Europe's Banks May Get €200bn Bailout

A potential €200bn (£175bn) recapitalisation of the European banking sector loomed yesterday after the French and Belgian governments unveiled a rescue package for Dexia to stop the bank's woes from contaminating the wider financial system.











The planned boost to banks' capital reserves will see national governments in line to inject new cash if the lenders cannot raise the money in the market.

The urgency of increasing eurozone banks' buffers against losses was heightened by the near-failure of Dexia, the French-Belgian bank with big exposures to debt issues by Greece and other financially stretched countries.

The deal to bail out Dexia was designed to stop the bank's crisis spilling out into the rest of the banking sector. The fates of troubled eurozone countries and the region's banks are intertwined and threaten a vicious spiral of losses.

European leaders yesterday delayed by a week a meeting scheduled for next Monday to leave time to receive a definitive report on Greece's fiscal crisis.

Belgium will pay the Dexia Group €4bn for the Belgian retail banking business and provide 60 per cent of state guarantees for a "bad bank" to house Dexia's troubled assets. France will provide 36 per cent of the guarantees, which cover up to €90bn of funding, with Luxembourg supplying the rest.

Dexia's balance sheet of €518bn is bigger than the entire Greek banking sector and is a similar size to the total assets of institutions rescued in Ireland. The bank passed European "stress tests" in July that were meant to shore up confidence in the banking sector.

France and Germany have agreed that Europe's banks should be made to raise extra capital to cushion the impact of a Greek default. The International Monetary Fund has calculated that the region's banks need up to €200bn of extra cash to withstand losses.

Alistair Ryan, an analyst at UBS, said: "If capital is to have any chance of stabilising the banks, it will need to be large: we would start with the IMF's €200bn." He said eurozone governments could end up owning 40 per cent of the sector if they supply the capital.

Markets were calmed by hopes that France and Germany would finally come up with a plan big enough to support the eurozone's banks when Greek defaults – an event seen as inevitable.

The Eurostoxx 50 index closed up 2.3 per cent and the euro rose 1.9 per cent to $1.3648.

The cost of Dexia's bailout has raised questions about France's and Belgium's national credit ratings. France's Finance Minister, Francois Baroin, stressed that Dexia was a "unique" case and that other French banks would not need bailouts. However, many believe France's Société Générale and BNP Paribas would be part of the recapitalisation plan.

UK Economy Needs More Than Quantitative Easing To Recover

Britain's cycle of rising debt and dependence on consumption to drive growth make it unlikely to bounce back any time soon.












Britain has just been through what is now officially the deepest slump since the Great Depression – pictured, the unemployed marching in London in 1930.

Britain has just been through what is now officially the deepest slump since the Great Depression. Economic data from the pre-war era is not 100% reliable, but the drop in output after the sub-prime mortgage crisis appears to have been almost on a par with the contraction following the Wall Street crash. What's more, the recovery – such as it is – has been even slower than in the 1930s.

Talk of a lost decade is not misplaced. The economy is likely to grow by barely 1% this year and will struggle to do much better than that in 2012. At this rate of progress, it will be 2016 before output returns to its level when the recession started in early 2008.

This performance looks all the more miserable when you consider the amount of stimulus that has been thrown at the economy. Interest rates were cut to 0.5% in early 2009 and have remained there. The government has borrowed £390bn in total in the last three fiscal years. After printing £200bn of electronic money, the Bank has decided that is not enough and has announced plans to do a further £75bn of quantitative easing. The image that springs to mind is of John Cleese's response when Michael Palin's pet shop owner insists that were the Norwegian Blue not nailed to its perch "it would nuzzle up to those bars and 'voom'".

"Voom?! Listen mate, this bird wouldn't voom if you put 4 million volts through it. 'E's bleedin' demised."

This is not the view of George Osborne or Sir Mervyn King, although both admit it is taking a while for the dead parrot to awake. King said last week that the UK was in the grip of a financial crisis at least as severe as that in the 1930s and perhaps the worst ever. The chancellor has repeatedly warned that it will take a long time to recover from the debt binge of the last decade. Most post-war recessions were caused by a tightening of economic policy in response to inflation, but that of 2008-09 was the result of individuals and banks borrowing too much.

Still, the mainstream view is that sooner or later things will get back to normal. Over the past two centuries, western economies have always bounced back from economic traumas, no matter how severe. It is taken as read that industrial capitalism is inherently robust and adaptable. It is perhaps time to challenge this assumption.

The first piece of evidence comes from the Office for Budget Responsibility, the independent fiscal watchdog created by Osborne when he became chancellor. Forec asting has been outsourced to the OBR, which expects growth to be quite perky in the years ahead, leading to a fall in the UK's budget deficit. Crucially, though, this is only because the OBR expects household debt to rise in the years ahead, from £1.6tn in 2011 to £2.1tn in 2015.

Alert readers will spot the circular argument here. Britain has a personal debt bubble that goes pop. Government steps in to clear up the mess and ends up with record peacetime debts itself. The cure for this is to get individuals borrowing again. Well, maybe. All the signs are that this will prove harder than the OBR imagines, resulting in weaker growth and a higher budget deficit.

This leads on to a second point, which is whether the UK variant of modern industrial capitalism is really as robust and adaptable as our policymakers would have us believe. The story of the past 25 years and more has not been of a new model of sustainable growth emerging from the old. Not since the mid 1990s has there been a period where the motor of growth has been production rather than consumption. For the rest of the time it has been the tale of asset-price booms, the withering of the productive base and the onward march of big finance. Following the bubble to end all bubbles, the taxpayer had to dig deep to bail out the banks and prevent an even deeper recession, pauperising the state in the process. A model that relies on excessive personal indebtedness and ends with the innocent suffering from extreme austerity seems neither robust nor adaptable, just bankrupt.

Britain has not been alone in its long march down this dreary road, but it has travelled further down it than any other developed western country. King and Osborne agree something has to change. The upbeat vision of the future goes something like this: Britain, despite everything, has a sizeable manufacturing base and can enjoy the benefits of a 25% drop in sterling since 2007. The UK has top-notch scientists who will deliver a new wave of innovation. It has an independent central bank that knows what it is doing and a Treasury determined to keep interest rates low. The banking system is being repaired. Credit will eventually start to flow again, taxes will at some point come down, consumers will pay off their debts and firms will start investing.

