An anti-globalisation duet: Trump & Corbyn

Why domestic bank M&A is set for a boom

As Donald Trump and his toupee continue to ride high in the US presidential opinion polls, I find myself musing on his fellow jockey, UK Labour Party leader Jeremy Corbyn.

Mirror images of each other on the political spectrum, they will never lead their respective countries. Yet the unelectable duo are worth listening to, for they represent large elements of the population that are opposed to the globalised world we live in.

Take their attitude to free trade. Trump calls for a 15% tax for outsourcing jobs and a 20% tax for importing goods, and sees trade deals as “killing American jobs.” He believes trade negotiators are a bunch of “saps” and says he would appoint corporate leaders to do the job properly. Corbyn warns that TTIP, the prospective trade deal between the EU and the US, is nothing but a capitulation to “greedy bankers and multinationals.”

His refusal to campaign for Britain to stay in the EU has, ironically, withdrawn a major weapon from the Conservative government’s armoury for its future referendum. Corbyn and his allies, who embody the discarded remains of the Left’s 1970’s euro scepticism, see the EU as representing the interests of big capital. Rather paradoxical, given that big business sees the EU as excessively defensive of workers’ rights and the progenitor of too many regulatory burdens to protect citizens.

Trump and Corbyn, one 69 years old and the other 66, both fail John Maynard Keynes’s three imperatives for a balanced government. The economist and statesman wrote: ““The political problem of mankind is to combine three things: economic efficiency, social justice and individual liberty….the third needs, tolerance, breadth and appreciation of the excellencies of variety and independence, which prefers, above everything, to give unhindered opportunity to the exceptional and aspiring.”*

For Corbyn, social justice can be achieved without economic efficiency and individual excellence. This would result in a country with not enough profits to pay for a safety net for the disadvantaged. The reality for Trump, who would lay claim to both economic efficiency and individual liberty, is a country where protectionism kills efficiency and individual liberty applies to some, but not all. And certainly not to the roughly 11 million illegal immigrants who water his many lawns and serve in his many restaurants.

Just as surprising as their similarities, are their allies in the anti-globalisation movement. Joining them in the stop-the-world-I-want-to-get-off gang, are financial regulators on both sides of the Atlantic.

The European Central Bank’s post-crisis conventional wisdom is that geographical diversification of multinational banks does not protect against risk and adds a layer of complication. Long gone are the days when banks followed their corporate clients abroad and then proceeded to buy local entities and grow. The European Central Bank “comes out in a rash” when a Spanish bank mentions buying bank assets in emerging economies, affirms a bank CEO. The Federal Reserve in the US takes the same position, according to most accounts.

Regulators learned a lesson from the last financial crisis. It may, of course, not be the right lesson, for every crisis is different – the drying up of wholesale bank funding markets in 2007/2008 was very different from the run on the deposits of 37 banks in the Japanese Empire in 1927.

With foreign expansion off the cards, cost cutting reaching its finale, new digital entrants threatening the traditional business and financial supervisors breathing down their necks, banks will focus on local acquisitions to grow their profits. A domestic M&A boom is forecast for 2016.

Regional movements like those in Cataluña and Scotland are part of the anti-globalisation trend. Allied to the sense of alienation from their existing rulers is an almost blind belief that raising the barriers will lead to paradisiacal economies with full employment.

To these misguided idealists I would add proponents of Brexit, the exit of the UK from the European Union. The world is moving into ever larger trade groupings. Being outside is not a reasonable option for a major country – unless there is an appeal to being emailed instructions from Brussels without having a seat at the table. Norway pays a heavy price for its nominally freestanding position since it is forced to incorporate EU legislation into its own.

In 1944, Keynes warned in the House of Lords against “little Englandism” which pretended that “this small country” could survive by a system of bilateral and barter agreements or by keeping to itself in a harsh and unfriendly world. His words continue to ring true.*

Both Trump and Corbyn remind me of the rutting impalas I saw in Zambia this summer. A fresh male impala, the handsomest and most macho, fights off the others to breed with the herd of females. After around three weeks of non-stop sex, with no time to feed or groom himself, he is weak and easily taken out by a challenger, a young buck from the group of male impalas. If he’s lucky, the exhausted male impala might then re-join the all-male herd or, just as likely, be eaten by a herd of lions.

