As Professor Philip Booth of the Institute of Economic Affairs has already made the following comment much better than I could have put it, I am using his words to explain why:

“Europe is trapped in a cycle where debt is being passed round and round in circles – the banks are bust so the Irish government bails them out; the Irish government’s debt is owned by other banks and if the government defaults, they go bust; the EU as a whole then tries to rescue both in opaque arrangements which are only sustainable because Ireland is so small; now Britain is getting involved.

“Responding to debt crises in this way is entirely unsustainable, we potentially have crises in Italy and Spain around the corner and nobody can shoulder their indebtedness.

“The EU has been sitting around doing very little for the last two years (except for dreaming up new regulations for the banks, hedge funds and private equity). What it and the nation states involved should have been doing is ensuring that banks can be wound up in an orderly fashion so that all providers of capital and credit potentially lose money except for depositors who were insured at the beginning of the crisis. The EU governments are simply underwriting mistakes made by private businesses and then blaming it all on “casino capitalists”.

“The Irish government’s debt position would not, in fact, be that bad if it were not for the bank guarantees. Ireland is not another Greece (or Italy) – its underlying position is sound. The key issue has not changed since the beginning of the crisis – it is the need to recognise failed financial institutions for what they are and not load the cost of their bad loans onto taxpayers in general. At the beginning of the crisis, the bail-outs were understandable; we have now had two years to sort out proper legal mechanisms for winding up banks.”

Although at the margins this may be true, research shows that fair trade is not a strategy for long-term development – conventional trade is often more effective. Yet campaigners expend a huge amount of time and resource into persuading people that Fair Trade is more successful than conventional trade in helping those in the poorest countries.

The Institute of Economic Affairs research suggests that claims made by the Fair Trade Movement are seriously exaggerated and argues that Fair Trade is not a long-term development strategy and the model is not appropriate for all producers. Fair Trade’s proponents need to adopt some humility and accept that it is a niche market designed to benefit some producers; and is only capable of achieving a very limited objective.

It is likely that producers end up with only a small fraction of the extra margin consumers pay. Other than with wholly inadequate case studies, Fair Trade promoters have never demonstrated how much of the additional price actually reaches producers. Even analysts sympathetic to the movement have suggested that only 25% of the premium reaches producers. No study ever produced has shown that the benefit to producers anything like matches the price premium paid.

In the UK, the top Fair Trade consuming market, Fair Trade labelled produce made up less than 0.5% of food and non-alcoholic drinks sales in 2007, so the overall contribution to the poor is tiny.

The report argues that Fair Trade doesn’t necessarily benefit the poorest producers either, due to heavy administration requirements and fees involved in becoming a certified producer. (The certification charge starts at $1,570 in the first year – an unaffordable sum for most producers in the poorest countries).

While Fair Trade consumers are given the impression that buying such product guarantees the price paid to producers, it does not guarantee the quantity of produce that is bought.

Indeed Fair Trade was introduced to help producers in adverse market conditions, something which has yet to be tested.

Philip Booth, Editorial and Programme Director at the IEA said:
“Proponents of Fair Trade are guilty of overstating the impact of their movement. Fair Trade products can squeeze out from the market other socially labelled products and place heavy burdens on companies when it comes to certification. In the long term helping those struggling in the poorest countries requires much more radical reform from within. Fair Trade is a niche part of the trade system and it should not be the focus of so much attention. Lifting communities out of poverty means allowing free trade to drive development and growth.”

You can read the full report at the Institute of Economic Affairs.

The European Central Bank will offer funds on Wednesday to banks looking to repay loans later this week. The euro has been under pressure since earlier this year when questions were asked about high government borrowing and markets are tense going into the end of the long term refinancing programme.

The pound was also boosted by comments from the Bank of England’s Monetary Policy Committee member Andrew Sentance who made noises on Monday about raising UK interest rates to counter inflation.