The dystopian vision of the future sees Britain displaying many of the traits of a developing country. Here's what a typical developing country looks like. It is governed by an elite and there is a gulf between rich and poor. The elite extracts economic rents from the rest of the population, then salts them away in tax havens. Developing economies often rely heavily on one commodity, which crowds out activity in other sectors. To the extent that they have an industrial base, it is as an assembly plant for foreign-owned transnational corporations. The country tends to be deficient in physical infrastructure and human capital. All too often the best brains leave the country.Now consider Britain. The country is dominated by the City, which exerts an extraordinary amount of political power. There is a widening gap between rich and poor. The rich find ingenious ways to avoid paying taxes. Large parts of the country are dependent on the public sector, while the private sector is increasingly dominated by financial services. Industry makes up a smaller and smaller part of the economy and not one world-class manufacturing firm has been developed from scratch since the second world war. Firms complain they can't find skilled labour. The infrastructure is a joke – witness the lack of snowploughs to keep Heathrow open during last winter's snow. This is not an economy that is going places: it is going south.

Economic Crisis: What Is The End Game?

The cycle of woe and uncertainty surrounding the economic crisis continues, with gloomy surveys predicting a double dip, and even fears of a ‘Great Depression'. Sir Mervyn King, Governor of the Bank of England, believes this could be the worst financial crisis ever - even beating the 1930s for gloom - and the economy is in breakdown, so what we want to know is:



















How grim are things going to get?

Yesterday various reports told us the UK was bottom of the global confidence league, 43% of finance directors were preparing for a second recession while companies had delayed or cancelled £4.7bn of spending, reports the Daily Telegraph. "Today we report the OECD's leading indicator falling for the seventh month in a row, pointing to a slowdown, and the British Chambers of Commerce warning on stagflation."

Mindful Money asks commentators what they think will happen:

While we don't know if the recent injection of more QE will do any good, we do know that it automatically invites stagflation into our economy by pushing the pound down, say commentators.

According to Mindful Money economist blogger Shaun Richards, the most likely outcome if both politicians and central banks continue with the policies that they have now is, indeed, stagflation.

But he adds: "Those who look at the past I think miss an important point which is that it doesn't have to be 10% inflation to hurt people. A continuation of 5% a year combined with wages only rising say 2% will gradually turn the screw. Let's face it this has been happening already for the last couple of years so in general people are poorer."

Investors Chronicle says that Andrew Sentence, a former member of the BofE MPC believes that inflation is a bigger concern for the UK economy than a recession."High inflation and slow growth are inextricably linked."

What happens if stagflation hit?

Stagflation is a term which is formed by joining the words stagnation and inflation. It is used in modern macroeconomics to give a description of a period of uncontrollable price inflation combined with sluggish output growth. Stagflation raises unemployment.

The last time stagflation held the western world in a seemingly lethal grip was 30 years ago in the 70s and 80s, and it is threatening to emerge from the shadows again. Such fears are dismissed as irrelevant by those in favour of pumping money into the economy through quantative easing (QE), which they think will stimulate growth and avoid the dreaded ‘double-dip' recession. But so far, this policy has failed to prompt the necessary growth.

Thursday's announcement of another £75billion worth of QE played well with the stock market, but it is unlikely to cause much cheer for long. On the contrary it threatens to stoke inflation even higher, and meanwhile, there is the threat that growth stagnates.

"Stagflation" remains a word not uttered in the polite company of the financial world.

"But there remain only a few more tumblers to fall into place for a return to that awful word that conjures up images of the "malaise days" of the late 1970's and early ‘80s, where rising inflation and slumping employment tramped down economic growth," says CNBC,

However, some economists believe stagflation isn't something to fear at present.

Azad Zangana, European economist at Schroders, says: "While the current environment feels like a typical stagflationary environment, this is set to be temporary. The outlook is more positive as we expect inflation to fall from its current level back down to below 3%, mainly due to the passing of the VAT effect from the start of 2011.

"Meanwhile, we forecast growth to improve in the second half of 2012, and so the balance between real and nominal growth will improve. To conclude that we are entering a fully fledged stagflationary period, we would need to see significantly stronger inflation and wage inflation, and a continuation of weaker growth as seen in the 1970's. In our view, this is unlikely to occur."

What other threats may there be?

Another danger, however, is the rising threat of hyper-inflation. Shaun Richards says: "Whilst the self proclaimed "financial geniuses" persist in buying every gilt they can find there is a danger of this. Also it is the nature of things that when problems happen these days with the speed of trading it happens so fast that it is better not to run the risk at all. But I see this as rising but still low.

"So for now the danger is the silent drip drip of inflation and this is the enemy. The biggest problem of all is that as I keep pointing out it should not be a problem at this stage of the economic cycle and furthermore is being inflicted on us by individuals whose own contracts protect them against it.."

And if we're being warned that this crisis beats the 1930s, what happened then?

What happened in the 1930s, given the governor believes the gloom beats this decade? This was the ‘Great Depression', where in America millions were genuinely destitute, and unemployment hit a staggering 25%. Two million Americans tramped the country, sleeping rough as they looked for nonexistent work, and malnutrition was widespread.

Southern England escaped reasonably lightly, but in the North there were pockets of extreme hardship. On Tyneside the collapse of shipbuilding left unemployment standing at 70%, prompting the famous Jarrow march.

There were soup kitchens on the streets and millions of families were subsisting on bread and margarine. In Germany, economic misery that had begun with hyperinflation in 1923 helped another world leader to power in 1933: Adolf Hitler.

So is there any cause for hope with growth and falling inflation?

Henderson's chief economist Simon Ward gives his opinion: "Assuming that an EMU break-up is avoided, the global economy may start to regain momentum from early 2012. Such a scenario depends on the US economy doing better next year, as suggested by recent money supply strength...