The only question about the future disappearance of fraternal twins Corbyn and Trump is whether they slip back into their old lives or are gobbled up by the forces of globalisation.

*Universal Man: The Seven Lives of John Maynard Keynes by Richard Davenport-Hines

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Time to call a halt to regulatory overkill

…and why even Archbishop Welby agrees

None can disagree with the need for a regulatory transformation of the banking sector following the 2008 financial crisis. Yet after seven years the blitzkrieg of rules continues amidst a confusion of overlapping and contradictory requirements. It beggars belief that the rules on too big to fail were only agreed in principle in November last year by the G20, while the details have yet to be made final.

Speaking to bank CEOs and Chairs in the UK and Europe, who dare not complain publicly, the regulatory fatigue that Bank of England Governor Mark Carney spoke of is apparent, as are a number of the unintended, negative consequences.

Capital has become local as global banks withdraw to their home markets. Surpluses of capital are not being used, while demand lies unfilled. When you add in Anti Money Laundering and Counter Terrorism requirements, even long-standing, legitimate businesses in Africa are having their bank accounts closed down. Let alone HSBC’s strategically absurd decision to exit Brazil, still responsible for approximately 60% of South America’s GDP, and to do so at the worst time possible time, when the country is in the doldrums.

Secondly, loan capital has diminished substantially. The creation of credit is a problem. And which sector or instrument that credit goes to is determined by regulatory requirements rather than business sense. This can itself lead to a new crisis.

Competition has contracted, with banks either going bust or being absorbed by others, while regulatory requirements have increased the barriers to entry. As the latest results from the big US banks testify, only the large can absorb regulatory burdens and fines. JP Morgan has moved from being a big financial institution pre-2008 to bestriding the world like a colossus. There are some so-called challenger banks – new entrants unencumbered with the legacy of old systems and debts – while internet-only loan providers are growing at a dizzying pace, but it will take a very long time for them to fill the gap, if they manage to do so.

Fourthly, the myth that Brussels is responsible for myriad new rules is helping push the UK out of the EU. In fact, with regulatory equivalence, the UK would not escape more regulation even if it did leave the EU.

Lastly, even as banks cut down on front line staff, there is a vast increase in their recruitment of compliance specialists, as well as the information technology personnel needed to change systems to comply with new rules. Regulators are asking for the traceability of all credit decisions, even the smallest, all of which consumes management time. Top bank executives complain that they spend hours in meetings with junior, inexperienced supervisors who have never worked in banks and are more intent on protecting themselves from criticism by painfully ticking every box.

Complexity is not progress.

At board level the situation is no better. Bank board meetings are about the modelling of risk, rarely about strategy or how to grow the business, according to board members. One FTSE-100 financial services institution conducted 29,000 different simulations. The Non-Executive Director in charge of the Risk Committee was dismissive of the exercise. Meanwhile, potential NEDs with insight and experience say that you would have to be “reckless” to jeopardise a 30-year career by taking up an appointment on a bank board – even more so if criminal liability is extended to independent directors, as has been proposed in the UK.

The Bank for International Settlements, the so-called central banks’ bank, recently said the wave of regulation is coming to an end. Bankers disagree.

Seven years after the financial crisis, regulation needs to focus on being an enabler of financial services rather than an obstructer. To change the mind-set of the regulators – and the bankers – a system of secondment needs to be set up. Modelled on the very successful Takeover Panel, which has been ruling on mergers and acquisitions in the UK since 1968, bankers would be seconded to regulators for a pre-agreed period, with their salaries paid for by the banks. This is idea has been mooted before in the Salz Review of what went wrong at Barclays Bank, but sunk without trace.

On the macro front, the focus should shift to stimulating the capital markets so that the provision of credit does not lie mainly on bank balance sheets, as it does in Europe, while capital requirements should be lowered and the focus should shift to the leverage ratio.

