UKIP needs to get its act together

I've just finished listening to this week's edition of Radio 4's current affairs panel discussion programme "Any Questions?"

As ever with these things, there's much more heat than light, especially when the more politically skillful members of the panel jerk the audience's chain, as Yasmin Alibhai-Brown (on migration) knows how. This bout was recorded at Keele University and students are more likely to applaud generous impulses, since they are not yet faced with the practicalities of paying for them as well as supporting themselves and their families. Which is why Harold Wilson reduced the voting age to 18.

It seems to me that UKIP, here represented unofficially by Christine Hamilton, who did her best but is perhaps too straightforward to wrestle with weasels, still has something to learn in how to present its policies.

1. A referendum on Europe: it's a democracy issue.

Debate on this is usually misdirected into claims about the supposed danger to British jobs etc if we left the EU. Every point made against withdrawal should be turned back with the comment:

"What you are saying should be part of the debate the country should have in a referendum campaign. Let the people decide. It's all very well for us to rush into the Middle East and destabilise their regimes in the name of democracy, yet when it comes to our own country, suddenly you think the people should have no say at all in who ultimately governs them. If you're right, then the people will vote your way. Do you really believe in democracy, or are you afraid of it?"

2. Immigration: the need to distinguish between asylum and economic immigration.

This debate is swiftly twisted into accusations of insularity and racism. Seal off that tactic fast by saying that in genuine asylum cases, there's no objection. Then the word "economic" needs to be introduced, early and repeatedly. Economic immigration is subject to economic arguments.

If low-paid labourers are brought into this country, then it is unlikely that the taxes they pay will be enough to fund the social benefits (education, health etc) to which they and their families will rightly be entitled (it's a disgrace to suggest that we should deny them such benefits, as the Tories have proposed).

And then there are the other people who stay unemployed, underemployed or underpaid because of economic immigration. The more of them there are, the more it's going to cost us. The net effect is a permanent imbalance in government finances and the country is going to get deeper in debt. It's an economic issue.

If we want to spend money on the low-paid, we'd do better to spend it on training and rehabilitating the people here who should be in full-time, reasonably-paid work.

And we need businesses that will employ them. Where are the politicians who should have defended our economically vital enterprises? Here in Birmingham, we've lost HP Sauce to the Dutch, Cadbury's chocolate to the Americans and less said about what happened to our car plant the better.

Too many professional politicians don't have a clue about economics. The banks turned on the taps, and instead of investing directly into British businesses, we poured billions of private money into raising prices in the housing market and speculating on share prices. The people who work for banks made out like bandits. Then the system crashed and now we're pouring billions of public money into the banks, and many of the bandits are still there.

Maybe some think that the battle is lost already and we're busted. But if they think it's inevitable that the country's going to get poorer, why bring in even more poor people?

This is happening at a time when there is increasing economic inequality in this country, and that's partly because of wages being held down by making workers compete desperately with each other, both here and with their counterparts in other countries that don't have to pay our welfare costs.

We're not getting this point across in political circles, because the Left sees the poor as their natural voters and the Right is happy to depress wages to maintain corporate profits and executive bonuses. We're not "all in it together"; but they are.

But it's going to unravel, anyway. As a portion of the population draws away from the rest in wealth and income, they will be less and less inclined to pay for everyone else. At one level, there will be the tax avoiders - look how broadcasting and football stars organize their finances to pay as little tax as possible - and at a higher level there will be the tax refugees: Monaco has become a Tower Hamlets for billionaires. The Tax Justice Network may find the trillions in cash that has fled offshore, but good luck with calling it back.

So the people who will pay will be the people who don't earn enough to pay for clever schemes to avoid the taxman, and aren't rich enough to leave the country. The income of the middle class will be sweated, and by printing money to cover its own debt the government will steal the spending value of middle class savings.

And the poor will be ground down further as the money dries up. Already they're having their benefit cut if there's a spare bedroom in the house, and children with learning disabilities are finding it more difficult to get funding for transport to take them to school. It's hard at the bottom end, and getting harder.

Economic immigration is an economic issue. Let those who are for it explain how it will benefit the country as a whole, not just some business owners and some calculating politicians.

All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy.

CO2, water vapour, sunlight, climate change, global warming

My brother has kindly forwarded the following video by an Australia-based British scientist whose former field was geology. It shows that when you combine atmospheric CO2 levels with the variable luminosity of the sun, you do indeed get a good fit with the graph of the Earth's temperature over the last 500 million years.

Though water vapour can also contribute to the greenhouse effect, its role is limited because beyond a certain limit, the excess falls to earth as precipitation. However, a warmer atmosphere can hold more vapour.

It seems that we are in a "fool's paradise" period (my label) because although atmospheric CO2 has risen significantly, much of the additional heat stored in the system has been absorbed by the oceans, and at the same time there has been a temporary weakening of the sun's radiation. When the sun's energy emission resumes its long-term upward trend, and if the ocean warming crosses some point where new things happen (e.g. the release of deep-sea dissolved methane?) we may get climate change with a vengeance.

Yes, the Earth has been much warmer in the distant past - when humans did not exist. Life will probably continue, but maybe not on terms that favour our species and civilisations.



All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Utilities, Energy and the New Dirigisme

Once upon a time, oil was the only energy-source that enjoyed anything approximating a free market.  Gas and electricity meant monopolies or, if investor-owned, a regulated rate of return, steady but low.

Then came liberalisation, and gas and power took off as traded commodities in competitive market structures.  The sector divided into merchant (unregulated) activities and 'true utility' (wires and pipes, where so-called natural monopolies prevailed).  The trade-off for residual monopoly remained a more-or-less regulated, low-ish rate of return.  Some companies had characteristics of both merchant and utility in their portfolio; others had cleaner business models and were one or the other, with the utilities being conventionally viewed as annuity streams or 'defensive' stocks.

Endless debate ensues as to whether this can all work out as well as the open-market theorists claim: FWIIW, I am squarely in that camp, and the development of a global gas industry is its best evidence.  However, just as things were working out nicely in electricity too, along came the baleful decarbonisation agenda, and with it an avalanche of regulatory meddling.  The EU's Emissions Trading Scheme was an attempt to execute some of the new policy goals via market mechanisms, but as a result of various entirely avoidable errors it hasn't really worked.  So meddling it is.

There is a school of thought that goes: bring back the CEGB ! Advocates of this include those with no memory, who have forgotten just how bloated and wasteful it was; and also those with long and fond memories, who recall exactly how bloated and wasteful it was, and they loved every minute of it.