"Another reason for thinking global growth could revive from early next year is a fall in headline inflation due to recent weakness in food and energy commodity prices. Rising inflation has been a major contributor to the recent economic slowdown by squeezing consumer spending power and forcing monetary policy restriction in emerging economies."

And anyway, nobody knows.

Mindful Money's resident psychologist Kim Stephenson says: "Let's assume that Shaun's right..

"Afterwards, lots of people who said that we wouldn't get stagflation but something else (hyperinflation or whatever) will say - "ah, well, it depends on how you define stagflation (or hyperinflation, or whatever)", they'll twist it round to show that they were right when they were actually wrong. Or they will point to some action or event - from the Bank of England, IMF, German Government, something, and say "if that hadn't happened, it would have gone the way I predicted". Human beings don't like being wrong and they will selectively remember what they want to remember to avoid having to admit they were wrong.

"Similarly, human beings like being able to predict and control their world . The economy isn't just out of our personal control, it's clearly out of control (or even prediction) of anybody like the Chancellor, the EU etc. that are supposed to be able to control it. That is very scary. It's like when you're a child and you realise for the first time that your parents don't know everything, can't solve every problem, can't ease the pain, stop the bully or get you on the team every time. It hurts and it makes us afraid, so we desperately cling to the belief that somebody can predict it (if not control it) and that we can have some measure of understanding of what is going on. To contemplate the fact that actually nobody controls it, nobody really understands it or can predict it and that most of our predictions are going to be wrong is simply too much to take."

Will The Increased Offer Of Declining Pound Save British Economy?

Forex news. World economy is under the threat of crisis, which can become the most difficult ever and have more large-scale consequences than the Great Depression in the 20th century. This is how the current situation is viewed by Mervyn King, the Governor of the Bank of England.










The decision to expand the quantitative easing program, which was taken by the Bank of England on Thursday, is predetermined exclusively by the difficult economic situation worldwide, particularly in Britain.

Drawing historical parallels, Mr. King claimed that the current condition of world economy is characterized by the total deficit of money supply. Therefore, Central Bank emission is aimed at solving this problem, and the Bank of England decision to increase money supply is to be regarded exclusively from this point of view.

However, global crisis can only be overcome provided that there is a consensus at the highest level.


It is predicted that the entire sum of emission, ₤75 bln., will be directed at stimulating economy and increasing money offer. At the same time, Mr. King assured that inflation is unlikely to result from held recession. In general, he predicts that inflation will increase up to 5 percent in the nearest future; however, next year it will stop increasing and start declining rapidly.

Meanwhile, the rate of British pound has stopped forming long-term wave А(С) or reduced wave С(С) within long-term bear motion, which will be proved by passing pivot Mf at the point of 1.5665. Experts of the Department of Masterforex-V Trading System claim that subsequent FZR will start long-term correction wave В(С). Passing the bottom line of 1.5271 will continue long-term decline; however, before this happens GBPUSD pair will meet support at the points, where pivots MF are placed, namely, 1.5468 and 1.5296.

Third Of Tenants Face Underoccupancy Cut

Cutting housing benefit for working-age tenants who underoccupy their homes will affect around a third of those living in social housing, the government has revealed.

An impact assessment from the Department for Work and Pensions estimates that limiting housing benefit payments to the number of bedrooms that a social tenant actually needs will affect 670,000 people living in social housing.


















The report, released yesterday as part of the government’s Welfare Reform Bill, says most tenants only underoccupy by one bedroom, and will lose around £11 a week in 2013/14, when the change comes into play.

Those with two or more bedrooms that they do not use will lose an average of £20 per week, the assessment says. It also found that tenants in the north, east midlands and Wales were more likely to be affected than those living in London and the south east.

Around 46 per cent of social tenants in the north east will see their housing benefit cut by around £12 a week, while only 19 per cent of London tenants will be affected.

The National Housing Federation condemned the plans. David Orr, chief executive, said: ‘Ministers have long promised to protect the vulnerable and yet these plans could force thousands of people to move out of homes they have lived in for many years.

‘As a result of these changes, thousands of couples are no longer able to offer their grown-up children a room to stay in should their circumstances change, and many single parents will be pushed away from friends, relatives and support networks.’

Under occupancy penalty could force struggling families into hands of loan shark.

Plans to slash housing benefit for hundreds of thousands of low income families could lead to a huge surge in the number of people turning to loan sharks and doorstep lenders as they struggle to pay their bills, campaigners warned today.

The Department of Work and Pensions (DWP) intends to use the Welfare Reform Bill to slash housing benefit for tenants living in homes deemed too large for their needs - even if they have lived there for decades.

The measure will hit 670,000 council and housing association tenants - a third of all working-age housing benefit claimants in the social rented sector across Great Britain.

The DWP has suggested that households seeing their benefit reduced - by 13% for those with one 'spare' room and 23% for two or more 'spare' rooms - should 'move to accommodation which better reflects the size and composition of their household' - or make up the shortfall from other income sources.

Each claimant is expected to lose an average of £676 a year if the Government succeeds in introducing the measure in 2013. Tenants will face a tough choice of either downsizing to a smaller home to avoid the penalty or staying put and paying a much higher level of rent from their own resources.

But even for those who do look to downsize there is by no means any guarantee they will find a smaller social home to move into. Around 180,000 social tenants in England are 'under-occupying' two-bedroom homes, but just 68,000 one bedroom social homes became available for letting in a single year (2009/10).

The average social housing household in receipt of housing benefit has an annual income of just £8,320 a year. The proposed 'under occupation' penalty will leave vulnerable families with a shortfall of £676 to make up from their savings or other allowances. Many are at risk of falling into debt because they simply would not have the money to pay all their bills.

Currently, around 2.5m people borrow from doorstep lenders at rates often in the region of 272% APR for new customers. A further 200,000 are estimated to borrow from loan sharks, who can charge anything up to 2,000% APR. A majority of those financially excluded are social housing tenants.

If a tenant took out a £700 loan to cover the under occupation penalty with the doorstep lender Provident, they would pay an APR of 272.2% on the loan, according to a typical example given on their website. That would mean repaying £1,274 back over the course of a year. For people going to illegal loan sharks the rate could be ten times as much.