Speaking to the Worshipful Company of International Bankers a couple of months ago, the Archbishop of Canterbury, Justin Welby said: “2008 continues to lurk around as an impediment, which undermines confidence. Creativity and confidence go hand in hand…Creative leadership that does more than manage is essential.”

It is time to move on.

This column is based on private conversations with bank CEOS, Chairs and board members in Europe, as well as knowledge gained in my prior career as Senior Editor of The Banker and a former banking columnist for the International Herald Tribune.

It will be published in the next issue of Dialogue Review.

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A Tale of two Balls: UK vs PIMCO

Lessons from WWII as Russia conquers Crimea

Who is more influential? In the left corner sits Ed Balls, potential Chancellor of the UK if the Labour Party makes it into power in the 2015 election. On the right, his brother Andrew Balls, Deputy Chief Investment Officer at PIMCO, which controls $2 trillion worth of bonds.

Even assuming Ed B. makes it into power, his brother wins hands down. The UK government spends around £720 billion a year and most of it is already earmarked. Chancellors – pace all the kerfuffle around budget announcements – can only affect policy at the margin. Andrew B., on the other hand, is head of European bond markets with the capacity to strike fear in the hearts of Italian treasury ministers, among others.

Markets matter, which is why the ambitious and admirable management overhaul at the Bank of England, announced last week, is sorely lacking on that front. Creating a new Deputy Governor for markets and banking is right in acknowledging the importance of markets, plus it is a coup for the Bank of England to have appointed Nemat Shafik, an effective policy maker and global player, as Deputy Governor for banking. But appointing her Deputy Governor of markets as well is a mistake. What was needed for that part of the role was an investment banker with knowledge of markets and a wide network of acquaintances and colleagues.

Or at least for a former banker to be appointed to the role of Executive Director of Markets, reporting to Shafik. Instead, Chris Salmon, whose whole career has been at the Bank of England, will take over that role.

This column has long banged on about former Governor Mervyn King’s weakness in deifying academic economists and not valuing markets. The bank would have better understood and reacted faster to the seriousness of Lehman Brothers going under – let alone known about its fragility earlier.

Governor Mark Carney, a former Goldman Sachs banker, is fully aware that markets move mountains. But when he leaves the Bank of England at the end of his five year term, he looks to have failed to incorporate that knowledge into the executive.

For an indication of Russian thinking as the Crimean/Ukranian crisis escalates, one could do worse than turn to Max Hasting’s superb volume on WWII, All Hell Let Loose.

Our inbuilt bias assumes our opponents will react in the same way as we in the West do. In other words, hit Vladimir Putin where it hurts – his wallet – as the Russian stock exchange plummets and international sanctions loom. Yet this is Russia.

In 1944 as Stalin’s army crossed the Danube in their Hungarian invasion, indifferently losing soldiers to the enemy, a Hungarian hussar gazed on the corpses on the river bank and said to his officer in shocked wonder, ”Lieutenant, sir, if this is how they treat their own men, what would they do to their enemies?”

The Russians bore the brunt of the fighting against Hitler during the war, with it being fought mainly on Russian soil. Stalin was not bothered by the barbaric behaviour of his soldiers towards German civilians a few years later. As Hastings points out, the Soviets saw no shame, such as burdens Western societies, about the concept of revenge: “The price of having started and lost a war against a tyranny as ruthless as Stalin’s was that vengeance was exacted on terms almost as merciless as those Hitler’s minions had imposed on Europe since 1939.”

President Putin is not Stalin. But a paranoid historical memory lies at the heart of both men. Winston Churchill famously spoke about a “riddle wrapped in a mystery inside an enigma.” It is worth quoting the rest of his speech in 1939, “I cannot forecast to you the action of Russia. It is a riddle wrapped in a mystery inside an enigma; but perhaps there is a key. That key is Russian national interest. It cannot be in accordance with the interest of the safety of Russia that the West* should plant itself upon the shores of the Black Sea, or that it should overrun the Balkan States and subjugate the Slavonic peoples of south eastern Europe, That would be contrary to the historic life-interests of Russia.”

*In the original speech, it was Germany.