However, governments no longer have the money for this malarkey and anyway, outright renationalisation is (currently) not allowed in the EU.  So we get dirigisme on an ever more detailed basis, as governments seek to determine exactly what new power plants (and other infrastructure) get built, and where, and by whom.

Which finally brings us round to the challenges for the likely builders of said new kit, and for those who might be considering investing in them.

The energy companies have, over a relatively few years, learned to play the game quite differently to the way they conducted themselves from the 1990s onwards.  Instead of taking a professional view on, for example, forward energy prices and spreads, and making their investment decisions accordingly, they have decided it's easier to demand subsidies, 'capacity payments' and various other featherbedding guarantees before they will invest in, well, pretty much anything these days.

Like governments, many of these companies are short of dosh, and so they demand high rates of guaranteed return.  Like monopolies, governments know exactly who is going to pay for all this in the end: it's us electricity-junkies that have nowhere else to go (until we surrender to death by hypothermia).  So they make the necessary arrangements, via a plethora of subsidies and schemes, for guaranteed high rates of return.

Guaranteed high rates of return - what's not to like ?  Shouldn't investors be flocking to join the game ?  There are several schools of thought, all wrestling with the following polar considerations:

• People will always need electricity, the energy companies have governments over a barrel, and this isn't going to change any time soon; so back up the truck and enjoy it
• This new 'system' is clearly dysfunctional, with regulatory risk abounding, not least because government is taking powers to make the 'utilities' their agents, not only of investment but also every facet of social policy which has an energy angle

It's even possible to synthesize these points and argue, (as does Liberum Capital) that in the medium term these guaranteed returns look so good for the energy companies ("at a perfectly feasible power price, SSE would be seeing 33% annual increases in EPS towards the end of this decade"), they are bound to get slammed mercilessly when the whole game comes unstuck.

I always reckon that those who live by the subsidy, die by the subsidy.  But maybe there is good money to be made in the meantime ... what do we all think ?


This post first appeared on the Capitalists@Work blog


All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Fighting the Government for savers and against inflation (3)

The struggle continues...

No reply to my email of 21 April (see Part 2 of this series) before I sent the following:

Me to MP's researcher, April 27, 2013:

Further to my last email of 6 days ago, perhaps you could spare the time to look at the latest article by Matt Taibbi in Rolling Stone. It may give you some idea of why I now (as a former IFA of 23 years' experience in the financial industry) regard the whole bank and trading shebang as irredeemably systemically corrupt. Any government that wishes to retain its claim to authority needs to protect the life savings of the little people.

http://www.rollingstone.com/politics/news/everything-is-rigged-the-biggest-financial-scandal-yet-20130425

Do please let me know how you are getting on with framing appropriate questions as previously discussed.

Best wishes

 

No reply before the following:

 

Me to MP and his researcher, May 08, 2013:

 

Perhaps the following may show why asking about NS&I Index-Linked Savings is important and topical - and getting some mainstream interest and airing. Is there any reason to delay the debate much further?

http://hitchensblog.mailonsunday.co.uk/2013/05/when-money-dies-the-horrors-of-inflation.html

(I read the book myself some time ago.) As Hitchens says, the 1923 Weimar inflation (which my mother's family lived through) is unlikely to be repeated here - but the damage is great even if it happens a little more slowly. 10% inflation for 7 years will halve the value of money.

Should we really leave Parliamentary comment on inflation to Ed Miliband, thus suggesting by implication that the Coalition is unconcerned?

Best wishes

 

Reply from researcher, with copy to MP, May 08, 2013:

 

Apologies for not processing this in the last two weeks – all questions fell at prorogation in April and after I last emailed you it is not likely we would have had a response in time. We have been in recess for the last week in any event where Questions could not be tabled.

We are now able to table a question with the new session opening today – Last time I looked at this I was wondering if you had a more specific question in mind than the general one I gave you on the 12^th March (Below) Which you responded to on the 21^st April after I emailed you again on the 18^th April.

‘To ask the Chancellor of the exchequer what steps he has taken or plans to undertake to maintain the value of savings against increased inflation and devaluations of the pound’

You’ve sent me the below on May 3^rd, it would be helpful if you could clarify if you are worried about individual or also state ‘savings’ – on the second the financial Savings Guarantee Scheme at present does guarantee savings under £85,000 in the event of systemic banking collapse or other smaller bank failure without penalty to the individual or value of the saved amount but the government will only be able to clarify that it has no intention to bring in a new bank bailout ‘tax’ of any kind for sums under that amount and no future government action is bound by a previous one – the government does not take the view, at present at least, that the Proposed (and rejected) tax on savings under or over a protected amount should be taxed in any way, (although it would consider funds over that sum forfeit in the case of bankruptcy, for example) to the best of my knowledge.

1. How to set aside money and preserve its spending value, without being eroded by inflation and taxes and without being forced to accept any kind of investment risk;

2. How to be sure that no portion of savings below the deposit insurance ceiling will not be seized in some form of bank bail-in or pseudo-tax, but be payable in the form and to the schedule expected by the saver.

As such I might suggest this amended question as a draft off the top of my head and would welcome any comments or amendments you want to make.

‘To ask the Chancellor of the Exchequer what steps he has taken or plans to undertake to maintain the value of savings against increased inflation or devaluations of the pound, if he has given thought to the taxation of savings by the Exchequer in various forms putting off individuals from saving some of their earned income by eroding the investments value, if he shares a concern that efforts to tax the small scale saved income of individuals to rescue financial institutions, such as measures debated by the Cypriot Parliament recently as part of the European Union’s and International Monetary Funds’ bailout terms undermine general confidence and what measures he can or will take to reassure individual savers that their investment will not be used to rescue institutions which have grossly mismanaged their affairs and thus be penalised, via the reduction of the value of their savings, for the mistakes of risk takers on a systemic financial level.’

If we can agree a draft I can get it to the table office as a written question as soon as you are happy and John is comfortable tabling it.

Yours

Me to researcher (copy to MP), May 09, 2013:

Thank you for your response. Again I must say that the issues are sufficiently important to ask orally on the floor of the House, rather than be buried in writing. I have already seen what a written answer from the Treasury is like. Am I mistaken in thinking that oral PMQs and questions to Ministers raise matters in the way that is most likely to result in prompt and effective action?

There are two separate issues and I'd suggest that they be pursued separately. One is inflation, the other is expropriation. The questions need to be pin-sharp specific to prevent wriggle, deflection, partial answers and waffle.

On the first, I think the question should focus on the need to restore NS&I Index-Linked Savings Certificates. Hansard links I gave you earlier showed that protecting the small saver was recognised as a "social obligation" - by both sides of the House - when they were first introduced in 1975.

