tag:blogger.com,1999:blog-65799226480428113762023-11-15T22:57:49.822-08:00The Financial Markets , Gold and Good Winesimon gillishttp://www.blogger.com/profile/16044016585608130667noreply@blogger.comBlogger28125tag:blogger.com,1999:blog-6579922648042811376.post-49515824163459653612012-04-24T02:44:00.000-07:002012-04-24T02:44:50.922-07:00<br />
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<b><span style="font-size: 14.0pt;">Speculation in early 1970s Britain: A distorted
Economy.<o:p></o:p></span></b></div>
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<b><i>Abstract<o:p></o:p></i></b></div>
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<b><i> <o:p></o:p></i></b></div>
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In 1971
the Bank of England made changes to the banking system that freed the major high-street
banks from quantitative controls and restrictions on credit creation. In March
1972, the Conservative Government substituted a free-market economic policy for
one that employed loose monetary and easy fiscal policy to encourage investment
into industry. Over the following twenty months capital moved heavily into the
property market, fuelled by the easier credit conditions, and investment into
industry notably dropped. Edward Heath blamed the Bank of England for the
distortion in the economy and many in the City criticised the Government for
naïve economic management. This paper uniquely examines the property boom and
subsequent bust in a wider context. Changes to planning permission,
developments in the lease- hold market and new taxation in the earlier two
decades also contributed to a volatile property market. In particular, inflation
altered expectations for asset prices and engendered fear of holding cash. The
end of the boom amid soaring interest rates witnessed a collapse of the
secondary banking sector and extraordinary pressure on the primary, main-stream
banks. Understanding the period and assignation of blame have to be considered
in the context of changes in the property market from the mid- 1950s, policy mistakes
made by previous Governments and an embedded British culture of property
investment and ownership. <b><i><o:p></o:p></i></b></div>
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Source: Nationwide (property) and Office for National
Statistics (retail price index)<o:p></o:p></div>
<div class="MsoNormal">
<b><span style="font-size: 14.0pt;"> <o:p></o:p></span></b></div>
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<tbody>
<tr style="height: 15.6pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
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<div class="MsoNormal" style="text-align: justify;">
<a href="" name="RANGE!A1">1. Background
</a><o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
<span style="font-family: Calibri, sans-serif; font-size: 11pt;">7<o:p></o:p></span></div>
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<tr style="height: 15.6pt; mso-yfti-irow: 1;">
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 457.0pt;" width="762">
<div class="MsoNormal" style="text-align: justify;">
<a href="" name="OLE_LINK1"> <o:p></o:p></a></div>
</td>
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
</tr>
<tr style="height: 15.6pt; mso-yfti-irow: 2;">
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 457.0pt;" width="762">
<div class="MsoNormal" style="text-align: justify;">
Conservative Party Policy
1970-1972
<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
<span style="font-family: Calibri, sans-serif; font-size: 11pt;">7<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 15.6pt; mso-yfti-irow: 3;">
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 457.0pt;" width="762">
<div class="MsoNormal" style="text-align: justify;">
Macroeconomic Background
<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
<span style="font-family: Calibri, sans-serif; font-size: 11pt;">10<o:p></o:p></span></div>
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<tr style="height: 15.6pt; mso-yfti-irow: 4;">
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 457.0pt;" width="762">
<div class="MsoNormal" style="text-align: justify;">
March 1972 Budget
<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
<span style="font-family: Calibri, sans-serif; font-size: 11pt;">13<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 15.6pt; mso-yfti-irow: 5;">
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 457.0pt;" width="762">
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
</td>
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
</tr>
<tr style="height: 15.6pt; mso-yfti-irow: 6;">
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 457.0pt;" width="762">
<div class="MsoNormal" style="text-align: justify;">
2. The Secondary Banking Sector and changes in the Money- Markets
<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
<span style="font-family: Calibri, sans-serif; font-size: 11pt;">15<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 15.6pt; mso-yfti-irow: 7;">
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 457.0pt;" width="762"></td>
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
</tr>
<tr style="height: 15.6pt; mso-yfti-irow: 8;">
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 457.0pt;" width="762">
<div class="MsoNormal" style="text-align: justify;">
Competition and Credit Control
<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
<span style="font-family: Calibri, sans-serif; font-size: 11pt;">16<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 15.6pt; mso-yfti-irow: 9;">
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 457.0pt;" width="762"></td>
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
</tr>
<tr style="height: 15.6pt; mso-yfti-irow: 10;">
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 457.0pt;" width="762">
<div class="MsoNormal" style="text-align: justify;">
3. The Property Market: 1955-1970
<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
<span style="font-family: Calibri, sans-serif; font-size: 11pt;">18<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 15.6pt; mso-yfti-irow: 11;">
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 457.0pt;" width="762"></td>
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
</tr>
<tr style="height: 15.6pt; mso-yfti-irow: 12;">
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 457.0pt;" width="762">
<div class="MsoNormal" style="text-align: justify;">
Property Data
<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
<span style="font-family: Calibri, sans-serif; font-size: 11pt;">18<o:p></o:p></span></div>
</td>
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<tr style="height: 15.6pt; mso-yfti-irow: 13;">
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 457.0pt;" width="762">
<div class="MsoNormal" style="text-align: justify;">
Commercial Property
<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
<span style="font-family: Calibri, sans-serif; font-size: 11pt;">19<o:p></o:p></span></div>