Motherhood, apple pie and transparency. All good things? English Poet Philip Larkin didn’t believe the first word qualified, with his most famous line being, “They **** you up, your mum and dad.”

As for apple pie, we are now aware of the rotten repercussions of all the sugar we have been eating.

The debunking of the God of Transparency, however, has yet to happen. This is despite the incalculable harm done to the US and the UK’s intelligence gathering by Edward Snowden. We are less safe than we were prior to his revelations, while the probability of recruiting spies will have plummeted, as they consider the extra danger involved in this ever-more translucent world.

Moreover, consider the harm done to the Bank of England’s market intelligence operation by the release of minutes from a meeting in 2006 where senior foreign exchange dealers from some of the world’s largest banks told a senior member of the central bank of “attempts to move the market.” Paul Fisher, who was head of its foreign exchange division at the time, insisted in Parliament that this was “traders’ whingeing about how difficult their life is.”

Understandably, the focus is now on whether the Bank of England failed to take action on market manipulation within the trillion dollar foreign exchange market, where $5.3 trillion changes hands every day and a number of investigations are taking place.

But the transparency from releasing those minutes comes at a cost. What trader will now raise an issue with the regulator if this can’t be done informally? Which regulator will want to be closely involved in markets, given that it is a career dead end – either you are not well informed on what is going on, or you are and are therefore suspect.

Fisher has lost his seat on the powerful Monetary Policy Committee. Meanwhile Paul Tucker, a former deputy governor who was a strong candidate to succeed Mervyn King, was booted out of the running when information was released showing his closeness to Bob Diamond, the former head of Barclays Capital.

Temperance in the application is the key to transparency. As it is for motherhood. And perhaps apple pie.

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The CEO’s case for rocketing equity markets

Middle East and Korean peace in the offing

A year after writing about the unsustainability of the French economy, I found myself this August once again amidst the glory-on-earth that is inland Provence. The economy is in worse shape, even more of the profit-making elite have left the country and President Francois Hollande is beyond a blancmange.

Demand for places in the South Kensington Lycée is such that a new one is being built near Wembley football stadium. London’s gain is France’s loss.

And yet I join a select group of forecasters who have to date been proved wrong. We continue to hammer away at our theme of the bankruptcy of the French state while enjoying the delights of long lunches with saucissons de sanglier, the local rosé and the dream of owning our own estate. The head and the heart do not always move in sync. Why France will fall next.

The time to invest in equities is now. Ignore the pundits who declare them overpriced. Dismiss the majority view which emphasises these five certainties: anaemic world growth is set to persist for the foreseeable future; China is set to become a superpower; the North-South Korea stand-off is unlikely to change anytime soon; US supremacy is at an end; the Israel-Arab conflict will endure.

Instead, read the fascinatingly contrarian world vision that a well-known, cerebral CEO recently shared with me.

“China will struggle more than many investors expect, particularly in the context of what could be the Asian strategic surprise of the next few years: Japan. Chinese growth well under double digits at 7-8% will not be enough to sustain the socio-political compact which has kept it as a unitary state with a quiescent population. The subversive power of the internet, growing income inequality devoid of the hope that a rising tide will lift all boats, local corruption, Muslim extremism in some provinces and regional separatism, will lead to domestic problems which the Communist Party will not be able to contain. It could lose power while the country messily breaks up into smaller areas of influence, although it is worth keeping in mind that “smaller” in Chinese terms is still large by any other.

The Koreas will unify as the Chinese reconsider the cost of supporting the existing North Korean regime. South Korea will pay for re-unification, just like the West Germans paid for the East. After a decade or two of domestic integration focus, Korea will be born as an even more powerful economic entity, playing a much larger role on the world stage.

The US looks set to continue as a superpower. With the Republican Party in a mess, Hilary Rodham Clinton could be elected on a landslide at the next election, bringing the House along with her. The US will continue its upward trajectory, based on cheap shale gas and its flexible, innovative economy, with no one country able to challenge it.

