Category: The British Election
The fact that a framework agreement has been reached with Iran on its nuclear programme is really good news, at a time when there is little good news around.
Back in 1963, many people believed that, within 10 years, there would be up to 25 states with nuclear warheads.
The fact that this has not happened is quite an achievement.
Iran denies that its programme is designed for military purposes, but this is hard to believe.
Iran is surrounded by nuclear armed powers, Pakistan, India, Israel, and Russia, and has had a bad relationship with another nuclear power, the US.
The framework agreement may lead to a final comprehensive agreement.
A robust “anywhere, anytime, no notice” inspection regime will be the key to the credibility of any final agreement.
In the United States, critics of the framework agreement have yet to come up with a convincing alternative to it.
Some seem still to favour targeted military action against Iran, notwithstanding the poor outcome of the intervention in Iraq.
Meanwhile the tragedy of Syria continues.
220,000 people have died and 8 million people are forced from their homes.
Ancient religious communities, that had survived since the time of Christ, are being destroyed.
Nobody seems to have any idea how to stop the slaughter
If the international community can reach a deal on the Iranian question, they should turn their attention to Syria.
The initial goal in Syria should be a truce with forces in place, rather than regime change. A frozen conflict is better than a hot one.
THE BRITISH ELECTION
It is depressing to watch parties in the British election promising to increase spending on health, while simultaneously saying they will not increase most taxes.
Britain still has a structural budget deficit of 2.3% of GDP, one of the highest in Europe. In other words the British Government is committed, on present policies, to spending more than it receives. That gap will eventually have to be closed.
Even more worrying, the wider British economy is not in balance.
The current account deficit is 5.5% of GDP. In other words, Britons are spending 5.5% more abroad than they were earning abroad.
The current account deficit was the indicator that should have warned policy makers that Ireland was heading for trouble, in the 2004 to 2007 period, but it was ignored. It looks as if it is being ignored in Britain today.
WILL QUANTITATIVE EASING LEAD TO TROUBLE?
Negative interest rates, brought about by quantitative easing, make it very hard for private pension funds to make an adequate return, unless they shift to riskier investments.
But riskier investments are, well , how should I put it, riskier! And pension funds should be risk averse.
Likewise, banks have to maintain their capital rations by buying bonds at the artificially low interest rates now obtaining.
If banks buy a lot of bonds at very low interest rates, and then interest rates rise, these low interest rate bonds will be devalued. That will hit the balance sheets of those banks very hard. Could it make some of them insolvent?
WHY IS THERE NOT MORE INVESTMENT WHEN MONEY IS SO CHEAP?
The big problem in the economy is not the cost of money, but the lack of investment in productivity growth by firms across the economy.
At present low interest rates, one would expect a lot of borrowing to invest, but it is not happening. Why? Are firms waiting for consumers to start spending, or is it the other way around?
Or are we running out of growth potential in mature economies?
These are the sort of issues that should be the subject of debate in election campaigns, rather than competing promises to spend more, and tax less, all at the same time!