

It's Sunday. But it's financial. So it's Friday Financial with JULIAN SAYER.

Why and how inflation and falling wages hasn't bothered the wealthy.

This week I want to look at inflation and the cost of living crisis. There was a lot of fanfare last week with the announcement that wage increases have finally passed the rate of inflation. The full details of the announcement can be found here;

http://www.bbc.co.uk/news/business-27047966

On the surface it sounds great, the bedrock of a recovery is in place and good times are just around the corner. But, if you look into what has happened over the last forty years and the consequences over the coming years, then a different picture emerges.

These figures include all the high ranking salaried jobs mainly in the banking and financial sector that we the tax payer so happily saved back in 2008. These salaries have and are rising faster than any other. These million pounds salaries and their huge bonuses will adversely affect this data, boosting the percentage higher and disproportionately. Our Government does little to cap them as it encourages the City to make more and more money. Just look at the figures involved, who else gets million pounds salaries and two hundred per cent bonuses?

http://www.bbc.co.uk/news/business-27154184

Wages for the average person have stagnated and inflation has eroded the spending power that this reduced income can buy. For example average earnings adjusted for inflation have dropped 7.2 per cent since 2010 – leaving millions more than £2,000 a year worse off. This is where the economy has been hurt.

PENSIONED OFF!

There may be trouble ahead... retirement pensions will increasingly become unaffordable in the coming years, whether it's the state retirement pension or company and private pension schemes

It's Friday. It's financial. It's Friday Financial with JULIAN SAYER.

It's official. The UK state pension is worst in Europe.

It's been a busy two weeks looking after my six year old during the Easter holidays, but that's the conundrum of modern life. One of my pet hates is the lack of time modern life gives you; investing your most precious commodity (time) into the teaching of your greatest asset (your children.) So I am afraid this week's blog will be a short piece.

How a society looks after it's young, old and most disadvantaged says everything about it. This Government's continued attack on the most disadvantaged continues relentlessly. The poor, unemployed, handicapped, young and old are all suffering with reduced income, while the rich and multinationals continue to flout the tax laws stashing trillions of pounds in off shore tax heavens. This week I want to take a look at what's happening in the pensions industry, how it's affecting the pensioners now and how it will affect you when you retire in the future.

Having worked in the industry for twenty odd years, one thing I know for sure, is that this Government will continue to reduce the amount of pension you are going to receive in the future. Everything points towards it, an ageing population, reduced tax revenues, low employment levels, and longer life expectancy. In the UK we were once the envy of the world with our well run state and private pension schemes, and those lucky enough to have worked in the "golden generation" have reaped the rewards and are enjoying the benefits of these schemes. Sadly, just like our other world renowned institutions like the NHS and Railways, our pension system will be run down and hived off for the profit of the few, and to the detriment of the many.

IS IT WORKING?

It's Friday. It's financial. It's Friday Financial with JULIAN SAYER.

Any healthy economy needs a full and skilled workforce. It benefits employers and more importantly, gives a lot of spending power to a service driven economy.

Five years of austerity and we owe roughly £69,000,000,000 more than we did, while the

average income fell from £24,100 to £23,200, a percentage drop of 3.8%! In the meantime we are being told the economy is recovering and unemployment is coming down. This is true, unemployment has been reduced from its peak of 2.7 million in 2011 (2008-2014) to today's figure of 2.33 million. I could argue about how these figures have been compiled, but in today's article I want highlight the effects of these changes in our economy and then discuss future trends.

New figures from the Office for National Statistics reveal the depths of low pay and the grotesque chasm between a rich one per cent and the other 99% of the country.

Four in five new jobs are in sectors averaging under £16,640 for a 40-hour week. Working full-time on the £6.31 hourly minimum wage would gross just £13,124 in a year, and an explosion of part-time jobs shows millions of workers can’t even earn that pittance. This isn't good for a consumer based economy. Remember, in the UK 78% of our entire GDP is service based, and any fluctuations in our spending habits has huge ramifications.