On the second, you will doubtless know that the first proposal in the Cyprus bank affair was to take money off even those who had less than 100k Euro in their accounts. It doesn't matter whether it's dressed up as a tax, a bail-in or forced conversion to bank shares; up to the insured amount, savers should be able to transfer or extract all their cash. Once that principle is breached, no money in any European bank is safe and that will spell the end of the system as we know it.

A suggestion for (1):

“Is the [Minister/PM] aware that National Savings Index-Linked Savings Certificates were introduced in 1975 as a form of social justice to savers affected by inflation, as is made clear by exchanges in this House on 10 July 1975, and will he now instruct NS&I to make them permanently available again without further delay?”

Hansard reference (10 July 1975):

http://hansard.millbanksystems.com/commons/1975/jul/10/savings-index-linked-schemes

A suggestion for (2):

"Will the [Minister/PM] give a guarantee on behalf of the British Government that savings covered by the terms and limits of the Financial Services Compensation Scheme will be fully protected against ad hoc restrictions of access, bank bail-ins and other forms of expropriation or forced conversion?"

Best wishes

MP to me (copy to researcher), May 09, 2013:

I tend not to do Oral questions. They don't have any real effect on government policy and it is a lottery as to whether you have the opportunity to ask one. Hence we can put in a treasury oral each time treasury come up (about every 3 weeks) and at some point it may be asked (perhaps at the 3rd or 4th time of asking) or we can put in a written question and get a response in just over 5 days.

Me to MP, May 09, 2013:

Thank you. Whatever works, is what matters, to paraphrase Alastair Campbell. I look forward to the response. I can only hope it's better than the patronising drivel I got from Lord Sassoon.

MP to me, May 09, 2013:

I can,of course, go for an adjournment debate to have a longer session. I do think it is an issue to give some attention to. However, we should start with written questions and letters.

Me to MP, May 09, 2013:

Thank you for your response.

We've had Lord Sassoon's letter 10 months ago (25.07.2012) in response to your letter to the Chancellor's office dated 02 July 2012, so presumably we're past that point and into follow-up. And how hard can it be simply to instruct NS&I to resume doing what it had previously done for an unbroken period of 35 years through thick and thin? This is not a new or complex matter, I would submit.

 

MP to me (copy to researcher), May 09, 2013:

 

I am on the train at the moment and would have to get a copy of the letters to hand to comment.

 

Me to MP, May 09, 2013 (6 minutes after the last):

 

I can help, to a degree. I don't have a note of what you wrote to the Chancellor's office, but here is the text of Lord Sassoon's letter:

"Dear Mr Hemming

Thank you for your letter of 2 July to George Osborne regarding correspondence from your constituent [...] about National Savings and Investments (NS&I). I am replying as Minister responsible for this policy area.

I appreciate that your constituent is concerned about savings in the current climate of relatively high inflation and low interest rates and is disappointed that Savings Certificates are no longer on sale. It is important, though, to recognise that inflation has come down from 5.2 per cent in September 2011 to 2.4 per cent in June 2012. The Government continues to give priority to reducing the impact of rising prices on families and businesses including through the recently announced deferral of fuel duty increases, which means that petrol prices will be 10p per litre lower than they would have been under the previous Government's plans.

NS&I provide cost-effective retail debt finance to Government. The money invested in their products contributes to the Government's overall debt financing remit. In doing this, NS&I follow a policy of balancing the interest of savers and the taxpayer with the stability of the financial services market. While doing so they aim to meet the financing objective set each year by HM Treasury.

It might be helpful if I explain the reasons why NS&I withdrew their Savings Certificates.

In July 2010, the popularity of both their index-linked and Fixed-interest Savings Certificates reached unprecedented levels and sales volumes far exceeded those either anticipated or required by NS&I to meet their financing target set by HM Treasury. Because of this, they took the difficult decision to take Certificates off sale on 18 July 2010. This change however did not affect existing customers.

The March 2011 budget confirmed NS&I's Net Financing target for 2011-12 as £2 billion with a range of £0-4 billion. To achieve this, they needed inflows of some £14 billion from sales and reinvestments during the year which gave them the ability to reintroduce one 5-year term of Savings Certificates on 12 May 2011. Their aim was to keep them on sale for a sustained period of time to enable as many savers as possible to invest.

As they expected, the Savings Certificates proved very popular and in just under four months they had received over 500,000 transactions. In order to stay within the Net Financing target range for the year, at this point they had to withdraw the certificates from sale.

Existing NS&I Savings Certificates customers can, on maturity, keep their investment for another term of the same length. Alternatively, they can reinvest into any of the other Savings Certificates terms and issues on offer to existing customers.

In more general terms, the Government wants a saving system based on freedom, fairness and responsibility, which is both affordable and effective.

To support and encourage savers the Government has:

• ensured the amount that people can save tax-free is not eroded by inflation by indexing the amount that can be paid into ISAs each year. This means that the Government has increased ISA limits by £600 this year, including an extra £300 for cash ISAs;
• announced at Budget 2012 that Government will work with industry to improve competitiveness and transparency in the ISA market, particularly by encouraging the industry to work towards faster ISA transfers;
• introduced Junior ISAs, offering parent a clear, simple and tax-free way to save for their child's future;
• confirmed that employees will have a new duty to automatically enrol qualifying employees into a pension scheme from October 2012. This has the potantial to encourage 5 to 8 million more people to start saving or save more into a workplace pension scheme. The Government is also establishing the National Employment Savings Trust (NEST) to provide a low-cost, high-quality pension scheme for individuals not currently served by the market;
• set up the Money Advice Service to offer free and impartial information and advice on all money matters available online at www.moneyadviceservice.org.uk , face-to-face, or by calling its helpline on 0300 500 5000. The Money Advice Service also launched a financial health check to help people proactively manage their money. It also publishes comparative tables of savings accounts and the interest rates offered; and
• given individuals more choice over the use of their pension savings to provide a retirement income by removing the effective requirement to purchase an annuity by age 75.

Please pass on my thanks to Mr Norfolk for taking the trouble to make us aware of these concerns.

Yours sincerely

James Sassoon

LORD SASSOON"

... and here is my reaction:

"Thank you for forwarding Lord Sassoon's letter, which arrived here yesterday. It is not at all up to the standard that I would expect from a Treasury mind; in fact, it is little short of a disgrace.

The first page confirms what I suspected, that the present Government is concerned only with its own funding needs and not at all with what should be its commitment to savers, not to say the currency (which according to the BoE's own website has lost 99% of its value since 1900). As you know, National Savings Index-Linked Certificates were introduced in 1975, a year in which RPI inflation was, as I said to you before, 24.2%. If the government of the day could bring in this product at such a time of crisis and galloping inflation, I cannot see any justification for the present hiatus.