Federation chief executive David Orr said: "The Government's plans to penalise hundreds of thousands of low income families who are adjudged to be 'under occupying' their property is harsh and regressive.

"In the vast majority of cases, people will simply not be able to make up the shortfall themselves and could end up being sucked into poverty and spiralling levels of debt.

"The Government has repeatedly said that it will look after the most vulnerable, but pushing thousands of people into the arms of doorstep lenders and illegal loan sharks is wrong and will lead to a huge degree anxiety for many of the poorest in our society."

Niall Cooper, National Coordinator of Church Action on Poverty said: "There is a real danger that people will be pushed into the hands of loan sharks by the housing benefit cuts.

"Many tenants are already struggling to make ends meet, and can ill afford the cost of borrowing from high cost lenders who routinely charge anywhere between 200%-2,000% APR for loans.

"For some, this will push them over the edge - into a spiral of debt, or even homelessness."

Operation Twist Won't Be Enough To Save The World Economy

Twist and shout....loudly, for help. The $400bn action taken last night to by the Federal Reserve to boost the US economy backfired, by alarming the markets it was meant to reassure.

Global shares fell sharply this morning with £56bn wiped off the FTSE 100 index - that's our pension money, by the way.

Taken along with the International Monetary Fund's stark warning of a 300bn euros black hole in the eurozone banking system, due to sovereign debt risks, the Fed's move was interpreted, correctly, as an index of just how bad the situation is out there.


















U.S. Federal Reserve Chairman Ben Bernanke hopes that Operation Twist will help boost the U.S. economy.

Operation Twist, as Bernanke's $400bn mission is nicknamed - is so-called either because it has not been attempted for 50 years, when the Chubby Checker song was in the hit parade, or because it is an attempt to twist the 'yield curve' - in simple terms, to bring down long-term interest rates and thereby boost economic growth.

I could explain this in full, but believe me, you wouldn't want me to.

Along with Operation Twist, the Fed issued a gloomy prognosis on the US economy and the risks from the eurozone, echoing the sentiments from the International Monetary Fund that time is running out rapidly to fix the vulnerabilities in the financial system.

The financial crisis that had its genesis in the banking system was always going to spread to sovereign nations.












The financial crisis that had its genesis in the banking system was always going to spread to sovereign nations.

Now we are indeed entering a new and dangerous phase, and the really worrying thing is the utter and abject lack of convincing leadership, the absence of any big world figure with a convincing vision of how to get out of this awful mess, and what the world might look like when we eventually do.

Share markets have been incredibly febrile so the FTSE 100 and other indexes are quite likely to bounce back.

But this is a deep and real crisis.

The eurozone is facing an existential crisis and the US as the world's dominant economy, is staggering under a mountain of debt.

Hang on to your hats.

UK Inflation Figures Make A Mockery Of The Economic Assumptions Of Old

News emerged last week that during August, UK inflation went up. Again. The consumer price index (CPI) index last month showed that prices were 4.5pc higher than the same month in 2010.












It is noteworthy, also, that UK construction orders plunged 16pc during the second quarter – to their lowest level since 1980. So the outlook for construction is now worse, even, than during the "credit crunch" proper.

Given the growing sense that a tumultuous "euro-quake" end-game may soon be upon us, or at least the still traumatic acknowledgement of an explicit Greek default, the newsflow from Europe last week was almost overwhelming. So there was, perhaps, less comment than there should have been on the fact that UK inflation had just equalled its three-year high.

It used to be reasonable to assume that when the economy slowed, and unemployment rose, then inflation was likely to fall. Well, the UK has just endured its worst recession in more than 60 years. The economy shrank, peak to trough, by more than 6pc. Despite this historic drop, growth has failed to bounce back, remaining as low as 0.2pc during the second quarter.

Yet still, price pressures have been rising. Not so long ago, the publication of data showing that CPI inflation had overshot the Bank of England's 2pc target by more than 1 percentage point would have dominated the news agenda. The Bank's resulting public letter to the Chancellor, triggered by the 3pc breach and designed to explain the divergence, would have been forensically analysed by the commentariat. Such letters are now so common that hardly anyone reads them.

Over the past three years, monthly CPI growth has averaged – yes, averaged – 3.3pc. Those of us who've raised objections, pointing out that this might become a problem, have been dubbed "inflation nutters". It's as if the British economics profession has contracted collective amnesia, immune to the lessons of history, failing to highlight the danger that inflation in the 4pc to 5pc range can very quickly spiral out of control, as high and self-fulfilling inflation expectations become entrenched.

The UK's economic outlook weakened markedly in August. Survey data suggest the risk of the British economy re-entering recession, the dreaded "double-dip", has grown considerably. All three of the main CIPS survey measures fell last month, the main services index dropping at its fastest rate for 10 years.

It is noteworthy, also, that UK construction orders plunged 16pc during the second quarter – to their lowest level since 1980. So the outlook for construction is now worse, even, than during the "credit crunch" proper. This matters not only because the sector accounts for a chunky 7pc of the UK economy and employs millions of people. Construction is also a reliable "bellwether", with trends in the industry often pointing to what the economic future holds.

It looks likely, then, that we'll see virtually no growth in Britain for the rest of this year, even if global financial markets avoid meltdown.

It's also likely, though, that inflation will keep rising from 4.5pc over the coming months, above 5pc and beyond. The old retail prices index (RPI), more realistic than the CPI that replaced it, is already at 5.2pc. Such inflation numbers, amid a ghastly slowdown, make of mockery of the usual economic assumptions.

A big reason still higher UK inflation looks inevitable in the coming months is the price of energy and other commodities. Utility bills are soaring, as are UK food prices – which rose 6.2pc during the year to August. These miserable outcomes have their origins in the fact that global energy prices, to the surprise of many, have remained remarkably firm despite the latest Western slowdown. As such, another economic assumption of old has been upended.