Peace is due to break out in the Middle East within the next 3-5 years as the Shia axis surely will be broken when Bashar is ousted. He may not be out of power yet, but the prospects of continued Alawite domination of Syria (12% of the population) grow dimmer by the day as Sunni support for the rebels continues to grow. Syria’s fall would effectively defang Hezbollah and creates much improved prospects for peace with Israel. The new military government in Egypt may transition into a civilian government over time, but likely will continue to curtail arms trafficking across their border into Gaza, further weakening Hezbollah. Shia Iran, the main backer of Hezbollah, would end up being further isolated and surrounded by Sunni powers.

The Arab Spring has brought to the surface the main threat to existing regimes in the Arab world: a lack of growth and diversification with its consequent unemployment, especially youth unemployment – under 25’s being the largest (and growing) segment of the population in the Arab world. The monarchies and dictatorships have used the conflict with Israel as an excuse for their lack of progress, but this is no longer enough.

Peace with Israel will allow the focus to shift to growth. Informal approaches to Israel from the Saudis have already been made. For Israel, which does not have the military capacity to fully disable Iran’s nuclear capabilities, a comprehensive peace settlement may have allure. Not least because Arab Israelis are set to be a majority of the population within a decade.

The confluence of these unexpected factors, including the enhanced power of the US and the shock of a Middle East and Korean settlement, means equity markets will take off on the back of the boost to world growth.”

Hopefully, this radical vision will more likely happen than this Column’s dire French predictions.

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Lands of Opportunity: China & the City

Osborne the hero

Readers suggested that the last column’s negativity deserved a positive riposte. Herewith 6 reasons to be cheerful.

China’s Chance China looks set to grow at between 7% to 8% annually, a drop from decades of higher growth stretching into double digits. As the Financial Times pointed out in an editorial a couple of weeks ago (and subsequently ignored in all its doom-laden articles that day), when the world’s second largest economy is projected to grow 7.5% a year this still implies an enormous addition of both capacity and demand.

While China reorients its economy towards consumption and away from investment and exports, increased opportunities arise for foreign firms to sell more goods into an expanding middle class. Gucci and other luxury brands have prospered, even with Chinese consumption growing at a slower pace than output over the last decades, The fact that the emphasis is set to change is an exciting prospect.

It is no coincidence that earlier this week China’s top legislature started studying draft amendments to the country’s 20-year old consumer rights law. The government is aware that providing urban jobs and a measure of rural growth is no longer enough to uphold social peace and with it the continuance of the Communist Party’s power. The Chinese consumer is a new constituency to be kept pacified. Consumer rights protection can now be added to the list of priorities, as was seen in the government-sponsored attack on Apple’s after-sales services a few weeks ago.

City Callings Perhaps it is an exaggeration to call a career in the City of London a calling, a word generally used for those who wish to follow a religious path. However, the City is still a preferred prospect for many despite the fact that around 100,000 jobs are said to have been cut since 2007. Continuing cuts will bring job levels to a 20-year low in 2014, according to the Centre for Economics and Business Research (CEBR).

Yet there is an area of great opportunity: compliance. Some banks have tripled the number of staff involved in that function. Financial firms will pay up to 24% more for the new regulatory bodies that take over from the now defunct Financial Services Authority. The Bank of England’s new Prudential Regulatory Authority (PRA), for instance, said its staff costs will rise 34%.

Meanwhile, the lack of global coordination in bank regulation – we have Volcker in the US, Liikanen in the EU and Vickers in the UK – means that a universal bank active in the UK, EU and US would be subject to all three regimes, notes Simon Hills from the British Bankers’ Association (BBA) in the magazine of the Worshipful Company of International Bankers’s (WCIB)

It is true that this epidemic of regulation is an unproductive use of funds; it is true that it raises the cost of capital; it is true that it does not necessarily make the world a safer place. But look on the bright side, dear reader: the compliance departments of banks and insurers are not likely to suffer from generalised and ongoing job cuts, lawyers and accountants involved in the sector are busy, and the sector is booming.

