IMF Forecasts UK GDP Growth of 2.9% in 2014 to Lead the World

In December 2013, I set a target of 3% for 2014 and 4% for 2015 if we're going to balance the books by 31/03/2016. This will enable us to reduce the National Debt to around 60% of GDP by 31/03/2019. In the March 2014 budget, the Chancellor told us the bad news - the government will balance the budget by 2018 and start to reduce the National Debt from then. In the same budget, he gave us some good news: he upgraded growth forecast for 2014 to be 2.7% up from 2.4%; and he will double the amount spent on exports to £3bn which will help the declining export industry.

Recently, the IMF said that the UK will lead the world in 2014 with growth of 2.9% - just short of the WPM's 3%; but will fall back to the trend growth of 2.5% in 2015. This is supported by other economists who claim that growth in 2013 and 2014 is due to the Help to Buy scheme. Although it's due to end in March 2016, any spare cash people have will peter out by the end of 2014. This means that, according to these economic forecasters, the WPM's target of 4% growth in 2015 is next to impossible as the current expansion is spending-led.

Growth of 4% is still possible if wage rises of 2% or more are awarded in 2014 or at least in 2015. This is necessary for the Economic Fractionating Column to work. This is where industry will generate enough wealth to pay it's employees so that they can pay their way and pay down their household debts; plus enough wealth to pay their way and pay down their own commercial debts; plus enough wealth so that they and their employees pay enough tax so that the Government can pay their way and pay down the National Debt.

Now that the Chancellor has missed his target of balancing the budget by 2015 and delayed it till 2018, growth of 4% in 2015 is purely academic. I'm hoping that, in the March 2015 budget, the chancellor will tell us that we'll now balance the budget by March 2017 and in the Autumn statement, he'll update us with the fact that we'll balance the budget by March 2016. The Chancellor will give us a clue in the Autumn Statement of 2014. This is the stuff that dreams are made of.

I'm in the process of setting up a company called FullEmploy whose aim is to reduce unemployment and the skills shortage and maintain them at low levels. FullEmploy will build relationships with 5 types of people: 1. the Unemployed; 2. the Employers; 3. the Training Providers; 4. the Skills Funding Agency; and 5. the Politicians.

I gave each of those types of people likely objectives but the most interesting set was that of the politicians. One of the objectives I set for them was for the UK to be a world leader. This has now been echoed by the IMF within 12 months of my setting it. Now there's progress. I'm still waiting for the Rating agencies to comment on reinstating the triple-A rating for the UK. All they could say is that if Scotland votes for independence, this will delay the reinstatement of the UK's triple-A rating.

By the Autumn statement, we'll know Scotland's situation and what ramifications this has for the possibly dis-united kingdom.

2013 GDP Growth Revised Down to 1.7%

You may remember me saying that official estimates for 2013 GDP growth were 1.4% which was corroborated by the IMF and the chancellor published it in Dec 2013. By that time, economists have seen strong growth and were predicting growth of 1.6% which I accepted; but others were even predicting growth of 1.9%.

Because I was setting a target of 3% for 2014, I was attracted to the 1.9% forecast. Late January 2014, the preliminary GDP growth for 2013 was published at 1.9% the high end of expectations. After celebrations, I forecasted that it may be reduced to 1.8%. The February report reduced it to 1.8% and I said even if it goes down to 1.7% in March, we'll still be on target for 3% in 2014. Well, here we are in march and it has been reduced to 1.7%; but it's still ahead of the consensus 1.6%.

Political shenanigans seem to be derailing this target vis-a-vis the Crimean situation. It looks like old world politics are still with us. Are we going to let this dampen our spirits? Heck no. The Chancellor had revised 2014 GDP growth from 2.4% to 2.7%; just as well in the current circumstances.

GDP growth does depend on international trade and business profitability. Political activities, such as the situation in Crimea, do limit that profitability as international trade is reduced. Whether we overcome it will depend on how long it lasts. The Crimea situation may not be the only thing that's hampering growth. Besides, we can't predict what shocks to the system we'll encounter during 2014.