The point about the present level of inflation is useless. Savers need to know for sure that their money retains its spending power over the chosen period, not to be informed from time to time that RPI may have temporarily dipped.

The second page slides further downhill into irrelevant party political nonsense. To be specific about its failures to address the subject, I will take each of Lord Sassoon's points in order:

• The cash ISA limit has nothing whatever to do with maintaining the purchasing power of cash.
• ISA transfers, ditto.
• Junior ISAs, ditto.
• The NEST pension scheme is not a savings vehicle but an investment vehicle, a distinction that surely cannot have escaped someone with Lord Sassoon's background in the financial services industry. The nearest to cash within pension funds is either money market funds (which have a big fat question mark over them at the moment, I can tell you as an IFA) or bank/building society cash funds that (a) usually offer a significantly lower rate than cash ISAs and (b) are (except perhaps for SIPPs) not covered by the FSCS in the way that individually held accounts are (see the Pensions Advisory Service's article here).
• The Money Advice Service is also irrelevant to the purchasing power of cash savings.
• Changes to the requirement to purchase an annuity at age 75, ditto."

Best wishes,

MP to me (copy to researcher), May 09, 2013:

I will ask Martin to draft a letter along the lines of your response.

Me to MP, May 09, 2013:

I would be greatly obliged if we skirted round Lord Sassoon's letter, which is nothing but a large catch of red herrings, and, whether by oral or written question (whichever in your professional opinion and experience is likely to get the more expeditious and effective response) ask the two questions I drafted for your researcher this morning, namely:

“Is the [Minister/PM] aware that National Savings Index-Linked Savings Certificates were introduced in 1975 as a form of social justice to savers affected by inflation, as is made clear by exchanges in this House on 10 July 1975, and will he now instruct NS&I to make them permanently available again without further delay?”

and

"Will the [Minister/PM] give a guarantee on behalf of the British Government that savings covered by the terms and limits of the Financial Services Compensation Scheme will be fully protected against ad hoc restrictions of access, bank bail-ins and other forms of expropriation or forced conversion?"

All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Fighting the Government for savers and against inflation (3)

The struggle continues...

No reply to my email of 21 April (see Part 2 of this series) before I sent the following:

Me to MP's researcher, April 27, 2013:

Further to my last email of 6 days ago, perhaps you could spare the time to look at the latest article by Matt Taibbi in Rolling Stone. It may give you some idea of why I now (as a former IFA of 23 years' experience in the financial industry) regard the whole bank and trading shebang as irredeemably systemically corrupt. Any government that wishes to retain its claim to authority needs to protect the life savings of the little people.

http://www.rollingstone.com/politics/news/everything-is-rigged-the-biggest-financial-scandal-yet-20130425

Do please let me know how you are getting on with framing appropriate questions as previously discussed.

Best wishes

 

No reply before the following:

 

Me to MP and his researcher, May 08, 2013:

 

Perhaps the following may show why asking about NS&I Index-Linked Savings is important and topical - and getting some mainstream interest and airing. Is there any reason to delay the debate much further?

http://hitchensblog.mailonsunday.co.uk/2013/05/when-money-dies-the-horrors-of-inflation.html

(I read the book myself some time ago.) As Hitchens says, the 1923 Weimar inflation (which my mother's family lived through) is unlikely to be repeated here - but the damage is great even if it happens a little more slowly. 10% inflation for 7 years will halve the value of money.

Should we really leave Parliamentary comment on inflation to Ed Miliband, thus suggesting by implication that the Coalition is unconcerned?

Best wishes

 

Reply from researcher, with copy to MP, May 08, 2013:

 

Apologies for not processing this in the last two weeks – all questions fell at prorogation in April and after I last emailed you it is not likely we would have had a response in time. We have been in recess for the last week in any event where Questions could not be tabled.

We are now able to table a question with the new session opening today – Last time I looked at this I was wondering if you had a more specific question in mind than the general one I gave you on the 12^th March (Below) Which you responded to on the 21^st April after I emailed you again on the 18^th April.

'To ask the Chancellor of the exchequer what steps he has taken or plans to undertake to maintain the value of savings against increased inflation and devaluations of the pound.’

You’ve sent me the below on May 3^rd, it would be helpful if you could clarify if you are worried about individual or also state ‘savings’ – on the second the financial Savings Guarantee Scheme at present does guarantee savings under £85,000 in the event of systemic banking collapse or other smaller bank failure without penalty to the individual or value of the saved amount but the government will only be able to clarify that it has no intention to bring in a new bank bailout ‘tax’ of any kind for sums under that amount and no future government action is bound by a previous one – the government does not take the view, at present at least, that the Proposed (and rejected) tax on savings under or over a protected amount should be taxed in any way, (although it would consider funds over that sum forfeit in the case of bankruptcy, for example) to the best of my knowledge.

1. How to set aside money and preserve its spending value, without being eroded by inflation and taxes and without being forced to accept any kind of investment risk;
 

2. How to be sure that no portion of savings below the deposit insurance ceiling will not be seized in some form of bank bail-in or pseudo-tax, but be payable in the form and to the schedule expected by the saver.

As such I might suggest this amended question as a draft off the top of my head and would welcome any comments or amendments you want to make.

'To ask the Chancellor of the Exchequer what steps he has taken or plans to undertake to maintain the value of savings against increased inflation or devaluations of the pound, if he has given thought to the taxation of savings by the Exchequer in various forms putting off individuals from saving some of their earned income by eroding the investments value, if he shares a concern that efforts to tax the small scale saved income of individuals to rescue financial institutions, such as measures debated by the Cypriot Parliament recently as part of the European Union’s and International Monetary Funds’ bailout terms undermine general confidence and what measures he can or will take to reassure individual savers that their investment will not be used to rescue institutions which have grossly mismanaged their affairs and thus be penalised, via the reduction of the value of their savings, for the mistakes of risk takers on a systemic financial level.’

If we can agree a draft I can get it to the table office as a written question as soon as you are happy and John is comfortable tabling it.

Yours

Me to researcher (copy to MP), May 09, 2013:

Thank you for your response. Again I must say that the issues are sufficiently important to ask orally on the floor of the House, rather than be buried in writing. I have already seen what a written answer from the Treasury is like. Am I mistaken in thinking that oral PMQs and questions to Ministers raise matters in the way that is most likely to result in prompt and effective action?

There are two separate issues and I'd suggest that they be pursued separately. One is inflation, the other is expropriation. The questions need to be pin-sharp specific to prevent wriggle, deflection, partial answers and waffle.

