Absence of posting

I have had a few comments and emails bemoaning the lack of posting for the last few weeks, indeed a few hoping that I have not given up posting. Apologies to those who have missed getting their financial fix but this due to a number of reasons:

1. Christmas is a big even at Masterley Towers. Not just on the day but also in the ays leading up to Christmas. So much to do, so little time.
2. December is a busy month for deal completions. This year there wasn't a lot of new business but there were some time consuming restructurings.
3. There hasn't been a lot of financial news.

At least not that was really ground breaking or significant enough to blog about. Two items that might have merited a post they hadn't been done to death here over the last year would have been the government's spending outturn, which came in at £617.9 billion, and the Oxford Economics report which said that UK GDP per capita is lower now than it was in 2005.

On the first point, the issue wasn't so much the headline figure for Total Managed Expenditure but the shenanigans by which the government arrived at the figure. The details are here.

This year the government "spent" £91.449 billion on "non-cash" items of resource departmental expenditure up from £49 billion last year and on a rising trend from £28 billion from 2004/5. They also spent £85 billion on "other capital expenditure" (prior years negligible or negative). Now because those two unpalatable sums would have upset the numbers, the government made 2 "accounting adjustments" (read that as "reductions in reported spending") of £87 billion of revenue expenditure and £98 billion of capital expenditure.

Now as already reported here, we know that a lot of the £87 billion of "non-cash" items that the government doesn't want to count as current expenditure relates to PFI, where departments sign as service recipients under service contracts on terms that would normally dictate that they should capitalise the underlying asset and book the service contract as a financial liability, only when it comes to reporting government figures, the liability is "adjusted" away.

And then again we now that the government argues that all of the money it spends on bank shares doesn't really count as expenditure because it is supported by assets - which is a bit like saying spending isn't spending if in the process a valuable asset is acquired (i.e. pure tosh). OK, say the government, it doesn't count as part of Total Managed Expenditure because it is a one-off. Try that line with your bank manager (e.g. "No, I am not really overdrawn, because it was a one-off, just like the government and the bank bail-outs").

So that's £185 billion of spending that the government says we didn't really have, but the media and the opposition don't make a fuss.

And then we have the Oxford Economics report, which made some of the papers, saying that GDP per person is no higher than it was after the last General Election. Which sounds bad, but as discussed here throughout 2009, the reality is far worse.

GDP is a measure of public and private consumption, and whereas public consumption has grown at the rate or 6-8% for the last several years, public sector activity has gone the other way, so that as reported here 6 months ago, in inflation adjusted terms, private sector consumption per capita has declined by 25% since 2003, whereas public sector consumption has grown by more than 30%, so that GDP (interpreted by the government as a measure of economic activity) is largely flat.

Brown play ed on this as Chancellor, knowing that he could put his foot on the government spending gas pedal at any time so that he could always say that GDP was growing at 3% and hitting growth targets. The reality was that the "quality" of the GDP declined. The value of goods and services freely traded in the private sector, rather than the value of money blown by the government to support whatever scheme they thought would give the illusion of economic growth, has fallen rapidly. We have now reached a point where the government bleats that cutting expenditure would lead to a further recession, even though the value for money from current expenditure is very poor. How many £1,000 a day consultants does the NHS really need? But if we follow their Keynesian logic with 3x multiplier effects (not that I believe that figure) we would conclude that instead of a £175 billion deficit, £525 billion of GDP is unsustaianable. The best solution is to cut spending back to mid-2000 levels, suffer the pain and rebuild the economy on a more realistic basis.

Let us hope that the media start to bite on this.