Cash for Claptrap There is still enough money around to fund a university professor’s study into whether bras are beneficial to women’s breasts. Professor Rouillon of Besançon University spent fifteen years on this topic. His conclusion: “Medically, physiologically, anatomically – breasts gain no benefit from being denied gravity.” The article was published on April 11, not April 1, so one presumes it was not an April Fool’s joke. In academia, as in life, there are always enough funds around to finance rubbish. Daily Telegraph

Dictator Deaths The era of Chavismo in Venezuela is drawing to a close. It matters little whether Henrique Capriles, the head of the Opposition who “lost” the general election by 235,000 votes manages to overturn the rigged result. Infighting within the ruling United Socialist Party of Venezuela will probably see it fragment into factions and no longer hold a monopoly on power.

Meanwhile, the centre-right elite which ruled for decades and never allowed the country’s oil riches to make it beyond the confines of the Caracas Country Club has morphed into an Opposition that looks to have learned enough over the last fourteen years to avoid the same mistakes. (For informed opinion on the Venezuelan Economy, see Veneconomy)

Fidel Castro will, at some point, follow Chavez. He turned Cuba into an island where, irony of ironies, the dollar is king and his much-vaunted educational drive counts for little. The most coveted jobs are those of a doorman at an international hotel in Havana, or a prostitute consorting with tourists. Both have access to dollars. Doctors and erudite officials don’t.

Obliged to Osborne The more one looks at the finance ministers in a number of European countries, the more grateful one is for UK Chancellor George Osborne. Keeping in mind that his austerity is not as austere as critics would have it, he thankfully has the guts to resist the siren calls of those who advocate spending money that is not there. It will take time for the UK economy to emerge from current circumstances. The short cuts proposed would be counterproductive. In the meantime, Osborne’s critics are growing at a quick pace – unlike the UK economy – with even the IMF joining the chorus.

(IMF Managing Director Christine Lagarde and Chief Economist Olivier Blanchard are now at the forefront of UK economic policy critics. A conspiracy theory has it that it is no coincidence that the two are French. The only way to save France, which is refusing to face up to its need for reform, is by having the German and the Northern European contingents loosen their purse strings. (See Why France will fall next).

Stanislav Petrov, a Russian military officer, saved the world two decades ago. One day in 1983 his computer screen indicated that a single missile had been launched from the US. Four more missile attacks subsequently appeared on his screen. He did not report directly to the USSR High Command that the country was under attack because his insight told him it made no sense. Petrov averted nuclear Armageddon by using his ability to think independently and thus override what to anyone else would have seemed clear evidence. In fact, the “attacks” were a series of computer errors.*

Comparing Osborne to Petrov is excessive. But one should never underestimate the guts it takes to stand up to conventional wisdom.

Reading Riot The last item on my gratefulness list is the existence of sublime reading material. I shall mention three.

The Financial Times continues to be the best source of news and comment in the West. We live in a world where the breadth of available expertise and opinion is mind-boggling – literally – and thus the continued existence of a coalescing centre of excellence on international economics and politics is to be welcomed.

Professor Christopher Coker’s Warrior Geeks is inaptly subtitled How 21st century technology is changing the way we fight and think about war. My former tutor’s book, published this year, encompasses infinitely more than that. Read it and you will be proud to be human. (*The anecdote about Petrov comes from this book).

Sheryl Sandberg’s Lean In is the book of the moment. Unlike others, it will last the course. Her analysis of the internal and external barriers to women advancing in their careers and what needs to be done to overcome these is masterful. The COO of Facebook has written a book that will truly help women, as long as all fathers and brothers and sons read it too.

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The London property collapse

Inflation’s soaring path and generational pain

Rather like Macbeth, me-thought I heard a voice cry ‘Sleep no more!”. Having not murdered anyone, I analysed the lack of sleep and found 6 issues keeping me awake: the collapse of the London property market, soaring interest rates, accelerating global inflation, pensioner pain, the agony of the younger generation and the Middle East bloodshed.

1. Imminent Collapse of the London property market
Over the last years an unanswerable question has been what Black Swan event would lead to a fall in central London prices. We all scrabbled away for an answer in our innermost recesses, came up with zilch and the market kept on rising.

The fall is now starting to happen in an important price segment. There is price weakness in the central London family house market at between £6-£15million,with very few trades over the last twelve months, according to property agents Strutt & Parker.