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<tr style="height: 15.6pt; mso-yfti-irow: 14;">
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 457.0pt;" width="762">
<div class="MsoNormal" style="text-align: justify;">
Residential Property
<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
<span style="font-family: Calibri, sans-serif; font-size: 11pt;">23<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 15.6pt; mso-yfti-irow: 15;">
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 457.0pt;" width="762"></td>
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
</tr>
<tr style="height: 15.6pt; mso-yfti-irow: 16;">
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 457.0pt;" width="762">
<div class="MsoNormal" style="text-align: justify;">
4. Property, Inflation and the
<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
<span style="font-family: Calibri, sans-serif; font-size: 11pt;">25<o:p></o:p></span></div>
</td>
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<tr style="height: 15.6pt; mso-yfti-irow: 17;">
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 457.0pt;" width="762">
<div class="MsoNormal" style="text-align: justify;">
Political Economy: 1970-1973 <o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
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<tr style="height: 15.6pt; mso-yfti-irow: 18;">
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 457.0pt;" width="762">
<div class="MsoNormal" style="text-align: justify;">
<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
</tr>
<tr style="height: 15.6pt; mso-yfti-irow: 19;">
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 457.0pt;" width="762">
<div class="MsoNormal" style="text-align: justify;">
Shocks to the Property Market
<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
<span style="font-family: Calibri, sans-serif; font-size: 11pt;">25<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 15.6pt; mso-yfti-irow: 20;">
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 457.0pt;" width="762">
<div class="MsoNormal" style="text-align: justify;">
Inflation
<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
<span style="font-family: Calibri, sans-serif; font-size: 11pt;">27<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 15.6pt; mso-yfti-irow: 21;">
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 457.0pt;" width="762">
<div class="MsoNormal" style="text-align: justify;">
Inflation and Property
<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
<span style="font-family: Calibri, sans-serif; font-size: 11pt;">29<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 15.6pt; mso-yfti-irow: 22;">
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 457.0pt;" width="762">
<div class="MsoNormal" style="text-align: justify;">
The Political Economy
<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
<span style="font-family: Calibri, sans-serif; font-size: 11pt;">34<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 15.6pt; mso-yfti-irow: 23;">
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 457.0pt;" width="762">
<div class="MsoNormal" style="text-align: justify;">
Historical examples of Property
Speculation
<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
<span style="font-family: Calibri, sans-serif; font-size: 11pt;">35<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 15.6pt; mso-yfti-irow: 24;">
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 457.0pt;" width="762">
<div class="MsoNormal" style="text-align: justify;">
and Bank Crises<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
</tr>
<tr style="height: 15.6pt; mso-yfti-irow: 25;">
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 457.0pt;" width="762">
<div class="MsoNormal" style="text-align: justify;">
The Political Economy and the Property
Market
<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
<span style="font-family: Calibri, sans-serif; font-size: 11pt;">35<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 15.6pt; mso-yfti-irow: 26;">
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 457.0pt;" width="762">
<div class="MsoNormal">
The End of the Bull Market
<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
<span style="font-family: Calibri, sans-serif; font-size: 11pt;">36<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 15.6pt; mso-yfti-irow: 27;">
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 457.0pt;" width="762"></td>
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
</tr>
<tr style="height: 15.6pt; mso-yfti-irow: 28;">
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 457.0pt;" width="762">
<div class="MsoNormal" style="text-align: justify;">
<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
</tr>
<tr style="height: 15.6pt; mso-yfti-irow: 29;">
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 457.0pt;" width="762">
<div class="MsoNormal" style="text-align: justify;">
5. The Secondary Banking Crisis: 1973 –
1977
<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
<span style="font-family: Calibri, sans-serif; font-size: 11pt;">39<o:p></o:p></span></div>
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<tr style="height: 15.6pt; mso-yfti-irow: 30;">
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 457.0pt;" width="762">
<div class="MsoNormal" style="text-align: justify;">
<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
</tr>
<tr style="height: 15.6pt; mso-yfti-irow: 31;">
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 457.0pt;" width="762">
<div class="MsoNormal" style="text-align: justify;">
Solution
<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
<span style="font-family: Calibri, sans-serif; font-size: 11pt;">42<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 15.6pt; mso-yfti-irow: 32;">
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 457.0pt;" width="762"></td>
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
</tr>
<tr style="height: 15.6pt; mso-yfti-irow: 33;">
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 457.0pt;" width="762">
<div class="MsoNormal" style="text-align: justify;">
6. The Property Market: 1974-1976
<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
<span style="font-family: Calibri, sans-serif; font-size: 11pt;">45<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 15.6pt; mso-yfti-irow: 34;">
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 457.0pt;" width="762">
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
</td>
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
</tr>
<tr style="height: 15.6pt; mso-yfti-irow: 35;">
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 457.0pt;" width="762">
<div class="MsoNormal" style="text-align: justify;">
Commercial Property
<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
<span style="font-family: Calibri, sans-serif; font-size: 11pt;">45<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 15.6pt; mso-yfti-irow: 36;">
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 457.0pt;" width="762">