On the first, I think the question should focus on the need to restore NS&I Index-Linked Savings Certificates. Hansard links I gave you earlier showed that protecting the small saver was recognised as a "social obligation" - by both sides of the House - when they were first introduced in 1975.

On the second, you will doubtless know that the first proposal in the Cyprus bank affair was to take money off even those who had less than 100k Euro in their accounts. It doesn't matter whether it's dressed up as a tax, a bail-in or forced conversion to bank shares; up to the insured amount, savers should be able to transfer or extract all their cash. Once that principle is breached, no money in any European bank is safe and that will spell the end of the system as we know it.

A suggestion for (1):

"Is the [Minister/PM] aware that National Savings Index-Linked Savings Certificates were introduced in 1975 as a form of social justice to savers affected by inflation, as is made clear by exchanges in this House on 10 July 1975, and will he now instruct NS&I to make them permanently available again without further delay?"

Hansard reference (10 July 1975):

http://hansard.millbanksystems.com/commons/1975/jul/10/savings-index-linked-schemes

A suggestion for (2):

"Will the [Minister/PM] give a guarantee on behalf of the British Government that savings covered by the terms and limits of the Financial Services Compensation Scheme will be fully protected against ad hoc restrictions of access, bank bail-ins and other forms of expropriation or forced conversion?"

Best wishes

MP to me (copy to researcher), May 09, 2013:

I tend not to do Oral questions. They don't have any real effect on government policy and it is a lottery as to whether you have the opportunity to ask one. Hence we can put in a treasury oral each time treasury come up (about every 3 weeks) and at some point it may be asked (perhaps at the 3rd or 4th time of asking) or we can put in a written question and get a response in just over 5 days.

Me to MP, May 09, 2013:

Thank you. Whatever works, is what matters, to paraphrase Alastair Campbell. I look forward to the response. I can only hope it's better than the patronising drivel I got from Lord Sassoon.

MP to me, May 09, 2013:

I can,of course, go for an adjournment debate to have a longer session. I do think it is an issue to give some attention to. However, we should start with written questions and letters.

Me to MP, May 09, 2013:

Thank you for your response.

We've had Lord Sassoon's letter 10 months ago (25.07.2012) in response to your letter to the Chancellor's office dated 02 July 2012, so presumably we're past that point and into follow-up. And how hard can it be simply to instruct NS&I to resume doing what it had previously done for an unbroken period of 35 years through thick and thin? This is not a new or complex matter, I would submit.

MP to me (copy to researcher), May 09, 2013:

I am on the train at the moment and would have to get a copy of the letters to hand to comment.

Me to MP, May 09, 2013 (6 minutes after the last):

I can help, to a degree. I don't have a note of what you wrote to the Chancellor's office, but here is the text of Lord Sassoon's letter:

"Dear Mr Hemming

Thank you for your letter of 2 July to George Osborne regarding correspondence from your constituent [...] about National Savings and Investments (NS&I). I am replying as Minister responsible for this policy area.

I appreciate that your constituent is concerned about savings in the current climate of relatively high inflation and low interest rates and is disappointed that Savings Certificates are no longer on sale. It is important, though, to recognise that inflation has come down from 5.2 per cent in September 2011 to 2.4 per cent in June 2012. The Government continues to give priority to reducing the impact of rising prices on families and businesses including through the recently announced deferral of fuel duty increases, which means that petrol prices will be 10p per litre lower than they would have been under the previous Government's plans.

NS&I provide cost-effective retail debt finance to Government. The money invested in their products contributes to the Government's overall debt financing remit. In doing this, NS&I follow a policy of balancing the interest of savers and the taxpayer with the stability of the financial services market. While doing so they aim to meet the financing objective set each year by HM Treasury.

It might be helpful if I explain the reasons why NS&I withdrew their Savings Certificates.

In July 2010, the popularity of both their index-linked and Fixed-interest Savings Certificates reached unprecedented levels and sales volumes far exceeded those either anticipated or required by NS&I to meet their financing target set by HM Treasury. Because of this, they took the difficult decision to take Certificates off sale on 18 July 2010. This change however did not affect existing customers.

The March 2011 budget confirmed NS&I's Net Financing target for 2011-12 as £2 billion with a range of £0-4 billion. To achieve this, they needed inflows of some £14 billion from sales and reinvestments during the year which gave them the ability to reintroduce one 5-year term of Savings Certificates on 12 May 2011. Their aim was to keep them on sale for a sustained period of time to enable as many savers as possible to invest.

As they expected, the Savings Certificates proved very popular and in just under four months they had received over 500,000 transactions. In order to stay within the Net Financing target range for the year, at this point they had to withdraw the certificates from sale.

Existing NS&I Savings Certificates customers can, on maturity, keep their investment for another term of the same length. Alternatively, they can reinvest into any of the other Savings Certificates terms and issues on offer to existing customers.

In more general terms, the Government wants a saving system based on freedom, fairness and responsibility, which is both affordable and effective.

To support and encourage savers the Government has:

• ensured the amount that people can save tax-free is not eroded by inflation by indexing the amount that can be paid into ISAs each year. This means that the Government has increased ISA limits by £600 this year, including an extra £300 for cash ISAs;
• announced at Budget 2012 that Government will work with industry to improve competitiveness and transparency in the ISA market, particularly by encouraging the industry to work towards faster ISA transfers;
• introduced Junior ISAs, offering parent a clear, simple and tax-free way to save for their child's future;
• confirmed that employees will have a new duty to automatically enrol qualifying employees into a pension scheme from October 2012. This has the potantial to encourage 5 to 8 million more people to start saving or save more into a workplace pension scheme. The Government is also establishing the National Employment Savings Trust (NEST) to provide a low-cost, high-quality pension scheme for individuals not currently served by the market;
• set up the Money Advice Service to offer free and impartial information and advice on all money matters available online at www.moneyadviceservice.org.uk , face-to-face, or by calling its helpline on 0300 500 5000. The Money Advice Service also launched a financial health check to help people proactively manage their money. It also publishes comparative tables of savings accounts and the interest rates offered; and
• given individuals more choice over the use of their pension savings to provide a retirement income by removing the effective requirement to purchase an annuity by age 75.

Please pass on my thanks to Mr Norfolk for taking the trouble to make us aware of these concerns.

Yours sincerely

James Sassoon

LORD SASSOON"

... and here is my reaction:

"Thank you for forwarding Lord Sassoon's letter, which arrived here yesterday. It is not at all up to the standard that I would expect from a Treasury mind; in fact, it is little short of a disgrace.

