Thursday, December 29, 2011

Economic intelligence

Some pieces of intresting economic news or comment over the Christmas period.

Bank ratios
Under the headline ‘Why banks must think carefully before they shrink their assets’ Robert Jenkins (an external member of the interim Financial Policy Cttee of the Bank of England) provided (Times, 14 December) an admirably clear explanation of the potential dangers & difficulties posed by the new regulatory requirement that banks should increase their ‘capital ratios’. As he points out, a ratio involves both a numerator & a denominator; a ratio can therefore be increased by either shrinking the denominator or by making the numerator bigger (or by some combination of the two), with very different knock-on effects for the future health of the financial system.

And an apt quote: The technical phrase is ‘adverse feedback loop’. The less technical phrase is ‘shooting yourself in the foot’.

No link to online version available because of paywall

National wealth
On 20 December the Office for National Statistics published the latest report on the Wealth of Great Britain. Further investigation showed that this was solely about the real & physical property of private households only – the value of which has fallen because of the drop in house prices. The graph of House prices since 1953 on page 19 shows how much of an illusion the so-called increase in value must have been.

Does this include non-household wealth? - No

Or any details of financial holdings – including those of households? - No

Is there any indication of how much is owned by non-British nationals or non-residents? - No

We really do need GDW & GNW equivalents to the GDP/GNP in the national current accounts.

National debt
At the very end of an interview with Eddie Mair on the Christmas Day News Review of the Year on Radio 4, Robert Peston said that there is one thing at least for which we should all be very grateful to Gordon Brown, namely his decision to set up an independent debt management agency.

When considering questions of national solvency it is not enough just to look at the ratio of debt to GDP (or government revenues & expenditure); the repayment schedules matter a lot, & ours are a lot less onerous or immediately pressing than are those, for example, of Italy, thanks to the expertise of these agents. So perhaps that is one area where independence, even of democracy, is to be welcomed.

The magic of pricing
There are independent consultancies which specialise in advising companies on pricing strategy. One such is Simon-Kucher.

Sainsbury’s till receipts now carry the footnote: Based on price perception data, you can live well for less than you thought at Sainsbury’s. Those sound like good weasel words to me.

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