Until recently, a slump in the "advanced countries", most of which are oil importers, was enough to generate a fall – expected, actual or both – in world oil prices, due to the impact of weaker Western energy demand. This was very useful for the developed world because the lower oil prices that resulted when our economies slowed helped to bring about our recovery. Cheaper fuel and heat would cut household and industry costs, boosting disposable incomes, profits and growth itself. Lower oil prices also helped tame inflation, giving our central banks the room to cut rates, so consolidating recovery.

Global oil markets, then, have long provided a crucial "self-correction" mechanism for the Western world. In light of the cardinal importance weaker crude prices have played in bringing about previous Western recoveries, it's worth examining their recent path.

Last month, amid fears relating to Europe's banks and Western sovereign debts, financial markets obviously took a big hit. The S&P 500 index of US stocks gave up all its 2011 gains, ending August 4pc down since the start of the year. Analysts slashed their growth forecasts for the US, the UK and mainland Europe. Yet, incredibly, the price of oil, while it has oscillated, has stayed pretty much where it was. Brent Crude remains up more than 21pc since the start of 2011, averaging no less than $112 (£71)/barrel so far this year.

Why is this happening? Typically, signs that the West is slowing, on cue, bring oil prices down too. But the markets now judge that the fundamentals suggest crude prices should stay roughly where they are, even if the West is struggling, not least because the bulk of oil demand in the world now derives from elsewhere.

The non-Western world today accounts for 55pc of global oil use. The insatiable energy appetite of China, India and the other large emerging economies – most of which are still growing by pc to 8pc – means they now set the tone on world commodity markets. The numbers are truly incredible.

The US Energy Information Agency (EIA )has just released estimates that the world will use 88.2m barrels of oil daily during 2011 – an all-time high, despite sluggish Western growth. As the emerging markets have expanded, engaging in massive infrastructure building, while their huge populations have become richer and adopted more energy-intensive lifestyles, global oil use has risen no less than 15pc over the past 10 years.

The EIA forecasts oil demand of 99m barrels daily by 2015, another 15pc rise from today, but this time in five years. Even in 2009, when the world economy contracted, world oil demand fell just 2pc, then grew 4pc the following year. So the oil market's long-held assumption of "demand destruction" when Europe or America slumps, is now being seriously tested.

The supply-side of the oil market also looks tight. The credit-crunch cut investment in exploration and well-development. The EIA sees a short-term deficit of 1.4m barrels per day in the fourth quarter of this year. Looking forward, oil traders are now showing a lot more interest in rapid depletion and falling yields at Ghawar, Cantarell and the world's other giants fields.

The politics of Opec have also recently been turned upside-down. Just a few years ago, Saudi Arabia made sure the exporters' cartel targeted $25 a barrel, so as to keep the Western world buoyant and oil demand strong. But now the Middle East can sell crude, as fast as it can pump it, to the emerging giants of the East. Meanwhile, the "Arab Spring", and resulting social expenditures to placate restive populations, mean that Saudi, and other oil exporters in the Gulf, need oil above $100 just to balance their budgets.

Like so much in economics these days, our usual assumptions about the oil market, in place for decades and reassuring for the West, are being revised before our eyes. The implications of these revisions we'll ultimately find impossible to ignore, even if so many continue to dismiss the inflationary dangers we face.

Interest In Apprenticeships Soars As Universities Say Fees Will Put Too Many Students Off

Universities joined the growing consensus against the rise in tuition fees today as figures revealed thousands are seeking alternative routes through apprenticeships.


















Falling fees: Students at some universities could see their tuition fee drop as part of a government incentive to lower the cost.

Higher education establishments across the country are vowing to drop their fees to below £7,500 after the Government announced incentives for those that charge lower amounts.

The move comes after ministers announced that English institutions who charged £7,500 or lower would be able to bid for a share in 20,000 funded places.

The decision has seen 12 universities, all of whom were planning to charge up to £9,000, express an interest in lowering their fees.

The majority considering the move are believed to be former polytechnics, including the University of Derby and University of Hertfordshire.

Despite the move, figures released yesterday suggested that the rise in fees will result in a drop of 7.5 per cent in the university enrollment rate for males and nearly 5 per cent for female students.

Ministers, who had expected just a handful of elite institutions to charge £9,000, are desperate to drive fees down to reduce the burden of the student loan on the public purse.

The move will also help reduce the mountain of crippling debt for some graduates.

However, it drew widespread criticism yesterday and accusations that the Coalition’s policy is in complete disarray.


















Attack: Liam Burns, president of the National Union of Students, said the revelation is yet another example of the Coalition's shambolic policies.

It comes just one week before the admissions process for autumn 2012 is due to start. This means thousands will be expected to choose universities without knowing the cost.

Liam Burns, president of the National Union of Students, said the revelation is yet another example of the Coalition’s shambolic policies.

‘With students preparing to submit university applications in just a matter of weeks, the shambles of the Government’s fees arrangements has left places being auctioned off to the lowest bidder and universities looking to cut corners,’ he said.

‘As a direct result of ministers’ bungled funding policies, prospective students have been left in the dark as to what universities will charge and now face an agonising wait for clarity over their future options.

‘We need urgent action from ministers to put right shambolic policies that risk doing permanent damage to students’ prospects.’

The disarray among the university fees comes as figures revealed that interest in apprenticeship vacancies has soared rapidly since the turn of the year.















On the up: Searches for 'apprentice vacancies' are up by 400%, while the term 'apprenticeship' has seen an increase of 625.















Rises: The National Apprenticeship Service website (blue) has seen a 50 per cent rise in visits year on year, while notgoingtouni.co.uk, has seen hits soar by 150 per cent.

Statistics released by internet analysts Hitwise showed that since January 2011, searches for 'apprenticeship vacancies' have soared by 425 per cent, while the term 'apprenticeship' is up 62 per cent.

And the National Apprenticeship Service website has seen a 50 per cent rise in visits year on year.

Another website, notgoingtouni.co.uk, has seen hits soar by 150 per cent since this time last year.

The figures also revealed that the most popular type of apprenticeships searched for were that of plumber, engineer or electrician.

And the most popular companies searched for included British Gas, NHS and British Telecom.

Childcare Costs Mean A Choice Of Debt Or Unemployment For Many Parents

Rather than facilitating work, the huge cost of childcare in the UK is a daunting obstacle – and government cuts worsen the bind.