The first page confirms what I suspected, that the present Government is concerned only with its own funding needs and not at all with what should be its commitment to savers, not to say the currency (which according to the BoE's own website has lost 99% of its value since 1900). As you know, National Savings Index-Linked Certificates were introduced in 1975, a year in which RPI inflation was, as I said to you before, 24.2%. If the government of the day could bring in this product at such a time of crisis and galloping inflation, I cannot see any justification for the present hiatus.

The point about the present level of inflation is useless. Savers need to know for sure that their money retains its spending power over the chosen period, not to be informed from time to time that RPI may have temporarily dipped.

The second page slides further downhill into irrelevant party political nonsense. To be specific about its failures to address the subject, I will take each of Lord Sassoon's points in order:

• The cash ISA limit has nothing whatever to do with maintaining the purchasing power of cash.
• ISA transfers, ditto.
• Junior ISAs, ditto.
• The NEST pension scheme is not a savings vehicle but an investment vehicle, a distinction that surely cannot have escaped someone with Lord Sassoon's background in the financial services industry. The nearest to cash within pension funds is either money market funds (which have a big fat question mark over them at the moment, I can tell you as an IFA) or bank/building society cash funds that (a) usually offer a significantly lower rate than cash ISAs and (b) are (except perhaps for SIPPs) not covered by the FSCS in the way that individually held accounts are (see the Pensions Advisory Service's article here).
• The Money Advice Service is also irrelevant to the purchasing power of cash savings.
• Changes to the requirement to purchase an annuity at age 75, ditto."

Best wishes,

MP to me (copy to researcher), May 09, 2013:

I will ask Martin to draft a letter along the lines of your response.

Me to MP, May 09, 2013:

I would be greatly obliged if we skirted round Lord Sassoon's letter, which is nothing but a large catch of red herrings, and, whether by oral or written question (whichever in your professional opinion and experience is likely to get the more expeditious and effective response) ask the two questions I drafted for your researcher this morning, namely:

"Is the [Minister/PM] aware that National Savings Index-Linked Savings Certificates were introduced in 1975 as a form of social justice to savers affected by inflation, as is made clear by exchanges in this House on 10 July 1975, and will he now instruct NS&I to make them permanently available again without further delay?"

and

"Will the [Minister/PM] give a guarantee on behalf of the British Government that savings covered by the terms and limits of the Financial Services Compensation Scheme will be fully protected against ad hoc restrictions of access, bank bail-ins and other forms of expropriation or forced conversion?"
 

All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Take a bullion pill in case of an inflation "burp", otherwise hold cash?

The following article is reproduced with the kind permission of The Gold Report:

James Dines Follows His Prediction of a Commodity Crash with Another One the Mainstream Media Is Ignoring

Source: JT Long of The Gold Report (5/3/13)

When the metals markets tumbled in mid-April, The Gold Report reached out to "the original investor bug" and author of The Dines Letter, James Dines, for perspective. He predicted a crash in commodity prices two years ago based on his analysis of a weak Chinese economy. Next, he says, will be a bond market bust once interest rates start to climb. This will lead to "a stampede to get out of bonds like a herd of elephants attempting to exit through a revolving door." How can investors protect themselves? That is Dinesism #38.

The Gold Report: What does it mean that leading stock market averages have been in Uptrends, while commodities markets are in Downtrends?

James Dines: Our "Sell" signal on China's economy in The Dines Letter (TDL) of Sept. 16, 2011, is still stubbornly resisted by the mainstream press, which instead persists in calling for 7.5% growth by China Since we perceive China as a barometer for the commodities markets, it followed that there would be a decline in raw-materials prices.

We find it astonishing that we seem to be the only voice in the world's mainstream press calling commodities markets in the last two years "a crash." Cotton down 70% from its high is merely one example. It's not in the world's headlines yet, but we find it remarkable that virtually all commodities are down, worldwide, even including precious metals, oil, uranium and rare earths. How could leading market averages be in Uptrends, presumably forecasting a business upturn, even while commodities have plunged? After all, to market things, they need to be made, with commodities, do they not? China was the biggest consumer of commodities, so we infer China's economy is in trouble, especially its banks and real estate, as predicted in our 2013 Annual Forecast Issue (pages 26-29; also The Dines Letter of Mar 15, 2013, page 7). So our next "Buy" signal on China will be crucial in attempting to discern the cyclical advent of the next raw-materials upturn.

Because of excessive government interference with interest rates, those desperate for income—including pension funds—have pushed prices of virtually all secure sources to nosebleed heights. When the Fed eventually does raise interest rates, the bond bubble will be pricked and the stampede to get out of bonds should be like a herd of elephants attempting to exit through a revolving door. What to do in such a bond market crisis? Aside from TDL's blue-chip recommendations, we always recommend dispersing assets in several "friendly" countries. Also, diversifying in golds and silvers, including Saint-Gaudens double-eagle gold coins, rather than just keeping capital entirely in fiat currencies.

The world is in what we call "The Second Great Depression," comparable with the first one, in the 1930s. As laid out in my final business book, "Goldbug!," doubling the money supply in 1922 to pay for World War I caused a great inflation that after 1929 was corrected by the First Great Depression, in the 1930s. The similar printing of enormous quantities of paper money, not backed by anything except more paper, has also resulted in the current Great Deflation, still deepening, worldwide. The soup kitchens of the 1930s have been replaced by food stamps, but the resemblance is not coincidental.

Realizing that Keynesian economics failed to end unemployment after the 1932 crash, until World War II began around 1940, enabled us to predict with specific clarity that it would not work these days either. Indeed. Historically, large quantities of printing-press money has failed to reduce the downward trend of Americans with jobs in recent years. Few believed our prediction of "The Coming End of the Age of Jobs," or that it would lead to "The Coming New Social Order," but it is already unfolding. Unemployment in Europe already ranges between 20% and 50%, depending.

It is difficult for investors to protect themselves in this situation, but we cover it as best we can. We have recommended blue-chip stocks that have a dividend yield higher than that of U.S. Treasury paper, because they are proxies for institutions seeking to park their cash in areas other than overpriced bonds. That should end when the Federal Reserve finally allows interest rates to rise, but its fanaticism in continuing to suppress rates despite the Keynesian method not working represents a triumph of hope over experience—and will not end well.

Especially shocking is the delusion that adding inflation to a deflation would somehow cancel each other out, but is in fact the futile attempt to cure a problem with its cause. Overprinting paper runs at increasing risk of an eructation of "hyperinflation"—please note it is a word not used anywhere in the mainstream press these days. Predicting a hyperinflation is so daring in today's environment that we might be mistaken, so we will have to get closer toward the end game to be more confident of it. We hope we are mistaken.