The WPM does not change its targets no matter what happens. They just admit they were wrong and use the lessons to inform future targets. The WPM tries to solve the causes that make them miss their targets.

France surprises with return to expansion

"The preliminary estimate of Markit's composite Purchasing Managers' Index (PMI) for France was 51.6 in March, up from February's 47.9 reading and above the 50 level that indicates expansion."

Economists expected France to go through another month of contraction but it turned its economy around that surprised most people. This is a step in the right direction. Overall GDP growth for the Eurozone was 0.3% at the end of 2013, the first step in the right direction. Now that France has joined in, Eurozone growth is gaining traction.

This came after Francois Hollande was criticised for running down the French economy. Either he paid attention to the criticism or he's ignoring his monetary advisors. I believe that all countries should ignore their monetary advisors unless they regard money as a medium of exchange and nothing else. Money does not make money! People do.

It's possible for a number of people to make products or provide services without money and still make a profit. OK they'd need money for living expenses but it's not millions. I'm not talking about getting the means of production on traditional credit terms; I'm talking about getting into agreement with suppliers and distributors that they'll be paid after the products/services have been sold and the money received. This is a sort of partnership where all the players share the profits and the risks.

There seems to be that a paradigm shift is happening away from monetary policies - after all, it was monetary system that caused this financial crisis. This is closer to the WPM's dream of reforming the monetary system and getting rid of derivatives trading once and for all. We'll still use money as a medium of exchange but the focus will be on value production which is done by "we the people". Already some organisations are treating their employees as assets despite the fact that their accounts are putting the salaries in the liabilities column.

I read an article about Hyman Minsky who explained that the cause of instability is stability itself. Although this has its merits, I believe that the problem was caused by the use of mathematical models to determine the monetary make up of the financial system. Most managers and politicians didn't know how these complex instruments worked and enabled those that do to rig the system in their favour.

This is another reason to dismantle this system and a return to a value-based system without the rocket science that bamboozles everyone.

Update on 2013 Repossessions

Sorry about the delay - I didn't realise the figures were published on 14th Feb.

Anyway, it was widely predicted that the repossession figures for 2013 would be <30,000. I wanted to set targets for the next 5 years so I assumed a figure of 29K. Take that away from 2009's 46K and you get 17K in 4 years. Take that away from the assumed figure of 29K and you get 12K in 4 years. All we then need is to reduce it by a further 3K to achieve a target of 9K.

Well on the 14th of February the preliminary report showed that the actual repossessions in 2013 were 28,900. Hence our forecast stands. 2012 figures were 33,900 that's a reduction of 5K. We would've wanted more because it gets progressively harder to reduce the repossession rate as the numbers get smaller.

Besides, we were only able to make these reductions because of the forbearance of the lenders but that can only last so long so we have to replace it with sustained growth. The strong growth of 2013 is the start of better times to come. The focus now is on repaying or rather reducing the debts mentioned in the structural imbalance report: household debt, commercial debt, national debt, and balance of payments deficits.

In order to do this, industry has to create enough wealth for the people concerned to pay down their debts as explained in my article about the Economic Fractionating Column.

For this to happen, we need to have growth of 3% in 2014 and an average of 3.5% for the following 4 years. This is in keeping with the WPM's original target of reducing national debt to 45% of GDP by 2018. European Governments are saying that 60% of GDP would be sustainable. This implies that 45% cannot be met by 2018.

Since it's the people who create the wealth, if they're given the opportunity, anything can be achieved including 45% by 2018 providing there's sufficient demand within Europe and overseas. The keyword here is sustainable development - we can achieve any target but can we sustain it? and at what cost? The WPM is prepared to change the time goalpost say till 2020. We can review this closer to the time. The problem with changing goalposts is that it introduces complacency and this cannot be tolerated.