<div class="MsoNormal" style="text-align: justify;">
Residential Property
<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
<span style="font-family: Calibri, sans-serif; font-size: 11pt;">47<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 15.6pt; mso-yfti-irow: 37;">
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 457.0pt;" width="762">
<div class="MsoNormal" style="text-align: justify;">
Property unit Trusts
<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
<span style="font-family: Calibri, sans-serif; font-size: 11pt;">48<o:p></o:p></span></div>
</td>
</tr>
<tr style="height: 15.6pt; mso-yfti-irow: 38;">
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 457.0pt;" width="762">
<div class="MsoNormal" style="text-align: justify;">
<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
</tr>
<tr style="height: 15.6pt; mso-yfti-irow: 39; mso-yfti-lastrow: yes;">
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 457.0pt;" width="762">
<div class="MsoNormal" style="text-align: justify;">
7. Conclusion
<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.6pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
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<span style="font-family: Calibri, sans-serif; font-size: 11pt;">49<o:p></o:p></span></div>
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<b><span style="font-size: 14.0pt;">1<o:p></o:p></span></b></div>
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<b><i>Background<o:p></o:p></i></b></div>
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<u>Conservative Party 1970-1972<o:p></o:p></u></div>
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The Conservative party under
Edward Heath was elected in June 1970. Brendan Sewill, special assistant to the
Chancellor of the Exchequer, believed that the Conservatives had a better prepared
and more detailed programme than any previous opposition party.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn1" name="_ftnref1" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[1]</span></span><!--[endif]--></span></a> Emphasising “disengagement”
from state control, the Conservatives promised a free- market philosophy, particularly
tax reform, alongside EEC entry and new legislation on industrial relations. Their
economic goal was to be achieved by making the nationalised sector more
efficient, particularly by stopping subsidies to “lame-duck” firms and
abolishing interventionist institutions such as the National Board of Prices
and Incomes (NBPI) and the Industrial Reorganisation Corporation (IRC) despite
the Bank of England’s approval of the latter.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn2" name="_ftnref2" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[2]</span></span><!--[endif]--></span></a> The Bank believed assistance to modernise
industry would raise productivity and the Governor expressed his regret at the
winding down of the IRC.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn3" name="_ftnref3" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[3]</span></span><!--[endif]--></span></a> Plans to stimulate the supply
side of the economy included tax cuts, tax reform and privatisation. <o:p></o:p></div>
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Source: RPI - Office for National Statistics,
Wages - OECD<o:p></o:p></div>
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The Cabinet was keen to
be decisive but the advantage of preparing early for Government in the late1960s
had been offset by the failure to have prioritised price stability.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn4" name="_ftnref4" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[4]</span></span><!--[endif]--></span></a> The Conservatives had assumed
that fears of bankruptcy would dampen private-sector wage negotiations, but the
subdued labour market while in opposition changed to over 11.7% annualised wage
inflation in the three years 1969 to 1971, when retail price inflation was only
7% (annualised). Adapting to economic change was further complicated by the
death of the Chancellor, Iain Macleod, in July 1970, a man whose intellectual
and political stature was considered greater than that of his colleagues.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn5" name="_ftnref5" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[5]</span></span><!--[endif]--></span></a> The new Chancellor, Anthony Barber, had been
Economic Secretary to the Treasury in 1962-1963 but the value of his experience
was undermined by unfavourable comparisons to Macleod.<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
The ambition of the Conservative
program was unveiled at the October party conference. Heath promised a “quiet
revolution” to reverse the move towards a collectivist economy overwhelmed by
state intervention.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn6" name="_ftnref6" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[6]</span></span><!--[endif]--></span></a>
This had not been intended as a one-term
strategy, but an overall vision of transforming Britain into a modern society. However,
Heath had allowed himself to be identified with aggressively free-market
beliefs which were not necessarily his own and in some cases alien to him. The philosophy
created support from the right wing of the party but alienated the Trade Unions
whose assent would become necessary in the future.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn7" name="_ftnref7" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[7]</span></span><!--[endif]--></span></a> <o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
The strategy of disengagement was immediately
undermined in November 1970 when the Aviation Minister gave £42 million of
state aid to Rolls Royce. By February 1971 the company was insolvent and the Government,
fearing wide spread unemployment, nationalised it citing its importance to defence
as an exceptional circumstance.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn8" name="_ftnref8" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[8]</span></span><!--[endif]--></span></a> Rolls Royce was engaged in
building the RB211 engine for the United States’ Lockheed Corporation and
possibly foreign policy, along-side unemployment and defence considerations, influenced
the rescue. The Government’s credibility weakened further in April and June the
following year, when they subsidised the new owners of the Upper Clyde
Shipbuilders and then mounted the rescue of Belfast shipbuilders Harland and Wolff. Heath was conscious that the electorate had blamed
the Conservatives for high unemployment in the inter-war period, which they had
demonstrated by voting Labour in the1945 landslide, and consequently switched
to employment as the main priority.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn9" name="_ftnref9" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[9]</span></span><!--[endif]--></span></a> Following Heath’s U-turn from industrial