David Cameron visits a nursery in London. His government's reduction of tax credits has made childcare even more costly for working parents.

I could understand why my bank manager was looking at me like that. It did sound a bit stupid. "You're about to start a job, and that means you need to extend your overdraft?" he said, dubiously. After years of scratching around as a student, I was finally about to draw a wage – but first, I needed to get myself just a bit deeper in debt.

I have two children, so before I could set foot in my office, I needed somewhere to put them, and childcare has to be paid for in advance. That's no minor outlay here in the UK, where we have the highest childcare costs relative to household income of anywhere in the world. A survey by the Daycare Trust and Save the Children explains how much of a barrier and a burden this can be, particularly to families on low incomes. Of the parents questioned, a quarter said that the cost of childcare had caused them to get into debt, but it's the poorest families (those with a household income of less than £12,000 a year) who experience the most crippling effects.

While the better off may have to compromise on swimming lessons or music tuition to cope with higher-than-inflation rises in nursery fees, the more impoverished are often forced to cut back on essentials such as food or heating to make up the difference. And sometimes, ends simply can't be met: a quarter of those in severe poverty said that they had given up work because of childcare costs. A third of them had passed on a job offer for the same reason, and a quarter reported that the expense of childcare had prevented them from taking up education or training.

Rather than facilitating work, childcare becomes a daunting obstacle, keeping parents out of the workplace – and the poorer a family is, the more likely it is to remain in poverty for the lack of money to cover nursery fees. Single-parent families without savings or access to credit are effectively shut out of work.

The government likes to talk about getting people off welfare and into the workplace. "Over the last decade, thousands of people were simply abandoned to a lifetime on benefits, and a staggering 1.84 million children are living in homes where no one works," said employment minister Chris Grayling last week. Rightwing analyses talk about the "lack of work ethic … helping to fuel levels of unemployment".

But it's practical, financial limitations more than nebulous psychological causes that are often keeping parents from becoming employees, and the government's actions so far seem likely to worsen the childcare bind. Working tax credit was sliced in this year's budget, so that it now covers only 70% rather than 80% of childcare costs – a huge difference in the finances of those who need help the most. As the cuts agenda combines with a sneering rhetoric of disdain for the unemployed, this just seems like one more way of keeping the poorest poor, from cradle to grave.

Debt Crisis: Is The Great Reckoning Upon Us?

Gordon Brown: one of the chief architects.

In response to the crisis of 2008, UK policy-makers did five key things:

1. They bailed out a number of banks that had inadequate capital.
2. They insisted that banks that were not bailed out had to raise additional capital privately.
3. They raised spending, by around £110 billion (mainly by continuing with previously-scheduled large. spending rises even though the situation had changed).
4. They enacted a temporary tax cut (around £12.5 billion).
5. They printed money (around £200 billion).

Of these policies, the first three were serious errors. The last (money-printing) was done well, and was the key reason for the growth from mid-2009 to mid-2010. The temporary tax cut was in principle a good idea, though it would have been better to have cut income tax than VAT. And if we had not done the ill-conceived spending rises, we could have made the temporary tax cut at least three times (perhaps six times) as big. Extensive academic studies have demonstrated that temporary tax cuts provide much more effective stimulus than spending rises (indeed, since spending rises may be believed to be permanent – as they often are – they can make households and businesses believe that the medium-term growth outlook is worse (as it would be if the public spending stayed up) and thus actually damage growth even in the short term.

However, although raising spending was an error, much the worst error was bailing out the banks. As of 2008, the situations in the UK, Spain and Ireland were all fairly similar: each had had a serious housing bubble; each had banking sectors of above 400 per cent of GDP; none of them had particular high government debt; all had government deficits headed towards 10 per cent of GDP. There was no intrinsic way for us to know that Ireland would be very rapidly ruined by its decision to bail out the banks, whilst in Britain it would be more drawn out, and in Spain matters would be somewhere in between. Irish nominal GDP shrank by around 20 per cent in 2008/9. (The worst recession of the past century in Britain was that of the early 1920s, when nominal GDP shrank by around 28 per cent.)

Bailing out the banks meant that the governments of Britain, Ireland, Spain and elsewhere took onto the public balance sheet the liabilities of the banking sector. (I occasionally read articles suggesting that this is true in a metaphorical sense, because of the large deficits run. No. It is true in a literal sense. According to National Statistics, the liabilities of RBS and Lloyds are UK government liabilities.) This overstretch in the government balance sheet is a key reason the government needs to cut the deficit as quickly as it does – without the commitments to the banks, we would have been able to run larger deficits for longer (especially if those deficits were the result of temporary tax cuts).

I would have opposed bailing out the banks even if I had been certain it would “work” in its own terms. It is immoral to tax poor people to keep rich people rich, despite their bad investment choices, and it destroys the functioning of capitalism. But there was always the danger that – as in Ireland – they wouldn’t work in any sense, but would simply bankrupt the governments involved. The crisis of 2008/9 was not simply a liquidity crisis. It was not the result of market irrationality. It was not even simply a matter of insolvency arising from past losses. In a number of cases the business models of financial institutions were no longer going concerns – they were value-destroying enterprises, not value-creating ones. This was not simply a matter of gambles with fancy financial derivatives. Even before the bonds market madness of 2005-7, around 30 per cent of the gross income of European retail banking came from mortgages. But mortgage volumes remain way down on their mid-2000s levels, and even when they come back the value of transactions will be much lower. The only way a number of these business could continue without significant restructuring of the sort that would occur under administration is for governments to provide an ongoing stream of subsidies.

Recent developments in financial markets suggest that we may soon face a Great Reckoning for the policy errors of 2008/9. Some bank shares are now worth less than before nationalisation; the cost of insuring the debts of some banks has recently been higher than the 2008 peaks. Governments have been arrogant in assuming themselves capable of bailing out some of these monster banks, when they had made such bad losses. They have been deluded in assuming that significant structural change was not required in the banking sector. There is now a significant risk that, around Europe in particular, many state-owned banks will go bust, despite government backing. If it happens, this is likely to bring down governments – indeed, may even lead to constitutional overthrows in two or three countries. The consequence could be another recession as bad to twice as bad as that of 2008/9.