Then comes the issue of the kind of jobs that are being created? Part time and zero hour contracts have ballooned since the start of this recession. The scale of the use of zero-hours contracts has been revealed after official figures showed that nearly 583,000 employees – more than double the government's estimate – were forced to sign up to the controversial conditions last year. Almost half of zero-hour contract workers have had their shifts cancelled without any notice, according to the first in-depth study of the way more than 1 million people on the controversial contracts are treated.

Two out of five workers on the contracts said they had been informed only hours before starting work that a shift had been cancelled. A further 6% had been told as their shift was about to begin. The study also found that 20% are sometimes or always docked wages or penalised in some way if they are not available for work. These contracts, which allow an employer to hire staff without an obligation to provide any minimum working hours, are used widely in the care industry, hotel and leisure sector and by many retailers. In the last two years public sector organisations have transferred staff to zero-hour rotas.

ROBBING PETER TO PAY PAUL

Following pre-Budget tradition, Chancellor of the Exchequer George Osborne holds up his red Ministerial Box outside 11 Downing Street.

It's Friday. It's financial. It's Friday Financial with JULIAN SAYER.

The expression “Robbing Peter to Pay Paul” refers to times before the Reformation when Church taxes had to be paid to St. Paul's church in London and to St. Peter's church in Rome. Originally it referred to neglecting the Peter tax in order to have money to pay the Paul tax. In other words taking from one to pay another.

With that firmly in mind in another rambling look at the world’s economic problems, I fear that the Government's shortcomings are being pushed on to the people who least can afford it.

In essence, nearly every budget is always the same. The chancellor giving with one hand and taking with the other. In these times of austerity it's never more evident. George Osborne has to raise money in order to pay the UK’s ever increasing debt.

I could write a piece on the details of the budget, but the news and papers are full of reviews far better than I could write. If you really want the details you can find them here:

http://www.bbc.co.uk/news/uk-politics-26626280

EVERYBODY KNOWS THE DEAL IS ROTTEN . . .

It's Friday. It's financial. It's Friday Financial with JULIAN SAYER.

They're not bankers, they're gamblers and they are playing with a rigged deck of cards. Worse still they're playing with our money. Read on for the low down on how the banksters are fixing everything.

LOADED DICE IN THE WORLD CASINO!

As I have explained previously, banking and finance is at the very heart of this system we live in. It promotes economic growth and allows companies to conduct their business around the world, in a fair and honest way. Or so the story goes? Well that's alright then isn't it? But what if I told you that the whole system is rigged?

The entire financial world is governed by the central banks who oversee the large investment banks that make the markets of finance and commodities. There has always been rumours of rigging within the financial markets, but it is only just becoming clear what a toxic industry it is. It seems whatever the market is, they will fix it.

Conspiracy theorists of the world, we sceptics owe you an apology. You were right. The players may be a little different, but your basic premise is correct: The world is a rigged game. We found this out in recent months, when a series of related corruption stories spilled out of the financial sector, suggesting the world's largest banks may be fixing the prices of, well, just about everything.

Currency trading is the latest addition to the "rigged" column, here is a summary of the known market manipulation scandals (because it can be problematic keeping track of them all by now)

Libor - interest rates

ISDAfix - swaps

Platts - oil prices

WM/Reuters - FX

High-Frequency Trading - equities

Aluminium

Energy.

The latest to hit the headlines is the foreign exchange markets and this one is particularly troublesome because the Bank of England seems to have known about it for some time. A fair review of the foreign exchange scandal can be found here

http://www.bbc.co.uk/news/business-26523995

The principal charges in this allege that currency traders at some banks made rigged trades designed to lose money — then took cash kickbacks from co-conspirators who made money on the deals. Yes, it's very easy to understand.  There's a lot of money involved and very, very few consequences.  If power corrupts then absolute power corrupts absolutely.

MIND THE GAP . . .

It's Friday. The topic is financial. It's FRIDAY FINANCIAL with our resident expert JULIAN SAYER.

Poor people pay taxes and rich people avoid paying tax. How the hell can that be right? Read on . . .

MIND THE GAP . . .

It's killing you!