TGR: What will be the next big sector?

JD: We refer you to Dinesism #38, of the 65 that guides our methodology: "Rich or poor it's good to have a lot of cash." And you may feel free to quote us on that. Also, parking some long-term capital in gold and silver, especially during pullbacks, would be useful if a hyperinflation eructs.

James Dines is legendary for having made correct forecasts that were in complete contradiction to the rest of the financial community. He is the author of five highly regarded books, including "Goldbug!," in addition to his popular newsletter, The Dines Letter, and videotaped educational series. Dines' highly successful investment strategies have been praised by Barron's, Financial Times, Forbes, Moneyline and The New York Times, among others.

Want to read more Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.
DISCLOSURE:
1) JT Long conducted this interview for The Gold Report and provides services to The Gold Report as an employee.
2) James Dines: I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions.
3) Streetwise Reports does not make editorial comments or change experts' statements without their consent.
4) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.

Arguments for gun control (1)

E-ink phone: I want one!

The problem: mobile phone visuals are terrible when you use them in a mobile way, outdoors or even in some lighting conditions indoors.

The solution: read them with ambient light, using the same sort of technology as Amazon's Kindle.

And like the Kindle, battery power is used only to change what's on the screen, so a full charge should last a week.

See reviews from the Mobile World Congress in February here and here.

All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Climate change: the role of ash, and volcanoes

The excessive zeal of some scientists has made it difficult to discuss climate change (which, amusingly, was first headlined simply as global cooling, then global warming). But it's universally agreed (I think) that the Earth has been a lot hotter, and a lot colder, in past millenia. The question is, what's happening now?

Up in Greenland, they're now growing strawberries and potatoes; and last month the albedo of the ice sheet was lower than in any April in the last dozen years, hinting at an even bigger melt than before.

Yet there is still debate over whether Earth's total ice cover is growing or decreasing, as a Dutch study reported last month. It seems that while the Arctic's is melting, the Antarctic is piling on more.

The network of causes and effects is complex: CO2 and high-altitude water vapour (quite a lot from planes, I think) interrelate with air and sea temperature (which vary around the globe). An explanation as to why ice is melting in one place and melting in another is that particulates from burning forests and fossil fuels are settling on Northern glaciers, absorbing energy from sunlight and conducting extra heat into the ice below.

The ash can also come from volcanic eruptions - but the causal connection goes both ways. Another study, published last December by researchers in Germany and the USA, seems to show that as ice cover decreases and sea levels rise over long periods, tectonic plates are warped by the changes in their burden and volcanic activity increases.

And the causes can sometimes oppose each other. I recall how in 2010, when flights over the UK were banned because of the ash cloud from Iceland's Eyjafjallajökull volcano, we saw not grey, cloudy days but brilliant sunshine and chilly, starry nights. I wonder what is the relative importance of hydrocarbon emissions and water vapour?

Enough brickbats have been thrown at those who forgot their professional scientific objectivity in the debate. It's time for both sides to reexamine evidence and hypotheses with open minds.

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Greenland: Accelerating ice melt?

Jason Box's Meltfactor blog reports that albedo (ability to reflect light) of Greenland's ice sheet was significantly lower in April than it has been since before 2000.

If there is a self-reinforcing feedback system here we may have to reconsider our scepticism on climate change.

We don't necessarily accept that it's all the fault of humans, though it's still possible (as reported earlier) that the additional melt may be influenced by a light-absorbing darker layer on top of the ice, of atmospheric particles from the burning of forests and fossil fuels.

UPDATE: The Guardian newspaper has caught up with the story (12 June 2013).

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UK local election results 2013

UK (Cornwall): Shelterbox

Once a year, the Tregothnan Estate near Truro, Cornwall, opens its gardens to the public. Aside from being being a botanical safe haven for many rare plants and trees, it's the only tea-grower in England. So we visited.

The charity they sponsored this year was Shelterbox. This is a truly brilliant idea, the brainchild of Rotarian Tom Henderson OBE. It's a survival kit packed into a sturdy plastic box, and the stroke of genius was to work backwards from external constraints: what was the most weight two airline baggage handlers would be prepared to carry, and how many boxes could be fitted into a standard steel shipping container.

For £590 a pop, you get this:

Contents can be varied according to need, but the basics include a waterproof tent with raised door (protects against floodwater and creeping creatures), stove with cooking and eating equipment, and most importantly, an ingeniously designed water filter. The filter is to help prevent the outbreak of disease that tends to decimate the survivors of the initial disaster, and it can be flushed out and reused in case of prolonged encampment.

Thousands of these boxes are stored in places around the world, for maximum speed of delivery in emergencies. But the stores need topping up and you can not only sponsor a box but track where it's gone.

Fabulous. I'm contacting them to see if a local Rotarian can do a show and tell for a school; maybe you can do something, too.

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UKIP quote of the day

Peter Hitchens:

I think UKIP is not a conservative formation, but Thatcherism in exile.

Don't know if it's right, but it flies off the page.

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Daily Telegraph in hysterical fear of conservative policies

Mary Riddell:

So consider, this morning, what a Ukip Britain would look like. it would be a locked-down land, armed to the hilt, where good foreigners were repelled and bad ones expelled, no questions asked. It would be a country concreted over for extra jails (though never for high speed rail lines). It would be a quaint place – an old curiosity shop of matrons and smoking rooms.

It would be a nation of wild spending, of derisory taxes for the rich and – not least because all talk of climate change would be abandoned – a country programmed for ruin.

I don't understand why she's working for the Barclay brothers.

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Wealth inequality in the US: a visualisation

Info: http://www.pewsocialtrends.org/2013/04/23/a-rise-in-wealth-for-the-wealthydeclines-for-the-lower-93/

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Securing Energy Supply (4) - How Is It To Be Done?

"Safety and certainty in oil lie in variety and variety alone"

The reliable delivery of oil, gas and electricity represents a set of significant engineering challenges – but they have been solved.  However, disruptive and malign political forces are in play.  We have seen that the security and reliability of our energy supply is at the mercy of factors as mundane as strikes, protests and ill-conceived energy policy, as well as the more dramatic interventions of blockade, sabotage and war. A chilling prospect in every sense.

How, then, do prudent policy-makers go about securing our energy supplies ?  There are several tiers of defence and we will conclude this series by surveying the field.

Some reliability measures are put in place primarily against ordinary contingencies such as plant failure, extreme weather etc.   They may also serve against more sinister forces.