In countries such as Britain and Ireland and Spain, that ought to have been OK. Public debt – setting aside banking sector liabilities – is not at critical levels even now. We ought to be able to cut taxes temporarily, increase deficits, and see ourselves through in the normal way. Unfortunately, because of government over-commitments in the banking sector, we will struggle to maintain solvency even by cutting spending as aggressively as is politically deliverable.

A further phase of recession (indeed, even simply tepid growth) will necessitate further spending cuts. The UK political debate is still stuck in an absurd situation in which a supposedly-serious political party, egged on by quite a section of the press, still wants to pretend that the alternative to the Coalition’s programme would be to cut spending less and cut slower. The truth is that we are likely to have to cut spending more and faster. Indeed, there is a chance that we shall yet be forced to cut spending much faster – including on sacred cows like health – because a further phase of recession could well lead financial markets to lose confidence in our government’s bonds, as they have lost confidence in the bonds of other governments.

Much of this was avoidable. We did not need to bail out the banks, bankrupting multiple governments in the process. There were alternatives, such as imposing debt-equity swaps. We did not need to whack up spending, undermining long-term growth rates. We could have kept spending under control and instead cut taxes.

Four years after the financial crisis began, in the summer of 2007, we still send tens of billions more, every few months, to bail out the banks – though these days we have rebranded our banking sector bailouts “sovereign debt bailouts”. The patience of taxpayers with such nonsense is an affront to democracy – No. More than that: democracy has failed, and in a number of European states political upheaval may (justly) be part of a Great Reckoning.

Perhaps we shall muddle through, for a little while yet, with policy errors simply leading to hidden damage and injustice – as usual. But if, despite the trillions poured into them, large government-backed banks now go bust, dragging down their states’ solvency in the process, the bailouts of 2008/9 will go down as the greatest economic folly in history. And I shall be bitter and ungracious enough to say: I told you so.

No work, No Money, No Security - What Would Life Be Like If I Lost My Job?

For Jon Robins it's a hypothetical question, but what he learns about that possible future reveals the devastating situation that an increasing number of credit crunch victims and their families are facing.









The small waiting room at Brighton and Hove Citizens Advice bureau, based in Hove town hall, is heaving. The network of bureaux is at the sharp end of the credit crunch and reports a 52 per cent rise in the number of inquiries relating to redundancy in the past six months.

Cash is here to examine the catastrophic impact that job loss can have on a family's financial wellbeing. What happens when a breadwinner suddenly loses his or her job and there are young children to clothe and feed, not to mention the mortgage and bills to pay?

'It isn't just the fact that people lose their job, but that their whole lives can unravel. Everything can fall apart - that's what is so terrible,' says Sheelagh Reid, a 61-year-old adviser who has volunteered at Brighton Citizens Advice for 15 years. The experience can be as upsetting for advisers as it is devastating for clients, she adds. 'I enjoy my work but I wouldn't want to do more than one day a week. It's draining.'

She is considering the financial fate of a fairly typical household that has been abruptly deprived of a £40,000 salary. For the purpose of this exercise, I am playing the part of a breadwinner who's been comfortable in his well-remunerated job for 14 years prior to falling victim to a tanking economy. My (fictional) family has, by today's standards, an unremarkable level of indebtedness: £80,000 to pay on the mortgage and £4,000 outstanding on the credit cards.

Even so, the prognosis is grim. A person 'like the hypothetical you', as Reid puts it, 'is unlikely to have much put by the way of savings. People just don't save any more ... so, sadly, redundancy can destroy marriages and the whole fabric of lives can fall apart.'

It is a view shared by Beccy Boden Wilks from National Debtline, who advises me over the phone before I set off. She reckons the average Briton's savings would only last 52 days if they were to lose their job. According to the Yorkshire building society, average monthly outgoings are £1,445 and the average accessible savings are £2,474. 'Losing a job leaves us incredibly exposed,' she says. 'Few of us would be immune.'

These are questions I asked Citizens Advice:
How much would my employer have to pay if he sacks me after 14 years' faithful service?

Reid wants to know if I have contractual rights exceeding the bare legal requirements. No, I don't.

People are often shocked at how little statutory redundancy pay is, she says. 'You don't get anything until you have been working there for two years and there is a maximum amount you can be paid' - one week for each year's service up to the age of 41 and then one and a half weeks per year, capped at £330 a week.

For the hypothetical me, with my 14 years' service, that adds up to £4,620. If my redundancy pay was meant to be a cushion to soften the blow, then, as Emily Ballantyne, the specialist advice unit manager at Brighton CAB, says it's rather threadbare.
How much will we have to live on?

The answer is £140.38 a week. OK, that's an estimate, but it's likely to be as little as that. According to National Debtline, we would get Jobseeker's Allowance (£94.95 for a couple), £14.08 in tax credits (because I have been working and just lost my job, they are lower than they would have been if I hadn't been working for the past two years), and £31.35 child benefit. 'From that sum you'd have to pay your mortgage, utilities, telephone, car, insurance - everything,' says Boden Wilks. 'The only thing you aren't going to pay out for is council tax' - apparently, I'm entitled to council tax benefit.
How am I going to be able to pay our mortgage?

I'm probably not. It's easy to see that without payment protection insurance (which neither I nor my fictional self have), I'm not going to be able to cover my monthly mortgage payments of £550. 'You need to contact your lender if you have no insurance. Say that you are on Jobseeker's Allowance, you can't afford your mortgage but you're looking for work and hoping to get work,' advises Boden Wilks.

From 5 January, the government will step in to help homeowners with their mortgage interest after 13 weeks of unemployment. The maximum size of mortgage qualifying for help will also rise, from £100,000 to £200,000. But although my £80,000 mortgage is the right size to qualify for help now, because the hypothetical me was made redundant before 5 January, I won't qualify for help for 39 weeks.

