Dim-Witted Logic

by Larry Levin

As you all know there is a recession in the US and most of the rest of the world. Of all the countries in Europe, the UK is being hit particularly hard. The British Chamber of Commerce says they are suffering a worse recession than that of the 1990’s.

“It is clear that the UK economy is facing a very serious recession, and the downturn is deepening at an alarming pace,” said the BCC report based on a survey of almost 6,000 firms which employ 680,000 people. “The results highlight a frightening deterioration in the UK economic situation.”

For many years the lads in England, London particularly, did their best to imitate Wall Street. Recently it was said that London had surpassed New York as the business center of world. Now of course, that crown is being worn by Washington DC, but I digress. From what I have read, the UK also imitated the US housing bubble, pin prick and all. Now, however, the British economy has slumped the most in at least two decades during the fourth quarter and home sales dropped to the lowest since the measure began in 1978

Not to be out done by Helicopter-Ben of the US Federal Reserve, the Bank of England brought out its hatchet to interest rates, doing its best impersonation of Jason Voorhees at Camp Crystal Lake. It recently slashed its benchmark interest rate to 1.5%, the lowest in the bank’s history, which dates back to the 16th Century.

Although it has failed everywhere it has been tried, our friends across the pond are embracing the big government spending claptrap of John Maynard Keynes. In fact, Britain nationalized a mortgage lender named Northern Rock long before the US Fed began it here.

Will other ideas of how the “fix the problem” be coming our way from England? If it’s the following, I sure hope not!

In the TimesOnline UK, Anatole Kaletsky writes the following: (partially reprinted)

“It may seem parochial to combine the US and Britain, but there are several reasons to believe that events in the two economies will be closely linked. First, both countries face similar problems of collapsing housing markets, overdeveloped financial sectors and higher than average mortgage debt.

Meanwhile, the central banks in both countries are trying as hard as they can to make people save less. In the US, interest rates on bank deposits have been cut to zero and the Fed has just announced that it may buy long-term government bonds to squeeze five-year and ten-year rates as close as possible to zero. The result is that US mortgage rates are falling to the lowest level on record and banks, which can no longer earn risk-free returns by placing money with the Government, have no alternative but to lend to businesses and consumers. Britain is pursuing the same monetary logic, if a few months late.

The next logical step…Instead of reducing taxes on interest payments, the Government could tax all bank deposits and other risk-free savings. This would create a negative risk-free interest rate, encouraging savers either to invest in property, shares and other productive assets - or simply to save less and consume more. In either case, the result would be more consumption and physical investment, less unemployment and faster recovery from the slump.”

Taxing all bank deposits and other risk-free savings in order to force us to spend money on things we don’t want? How STUPID an idea is this? What a marvelous way to push granny into abject poverty once her savings have been forcibly spent.

What if one simply refused to spend their savings? I would imagine they would keep all of their extra income (savings) at home where it cannot be taxed, thereby reducing bank deposits. In turn, this would lead to ever increasing bank bailouts because they would have no capital left to offset their risky loan portfolios.

My God, it’s such an absurd scheme I can envision Congress espousing its silly virtues now.

The website says the following about the author of this ridiculous notion: Anatole Kaletsky writes for The Times Comment pages on Thursdays. One of the country’s leading commentators on economics, he was formerly Economics Editor and is now an Associate Editor of The Times. He has won many awards for his financial and political journalism. Before joining The Times, he worked for 12 years on the Financial Times.

Why do so many people cling to the notion that more frivolous spending, even though frivolous spending caused this recession, will somehow fix the economy. It is so dim-witted it defies all logic.

Previous Day's Trading Room Results:

Trade Date: 1/13/09

E-Mini S&P Trades*
(before fees and commissions):

1) VA sell @ 8:40am at 865.25 = -2.00 (1 lot)

2) PP sell @ 8:55am at 871.75 = +2.25 (1 lot)

3) VA buy @ 9:35am at 864.75 = +2.25 (1 lot)

4) OTF sell @ 10:30am at 871.75 = b/e (1 lot)

5) VA sell @ 1:30pm at 865.00 = b/e (1 lot)

6) Algorithm positions (5)…combined SofT and Algo total…+4.25

ZB (30 Year Bond) Trades*
(before fees and commissions):


1) No trades today.



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