No Black Swan has made an appearance. Instead, a series of factors are chipping away at the market’s resilience. There is the new tax on high value residential properties owned by companies, known as ATED. Meanwhile, City and banker bashing by the government and the press, allied to a low-growth environment in the developed world, means UBS and other global banks are making large cuts to staff and only creating new jobs in other countries.

The ever-increasing prospects of a Labour/Liberal Democrat coalition government after the next election looks very likely to lead to a so-called “mansion tax” (in fact, a tax on capital, a tax on Londoners). This will be applied to houses over £2 million, not a large sum for a property in central London, and thus the price weakness could also cover the segment from £2-£6 million.

2. Soaring Interest Rates
Surely Conservative members of Parliament should have something better to do than tear their own party apart on the back of one issue, the European Union? These disloyal time-wasters need to focus on the fact that David Cameron remains much more popular than the party. To state the obvious, without him, they would not be in power.

In truth, the prime minister and Chancellor George Osborne deserve applause. The UK is still paying peanuts to borrow money. The 10 year gilt is only yielding 1.83% at the time of writing, which was the day the Chancellor announced a halving of the 2013 official GDP forecasts to 0.6%. Considering the state of the economy, it is a miraculous feat.

The concern is over how long this state of affairs can last. The closer we get to a Labour/Liberal Democrat win in the 2015 election, with their attendant big spending policies, the higher the rates will go.

3. Accelerating Global Inflation
With all the arrogance of a 13-year old, I dismissed my mother’s complaints about ever-rising costs with the phrase, “Inflation is normal.” We lived in Spain. The consumer price index was 16% at the time.

This wasn’t just in second world economies, which Spain was at the time. Under Jimmy Carter’s presidency, the inflation rate in the US rose from 4.8% in 1976 to around 12% in 1980. (And for the record, the deficit continued to rise – it more than doubled in his last year to $59 billion).

Governments from Japan to the UK are toying with a monster in their desperate bid for growth. Much wiser heads than mine are saying beware inflation. Take a look at the LSE’s Professor Charles Goodhart and others at The Money Trap.

4. Pensioner Pain
It is supremely irritating to hear the conventional wisdom that the retiring generation have the advantage over the working one. It is true that many of the former have enjoyed post-war expansion, be it in Europe or the US. However, their state pensions are not enough to support them, while their savings in blue chip stocks like Citibank and Lloyds Banking Group have plummeted in value. Additionally, the money they have invested in their local government debt, be it gilts, bonds or T-bills, is receiving joke yields which are not even keeping up with current inflation.

When you remove the debt burden through inflationary means, you eliminate someone’s assets. Whose? Pensioners who cannot bring home a salary from a full time job. In the UK you add to the equation the very real possibility of the “mansion” tax, and the older generation are truly stuffed.

5. Generational Agony
Having said that, the younger generation’s future looks rather difficult too. My son may well go to one of the best schools in the world but that won’t make a difference when he is competing against his mega-bright Indian and Chinese peers for a job.

My attempts at being a Dragon Mother have foundered on the rocks of his charm and intransigence. Plus my deeply held belief that a boy covered in mud from a game of rugby is a joy to behold, while pale-faced cleanliness and neatly lined up musical instruments are an abomination.

Perhaps in time for his generation’s university studies the Indian University of Technology in Mumbai and Peking University will introduce positive discrimination for bright Western children.

6. Middle East Collapse
The complexity of the decisions that need to be taken on whether to send arms to the rebels and how to react to the use of chemical weapons is but the beginning of the imbroglio. Syria, according to experts, will finally break up, with the Alawites of President Bashir Assad setting up an independent state in their relatively small portion of the country.

This could spell the start of the breakup of those roughly drawn Middle East colonial borders. Unfair and illogical they undoubtedly are, but the redrawing of new ones will be a bloody affair. Arms trafficking will increase, jihadists will find it easier to arm themselves and the unsatisfactory stalemate between Israel and the rest of the region could well be something we look back on as a time of peace.

Having possibly murdered your sleep with this sorry list, dear reader, I promise you a lighter column next month.

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