So what do the mortgage companies have to say? Lenders can begin court action when homeowners are two months in arrears (though the pre-Budget report wants them to wait three months at least). The sooner I contact my lender, the more options I have, Sarah Robson from the Council of Mortgage Lenders tells me. 'There's no one-size-fits-all approach. The lender will assess the individual situation the borrower is in and try to find a reasonable repayment option.'

This could mean moving on to an interest-only loan, taking a payment holiday or extending the length of the mortgage. As Ballantyne is quick to point out, an £80,000 interest-only mortgage with a 5 per cent interest rate would still cost me £333 a month. The best scenario is a payment holiday, she adds.

Unfortunately, my notional mortgage company (the Halifax) tells me that it doesn't offer them in the event of redundancy. A spokesman says they might agree 'a reduced payment or a nil payment for a period of time' (apparently not the same as a payment holiday). I have not missed a mortgage payment for 14 years; could I have a nil-payment period? That will depend on my circumstances, he tells me.
What about my £4,000 credit card bill?

Sort out your priority from your non-priority debts, advises Ballantyne - and remember that 'credit cards aren't priority debts. Most people don't understand that. Priority debts are your rent or mortgage, fuel bills and council tax. Non-priorities are unsecured loans - credit cards, store cards, and catalogues.'

Creditors with non-priority debts will scream loudest, ring you up at home and deluge you with red-letter demands, says Boden Wilks. The reason for that is that their money isn't secured against anything you own, so they're worried they won't get it back.

She recommends I start by filling out National Debtline's budget sheet which enables me to calculate my available income after we've paid mortgage, council tax, gas and electricity. If there's any money left for my creditors, we can work out what we can afford to pay and contact creditors making 'pro rata' offers.

I ring up Barclaycard: 'Will you cut me some slack on my £4,000 until I get back on my feet?' Not exactly; but, as the spokesman puts it, they can 'guarantee that we'll be sympathetic'. He goes on to explain they might use a number of options, 'such as accepting reduced repayments for a period of time or looking to agree a repayment plan'.
What about fuel bills?

Payments can be recalculated and direct debits reset on a lower tariff, says Patricia Ockenden of new watchdog Consumer Focus. 'It all depends on your level of consumption, the property and the amount of difficulty you're in. It's always possible for consumers to renegotiate their tariff and look at other ways of paying for their energy.' She warns me to stay clear of prepayment meters, which suppliers might suggest as a means of economising: 'You have to be very cautious. You could end up paying a tariff far greater than you would be if you paid by a different means and moving back to the standard meter can be costly as well.' Ballantyne agrees - she calls them 'debt recovery machines'. Consumer Focus has good advice if you are having problems paying your bills (consumerfocus.org).

I ask EDF what it can do for me. For its 'most in need' customers, it offers a long-term social tariff. This would include someone on Jobseeker's Allowance if they spend more than 10 per cent of their income on their energy bills (more than likely if I'm on benefits). 'Our customers - including those on prepayment meters - can access our social tariff,' a spokesman says. He reckons that EDF's 'Energy Assist' represents an annual saving on an average bill of up to £184.90, assuming a dual-fuel tariff.
How am I going to feed my family?

Boden Wilks says the guideline for housekeeping for two adults and two children is around £500 a month, a figure agreed between the debt advice sector and credit industry: 'You're not going to be spending that much, though,' she warns. 'Your monthly income on Jobseeker's is only £608.31. You're going to shop as cheaply as possible.'
What you need to know

Is the rule 'last in, first out' still used?
Some businesses may still operate on this basis, but they have to be careful. If all the people made redundant are young, the employees could claim against their employer on the grounds of age discrimination.

How quickly can I sign on?
It depends on your particular circumstances and how your final payoff is regarded by your Jobcentre Plus. The best thing is to ring up (0800 0556688) and provide your details immediately. You will then be given an appointment to see an adviser who can determine when, and if, you qualify.

How much money will I get?
The standard Jobseeker's Allowance (JSA) is £47.95 a week for people under the age of 25, and £60.50 a week for over-25s, and lone parents aged 18 or more. You may also qualify for other benefits, so check, either with your local Jobcentre Plus or Citizens Advice. If you are unable to work, you may be able to claim Income Support (the same amount of money) instead. You can claim by calling 0800 0556688 or online at www.jobcentreplus.gov.uk. In Northern Ireland, you claim JSA at a Jobs and Benefits Office or Social Security Office.

Will the money be cut off if I refuse to take a job?
It could be. To claim JSA you must be capable of working, below state pension age, available for work and actively seeking it. If you fail to take up a job offer, or follow up chances of work, you may be penalised. Your JSA could be reduced or stopped for between one and 26 weeks. You can also be penalised because of the circumstances in which you left your last job, for example, if you left voluntarily or were dismissed because of misconduct.

Will I get help with my mortgage?
If you are eligible for JSA or income support, you can claim help with the monthly interest, but not repayment of the loan itself.

When you get help depends on its size (help is only extended to loans up to £100,000) and when you took out your mortgage: if it was before 2 October 1995, you will get nothing for eight weeks, then 50 per cent for the next 18, and the full amount after 26; if you took out your loan on or after that date, you will have to wait for 39 weeks. From 5 January, the waiting period will be reduced to 13 weeks, and the maximum limit raised to £200,000.

Should I use my redundancy payment to reduce or pay off my mortgage?
It depends how much money you get. If you receive a huge amount, then why not pay off at least part of your mortgage? But if you get tens of thousands of pounds or less, you should probably hold onto a large part of the cash to meet bills and in case of an emergency.

I can't afford to pay all my bills - which ones should I concentrate on?
Mortgage or rent, council tax and utilities, and anything affected by a judgement order or bailiff action. If you fail to pay these, you could end up homeless.

I can't manage my debts now I've lost my salary - should I take out one of those plans advertised on TV?
Definitely not. Although they purport to cut your debts, they will charge a large amount to set up the plan. Instead, seek free advice from one of the debt-counselling charities, such as Citizens Advice (www.citizensadvice.org.uk), National Debtline (0808 808 4000), Capitalise (in London - 020 7392 2953) or Consumer Credit Counselling Service (0800 138 1111).