The pound stood at 1.2327 against the euro this morning, getting close to the pre-crisis average.

The Coalition has generally, so far been welcomed by the majority of public and businesses alike, but tomorrow Chancellor George Osborne will announce his first budget and the mood is likely to change.

Osborne and the leaders of the government have already made it very clear that they are not prepared to paper over the cracks and hope the budget deficit will disappear, on the contrary, since taking office we have never stopped being warned that the UK is in for a tough ride for the foreseeable future.

The deficit is the single over-riding feature that this government must face and Osborne said in an interview with the BBC on Sunday that he will not allow the country to follow in the footsteps of Greece by ignoring the problem.

He is a man with a plan and says that on Tuesday he will prove that not only can the UK avoid a Greece-like situation, but also prove that the Britain can pay its way in the world.

Tuesday’s budget is expected to be the tightest in at least 30 years, and with public sector job losses and deep pay and benefit cuts expected, the plan is likely to stoke public discontent and strain the fledgling ruling alliance.

Other measures expected to be included in the budget include a bank levy and reform of welfare benefits and public sector pay. It is believed that there are additional plans including  payroll tax breaks for new businesses, a council tax freeze and a review of public sector pensions.

It is the sixth increase in eight months in Australia and the indications are that it will remain at 4.5% for the foreseeable future, having risen from 3% in October 2009.

Australia is one of the few developed nations that have survived the credit crisis virtually intact, thanks mainly to the rich natural reserves and commodities that make up the countries strong mining industry.

The mining sector has in turn been helped by rising commodity prices and strong demand from developing economies including China.

The growth in the economy in Australia has led to the increase in interest rates as a measure to curb the increase in house prices in the country, property has increased by 20% over the last 12 months.

It is fair to say that plenty have had their fingers burned by the financial crisis through no fault of their own and cannot afford to take the risk of investment under current circumstances.

There are some areas of investment however that have profitted from the financial crisis, precious metals like gold for instance have rocketed in price, leading to a 21st century gold rush where every high street now appears to have a gold ‘expert’ ready to pay cash for your gold jewellery.

Inevitably the ‘gold rush‘ has brought out the worst in some unscrupulous people who are treating the business as they would any other scam that is fashionable at the time, and using outlets to rip off their clients.

But as an investment, if gold is doing well, how about other precious metals such as golds poorer cousin silver?

On the face of it, silver should make a good investment. Demand for silver has outstripped supply every year since 1990 and in the last two years supply has fallen significantly short.

Demand for silver in industry continues to grow, a staggering 44% of all silver produced each year is used in the technologies market alone, a huge growth market itself. But it does not stop there, silver is used in the production of many household goods and is essential to industries worldwide.

In the US the government is currently buying silver futures to replenish an empty stockpile of the commodity and many investors are seeing it as a safe bet, as industrial uses for the product grow along with the scarcity of silver.

The IEA are particularly at odds with the Conservative party over the issue, David Cameron’s party have not only shown support for the idea emanating from France and Germany, but also believes that the UK should take the lead in implementing the levy.

Indeed the idea has the backing of all the UK parties and given the situation that the financial crisis has caused to the general public the bank levy will also appeal to most of the electorate.

The average man on the street would love to see banks in the UK operating under stricter governance and guidelines, but the IEA point out that this is not necessarily the best move and the benefits from adopting such a policy are far outweighed by the drawbacks.

Mark Littlewood said;

“Britain needs to decide whether we want an economic recovery or not. If we do then we need to realise that it will only happen if we value the finance that supports private sector growth. The call from France and Germany to introduce an international levy on banks is hardly a positive step in trying to rebuild Europe’s fragile economies. There has been support for this idea from all parties, with the Conservatives even going so far as to suggest that Britain should lead on it, but the cost of the tax to Britain will be far higher than the benefit.