MILLIONS of people have an uneasy feeling that something is not right in the global economy –

but they struggle to put their finger on what exactly the problem is. Now pay attention and don't fall asleep, when I tell you the very root of the decay is tax, and in particular, the abuse of tax rules and regulations.

As I mentioned in last week's blog, the middle and working classes have endured ten years of a reducing real income, while the super-rich have got richer. The tax burden is forever increasing on the people who can least afford to pay, while the wealthy and multinational corporations are paying less and less. This scenario is widening the income inequality gap, and is the root cause of the social breakdown.

Governments have to raise tax in order to pay for the services a society needs. The more tax they can generate the better the services and pensions they can provide. If tax revenues start to decline, then those services have to be cut. If you really want the breakdown of how much the UK and where it raises these taxes from, you can find it here.

http://www.hmrc.gov.uk/statistics/receipts/info-analysis.

Tax avoidance has become a real issue of late and has to be tackled if you want an equitable society. Corporation tax avoidance is the one that has made the headlines, with companies such as Google, Amazon, Vodafone and Apple making billions in turnover but paying very little in tax.

THE GREATEST DECEPTION OF ALL

Quantitative Easing: State sponsored theft on a larger-than-industrial scale from the working and middle classes to the mega rich. In addition to denuding the mass of the population of their meagre resources, employment and welfare, the proud cultural heritage of countries such as the United Kingdom is also being ruthlessly plundered.

It's Friday. It's Financial. It must be FRIDAY FINANCIAL

with the blog's money and banking expert JULIAN SAYER.

This week Julian takes a look at how RBS has managed to take billions of taxpayers’ money and, err, piss it against the wall.

MUCH to the dismay of the British taxpayer, the Royal Bank of Scotland (RBS) announced their latest financial results this week. Only another £8.2 billion pound loss, bringing the staggering total of losses since 2008 to £46 billion.

http://uk.reuters.com/article/2014/02/27/uk-rbs-earnings-idUKBREA1Q0ED20140227

This raises a lot of questions, but the one I want to illustrate today is how does a bank survive these losses, and continue to operate in the financial world. The very simple explanation is Quantitive Easing (QE.)

Quantitive Easing is simply the art of creating money out of thin air via central banks, in our case The Bank of England. That money is then given to commercial banks such as RBS, in exchange for huge chunks of toxic debts that the bank has on its balance sheet, and are effectively worthless. The commercial banks are then meant to use these magically created new funds to start lending to the economy and everything in the economy will be hunky dory.

However, that hasn't happened. So what has happened since the financial crisis broke in 2007? Well, first off, the banks moved the goal posts on lending. Fearing more losses they reduced the criteria on which they lent, cut the amount of mortgages they issued, reduced the overdrafts they lent, and cut new lending almost overnight. This in turn had a disastrous effect on the real economy, businesses cut back, many went to the wall and unemployment soared. Hundreds of thousands of businesses have gone to the wall over the last few years. So if the banks weren't lending this new money, what did they do with it?

CASTLES BUILT ON SAND

INTRODUCTION TO FINANCIAL FRIDAY GUEST BLOGGER

By HARRY BLACKWOOD

My blog is not yet a week old and already I've got a second guest writer.

Financial whizz Julian Sayer has been watching the world's economies go down the pan since the big crash and his prediction is that it's going to get worse. Much worse.

Every week Julian will give us expert insight into the inevitable financial crash.

Stay tuned. Here's Julian first post:

CASTLES BUILT ON SAND

by JULIAN SAYER, Guest Blogger

Make no mistake, we are living through historic times. Countries around the world are rioting, people are dying and personal freedoms are being eroded. The people of Ukraine, Venezuela

and Thailand have taken to the streets and put their lives on the line in order to protest.

This will not be a flash in the pan, this is going to be the norm, we are in worrying times. Brazil, Turkey, Egypt, have all seen mass protests and the list is growing. What is causing this huge uprising of social anger? In a word, economics. One of the dullest subjects you can imagine, but a subject that will change history. Finance, taxation and economics are inherently boring, but they are the very bedrock of the policies and deception shaping the world.