Even Greece is showing the way with its current account surplus

I learnt earlier this week that Greece turned a current account surplus in 2013; the first time this happened since records began in 1948. If heavily indebted Greece can have a surplus, why can't the UK?

I'm pleased for Greece because they've shown the world community that they can repay their debts at some time in the future. They didn't know which area of the economy would give them an advantage. They do now - its the tourism industry. Obviously, Greece needs a broader contribution i.e. across all sectors of the economy. But they can build on this one.

Back home (UK), the Treasury has identified the 4 horsemen of the apocalypse:

1. Household debt
2. Commercial debt
3. National debt
4. Balance of Payments deficit

I've already given a possible solution to the above. The 4th item was caused by lower productivity which led to poorer exports which led the UK losing market share of the global economy and was made worse by increasing imports. The solution to the 4th item is obvious - take a leaf from Greece's book. Not that British tourism is going to ignite the economy; it's the fact that turning a current account surplus is possible no matter how indebted you are.

As for the other 3, they can only be alleviated by sustained strong economic growth and the proceeds of this growth need to be evenly distributed. Already some members of the press are saying that wage rises will grow faster than inflation. I should think so if industry and the people are going to pay down their debts. Wages have been declining in real terms for around 5 years; they need to grow above inflation for the next 5 years. However, we're talking about sustained growth; we can't afford to fuel another bubble i.e. industry and the people must pay down a substantial amount of their debts to manageable levels. The paying down of debts, including the National Debt, will take the heat off the economy so there will be little cause for concern over inflation - except maybe for external factors.

Next month is budget month. Until then...

The BoE agrees with my 3% target for 2014

Today I read The Times and I came across an article about the Bank of England (BoE) predicting 2014 growth of 3.4%. So what's all the fuss about a target of 3%? Industry experts say it's wildly optimistic and unrealistic. Typical of the British to think like that, it's no wonder their estimates are always wrong. Not only that, but when they're estimating calamities, they go over the top; and when they estimate good news, they underestimate. I suppose they're erring on the side of caution.

When you exaggerate a negative indicator, you lower people's expectations or even worry them unnecessarily thus achieving the negative scenario. Similarly, when you understate a positive indicator, you also lower people's expectations and achieve mediocre results.

What Britain needs is a strong leader with positive aims and aspirations for the British people. Someone who can not only inspire the people but fire them up to achieve greater goals. Being a visionary is one thing; telling the people how to achieve the vision is another. At least give the people an outline and fill it in as time goes by. The methodical way it's done should identify you as a visionary but getting it right or at least approximately right will identify you as a leader.

So is Mark Carney, BoE Governor, a leader for the British people? Well he's a visionary for the time being. But by this time next year, we'll know if he has leadership qualities. People may forget about his replacing the forward guidance by a more comprehensive one. He published it in August 2013 after the very strong Q2 GDP figures and strong July employment figures. I bet he's still finding his feet as he's still new to the job.

It's nice to have supporters of this calibre. I only need members of the Government or its agencies to corroborate this optimistic view. In recent years the IMF and the OECD were pleased with our work which seems to be getting better. Will they wade in with optimistic figures? We need all the help we can get but not to lull ourselves into a false sense of security.

I don't mind calling myself a leader because I've got an illustrious track record to back me up - I've been keeping my head when everyone else were losing theirs. And my success goes a long way back. The one that I can remember clearly is steering the British Economy through a supposed recession in 1999/2000. But I couldn't have done it without the cooperation of the Government and Industry.

Till next time, stay optimistic.

Invoice Clearing House (ICH)

In December 2013, I came across an article telling us about the 100th Anniversary of the Federal Reserve of America. The point about it that interested me was that it started as a simple "Clearing House" for banks and increased in importance and functionality until it became the most powerful organisation in the world.

This gave me an idea how to help cash-strapped businesses particularly small and medium-sized Enterprises (SMEs). The idea was to set up a government sponsored "Invoice Clearing House" where SMEs can sell their invoices to the clearing house for a fee and get 90% of the total amount of their invoices and get the rest minus the fee later when the invoices are finally paid.