We’ve seen our politicians intervening to try and ‘stimulate’ a recovery, but more important is the kind of culture we create. If we want Britain to become a place that thrives with commercial activity then we need to be seen as a place that values commercial activity, a levy on bankers’ bonuses, discussion of a Tobin tax and now a proposed levy on bank assets all contribute to the message that we don’t want to be the financial hub of Europe and that we do not value cheap, efficient finance for consumers and firms. It’s time we changed our tune.”

In what is seen as an open attempt to lure US President Barrack Obama on board, the article says;

“This crisis has made us recognise that we are now in an economy which is no longer national but global, so financial standards must also be global. We must ensure that through proper regulation, the financial sector operates on a level playing field globally.”

Calling for a ‘new compact between global banks and the society they serve’, Brown and Sarkozy said;

“We agree that a one-off tax in relation to bonuses should be considered a priority, due to the fact that bonuses for 2009 have arisen partly because of government support for the banking system. However, it is clear the action that must be taken must be at a global level. No one territory can be expected to or be able to act on its own. And if we can find a solution, implemented consistently across the major economies, then we may find a way to ensure that taxpayers do not pay for the risks taken by the banking sector.”

In the US a poll has revealed that 75% of the public believe that none of the US banks that recieved state aid should even consider paying bonuses this year.

alliance & leicester international

A survey by Alliance & Leicester International has revealed that a staggering 87% of ex pats are content to choose to retire in the country that they have chosen to reside in, with France (18%), Spain (13%) and the UK (12%), being the most popular retirement destinations.

With the cost of retirement in the UK estimated to hit £400,000, ex pats intend to fund their retirement in the sun through savings (27%), UK State Pension (23%) and Private Pension (20%). Property is a major source of retirement funding with 6% relying on rental income, 6% intending to sell a residential investment and 2% opting for an equity release plan.

When considering the key factors that contribute to choosing the perfect retirement destination, better quality of life was the most popular answer with 21%, but close behind is a better climate (20%) with value for money (14%) in third.

Major concerns regarding moving abroad appear to be proximity to the UK, with well over half of those surveyed choosing to live in Europe to be closer to UK relatives and friends. Health care and medical issues- in a foreign language, concerned 22% while finances and exchange rates would concern 12%.

Ten percent of those surveyed said that they would not consider moving abroad because of family ties in the UK. Also their lifestyle allows them to take summer vacations as well as the opportunity of skiing holidays in the winter months.

Lynette Byrne, Head of Marketing at Alliance & Leicester International, commented:

“It is interesting to see that many UK expats have settled in their new home, with 87% of UK Expats intending to retire abroad.  However, while some Expats might prefer life outside the UK, they are still very attached to friends and family thus settling in European destinations that are only a low cost flight away.

This research really highlights the international nature of society today and raises some interesting questions as to how people are going to manage their finances and protect their savings against interest rate fluctuations.

Expats who bank with Alliance & Leicester International can choose to hold their savings in a sterling, US Dollar or Euro account giving them not only access to ‘Best Buy’ rates but also the opportunity to shield their retirement cash from currency fluctuations.  They can also be safe in the knowledge that they can access their money using internet banking 24 hours a day no matter where they are living.”

250kg gold bar!

The flagship store of London’s Knightsbridge borough, Harrods have this week started selling gold bars and coins, over the counter. While the commodities are obviously not on display, the discreet private investor is able to conduct business in the Harrods Bank.

Situated on the lower ground floor the gold including a 12.5kg bar will be displayed behind a wall of reinforced glass. The current estimated value of a 12.5kg bar is around £285,000.

Harrods say that they are responding to customer demand as more investors are seeking the security of gold in the current financial situation. The store will stock coins including the British gold sovereign and US gold eagle as well as smaller bars of gold from 1 gram.

Mehdi Bakhordar, managing director of Swiss-based PAMP, said: “Harrods stock our full range and are now the only location in London where investors can purchase a 12.5kg gold bar ‘off the shelf’.”