Over-capacity:  if one power plant in 20 is statistically liable to be out of order at any one time, there is a natural argument to have 21 or 22 plants in service.  Engineers being people who like building plants anyway, this solution to unreliability is very congenial to them, and when possessed of monopoly powers as many energy utilities used to enjoy, are inclined to follow this approach to excess.  Liberalisation of energy markets is characterised by reductions in the margin of over-capacity when economic factors start being given proper consideration: some assert this can go too far, a thought which we return to at the end of this piece.

Storage:  holding a strategic inventory of a vital commodity is as old as Joseph’s advise to the Pharaoh on how to prepare for the seven years lean.  This is easily organised for oil and coal; less easily for gas; and with currently-available technology near-impossible for power on any scale (aside from pumped-storage of water for hydro-electric generation where geology and geography permit).

Diversification:  as Churchill knew (see the quotation above), ‘variety’ or, as we would say, diversification of sources, is a key measure against insecurity of supply.  A century ago he was addressing the problem for the British Fleet, newly converted from coal-burning to oil, and relying almost exclusively on supplies from distant Persia.  Whatever the reason for having concerns about the reliability of any one source, it is a good idea to have several.  

The UK is among several European nations that have achieved a good measure of diversification in energy supplies, but several instances of risky concentration can be identified.  France is hugely reliant on its vast nuclear sector for electricity, and if there were to be a systemic problem (perhaps a catastrophic design fault) that caused their reactors to be closed, they would be in significant difficulties.  Famously, a number of eastern European countries are heavily dependent on Russia for their gas.

Interconnection:  when supplies are interrupted from one source it is important to be able to access as many other sources as possible.  For this purpose it is obviously best to be connected to as many other supply-chains as economically possible (a concept we shall return to below).  For oil this is generally very easy, as ships and trucks can easily be re-routed.  For coal it can be slightly more problematic, as there are many different types of coal, and coal-burning plant are often configured for specific grades.

Gas and electricity are restricted to largely static infrastructure.  Switching to an alternative supply route can be difficult, and is rarely possible unless inter-connections for the purpose have been built in advance of problems occurring.  The EC actively promotes developing new cross-border gas and electricity connections, and uprating existing ones, and European interconnection is improving all the time.

Free trade and other regulations: closely bound up with diversification and interconnection, anyone wanting to access an emergency source of supply (other than one they already own) needs to be confident that they can buy what they want from those who have it – provided they are willing to pay, of course. 

This requires a market to exist – which shouldn’t be an issue; but in gas and electricity, it cannot be taken for granted.  Even oil and coal have at various times not been fully tradable.  Gas and electricity were historically, though erroneously, viewed as ‘natural monopolies’, and anyone needing to buy (or sell) at short notice might have had nowhere to go.  In western nations, gas and electricity ceased to be statutory monopolies well over a decade ago, but in some areas there are distinct deficiencies in the workings of the ‘market’ – generally because of blocking actions by former monopolies who have lost little of their de facto dominance, and none of their overbearing arrogance.

Even where markets are working well on a good day (e.g. most of Europe), there can be issues when problems occur.  For example:  French regulations on ensuring the security of supply of La France used to be what many would deem to be irrationally strict; so that when a perfectly ordinary practical problem arose in the UK gas grid, even at a time when supplies were ample on the other side of the Channel, French operators would declare ‘problem ahoy’, and would start paying any price to fill their already well-stocked storage, safe in the knowledge that the regulators would endorse them passing through the costs of this fatuous operation to their customers.  What should have been a simple matter of UK spot prices rising to attract surplus gas from France and elsewhere, became a more serious problem than objectively necessary. 

Resolving this issue, while at the same time respecting every nation’s right to take legitimate security measures, has required harmonising regulations.  This can work well at levels where fairly effective supra-national bodies exist – the EU being one example.  Whether entities such as the WTO are genuinely effective for such purposes remains to be seriously tested.

Of the above measures, we can say that all of them are useful in times of purposeful external threats to security of supply, as well for dealing with run-of-the-mill contingencies.  Yet further steps may be contemplated against sinister possibilities.

Hardening infrastructure:  energy commodities being highly combustible and generally dependent on large, static infrastructure, they are perennially vulnerable to outright attack.  Most nations mandate at least some level of high security for these facilities, as inspection via Google Earth will readily confirm.  Since 9/11, ‘resilience’ measures have been stepped up considerably.

Diplomacy:  avoiding conflict always helps.  More positively, securing alliances designed to improve secure access to commodities is a major pre-occupation for many nations: the USA in the Middle East, and China in Africa come readily to mind.

Multi-national contingency plans:  following the AOPEC oil embargo of 1973-4, the International Energy Agency was given powers to mandate the holding of strategic oil stocks in OECD nations, and to direct the use of these stocks in emergencies.  The IEA’s direct interventions to allocate oil supplies during the embargo, coordinated in practical terms by Exxon, saved the targeted nations (in particular Holland) from even greater economic trouble than they suffered in the event.  

(Incidentally, in the mid 1990’s the IEA made a major study on how Europe would fare if ‘the single biggest source of supply’ – viz Russia – were to interrupt gas supplies for 6 months.  Even in those pre-market days, it concluded that with multinational coordination, no European nation would face complete ruin.  More than 6 months might have been a different story …)

Armed forces:  sometimes, passive and political measures are not enough, and the military may need to be deployed.  The navies of the trading world are, for example, constantly working against piracy in the Indian Ocean and elsewhere. More spectacularly, Western military interventions in Iraq have been attributed to the USA’s extended Middle Eastern oil policy – perhaps more easily asserted in the case of the first Gulf War than the second.

=   =   =   =   =   =   = 

The foregoing is a fairly pedestrian listing.  A more interesting line of enquiry stems from a simple classification of the various measures into two categories:  those which build towards self-sufficiency, and those which seek to make possible a system of mutual dependency.  In the former we would place over-capacity, storage, diversification, hardening, and armed forces:  in the latter, inter-connection, free trade, diplomacy, multi-national contingency plans and (to the extent we are part of military alliances) also armed forces.

There is a school of thought that values self-sufficiency above all other types of security.  In some spheres it may not be possible: for example, Belgium enjoys no indigenous natural gas resources whatever.  But in cases where it is possible, why would it not always be the solution of choice ?

The answer is that it might be much more expensive than mutual dependency – perhaps prohibitively so.  We hinted at an economic cost-benefit trade-off when speaking of desiring to be connected to as many other supply-chains as economically possible.

If there is an economic trade-off to be made, how might one decide an optimal degree of self-sufficiency ?  This important question is reserved for another day, concluding here with the observation that we need our politicians to make their judgements on security of energy supplies carefully: for civilisation is energy-intensive.

 

All original material is copyright of its author. Fair use permitted. Contact via comment. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.