For Example, suppose we have 4 companies:

1. company A is the raw material supplier whose costs are £1000 and profit is £1000. He sells them to B for £2000.
2. company B is the manufacturer who spends £1000 shaping the raw materials into the finished product and wants £1000 profit. He sells them to C for £4000.
3. company C is the Distributor who simply distributes them to D for £1000 profit i.e. he sells them for £5000.
4. company D is the retailer who sells them to the consumer for £6000 i.e. £1000 profit.

Now company A can get £1800 straight away from the ICH using a service similar to factoring or invoice discounting without the complexities or stringent rules that exclude too many SMEs. Because the ICH has already paid £1800 to A, they only pay B £1800 i.e. 90% of the £1000 cost and £1000 profit. C only gets £900 i.e. 90% of the £1000 profit. This means that the ICH would've paid the companies £4500 in advance and owes them £500 minus fees.

When the retailer D sells the final product to the consumer for £6000, he retains his profit of £1000 and pays the ICH the remaining £5000. The ICH then keeps the £4500 and redistributes the £500 less the fees. Suppose the fees were 3% of £4500 = £135 leaving £365 to be redistributed on a pro-rata basis i.e. £146 + £146 + £73.

With the Invoice Clearing House being in Government hands, they'll keep an eye on what's going on in industry who have been trusted for too long and who didn't return that trust. But the important thing about this is that it keeps the money running smoothly in the economy i.e. it increases liquidity where it matters most unlike Quantitative Easing which provides liquidity to pay for the gambling debts of the people who caused the problem in the first place.

Today, 12/02/14, I read a blog in the smallbusiness.co.uk website which was published 3 weeks ago on 22/01/14:

"The government is, perhaps, best placed to dramatically alter the landscape and help change this mindset. By establishing a funding ‘clearing house’, possibly using the interface of the much-promoted and soon-to-be-launched business bank, the government can signpost suitable alternative lenders which, in turn would generate positive pressure on the main banks to help find funding alternatives for businesses."

My only regret is that I didn't publish my idea before this blog appeared but I do have it handwritten before Christmas but it wasn't dated. At least I'm confident that the powers that be are taking my advice. I mean:

1.  I recall in 2009 advising the then Government to mount a mortgage rescue scheme. Then a couple of weeks later, I read an article where the Nationwide was rescuing its mortgagees using such a scheme. I remember thinking that it's being done anyway. I didn't stop to think that they may have been following my idea.
2. In 2009 I forecasted that the repossession rate would be 50K and set about achieving it - using the mortgage rescue schemes; advising County Court Judges not to entertain repossession petitions until such measures have been taken; and advising Employers that your employees are your best assets, don't lay them off willy nilly. These measures helped us achieve such a difficult target
3. This was repeated in 2010 where we reduced the already low number of repossessions even further to 36.4K
4. We failed to repeat this in 2011 because of the Austerity Measures and I had to concentrate on stabilising the economy. I advised the Chancellor to bring forward the 1% corporation tax cut from 2014 to 2011 because 2011 will bear the brunt of the Austerity Measures and by 2014 the economy will be on a firmer footing that it won't need one. Look at what's happening now in 2014. In the end, there were exactly 36K repossessions in 2011.
5. And now, the "Clearing House" idea. In fact I've alluded to this in 2010. You only need to read my past blogs to find a similar idea in all but name.
6. Incidentally, now that the reduction of repossessions has continued - it's forecast to fall below 30K in 2013 - the next target is 9K in 5 years and less than 1000 after that. Impossible? It will be if you keep thinking like that.

Today (12/02/14) I had two shocks: the fact that the Chancellor actually followed my advice i.e. he did reduce corporation tax by 2% in the March 2011 budget. And the Clearing House idea which I penned out only in December 2013.

These give me the impression that I'm in a position to influence the movers and shakers.

The question is, will we achieve a GDP target of 3% in 2014?