disengagement, the Economist dryly noted that one of the worst choices for a
£35m subsidy was shipbuilding “whose future lies in low wage countries.”<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn10" name="_ftnref10" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[10]</span></span><!--[endif]--></span></a><o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
The Government’s early loss of
credibility in industry was matched by its failure to implement a coherent
incomes policy. The Industrial Relations Act of 1971 failed to secure wage restraint
because of militant action by the Trade Unions, who used the Act as a pretext
for expressing political hostility to other policies. The Act had aimed to
prevent strikes by codifying collective bargaining to ensure wage agreement,
with the National Industrial Relations Court (NIRC) being used in unresolved
disputes. However the NIRC often made surprising decisions when adjudicating
difficult cases turning relatively minor disputes into matters of unnecessary
significance. This often encouraged, rather than prevented, strike action.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn11" name="_ftnref11" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[11]</span></span><!--[endif]--></span></a><o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
The
volte-face was clear with the preparation and enactment of the 1972 Industry
Act which allowed Government support for industry, including £5m without
parliamentary approval. Shipbuilding, computers, motorcycles and textiles all
immediately received Government aid as did the poorer, rural regions. The act even
permitted industry to offer share holdings to Government as compensation for
grants, prompting Labour’s Tony Benn to acknowledge with ironic humour the new (Conservative)
Government’s control over the private sector.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn12" name="_ftnref12" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[12]</span></span><!--[endif]--></span></a><o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<u>Macroeconomic Background<o:p></o:p></u></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 4.65pt; width: 603px;">
<tbody>
<tr style="height: 15.0pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 93.0pt;" valign="bottom" width="155">
<div align="center" class="MsoNormal" style="text-align: center;">
<br /></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 29.0pt;" valign="bottom" width="48"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
1970<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
1971<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
1972<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
1973<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
1974<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 1;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 93.0pt;" valign="bottom" width="155">
<div class="MsoNormal">
% annual increase<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 29.0pt;" valign="bottom" width="48"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 2;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 93.0pt;" valign="bottom" width="155"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 29.0pt;" valign="bottom" width="48"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 3;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 93.0pt;" valign="bottom" width="155">
<div class="MsoNormal">
GDP (real)<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 29.0pt;" valign="bottom" width="48"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
2.2<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
1.6<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
3.4<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
5.6<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
-1.7<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 4;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 93.0pt;" valign="bottom" width="155">
<div class="MsoNormal">
Unemployment<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 29.0pt;" valign="bottom" width="48"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
2.6<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
2.8<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
3.1<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
2.1<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
2.2<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 5;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 93.0pt;" valign="bottom" width="155">
<div class="MsoNormal">
Wages<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 29.0pt;" valign="bottom" width="48"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
11.6<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
11.7<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
13.7<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
17.0<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
26.4<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 6;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 93.0pt;" valign="bottom" width="155">
<div class="MsoNormal">
RPI<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 29.0pt;" valign="bottom" width="48"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
6.4<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
9.4<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
7.1<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
9.2<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
16<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 7;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 93.0pt;" valign="bottom" width="155">
<div class="MsoNormal">
M3<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 29.0pt;" valign="bottom" width="48"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
8.6<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
14.0<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
27.2<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
27.1<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
5.7<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 8;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 93.0pt;" valign="bottom" width="155"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 29.0pt;" valign="bottom" width="48"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 9;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 93.0pt;" valign="bottom" width="155">
<div class="MsoNormal">
Trade in Goods<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 29.0pt;" valign="bottom" width="48"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
-18<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
205<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
-736<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
-2,573<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="right" class="MsoNormal" style="text-align: right;">
-5,241<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 10; mso-yfti-lastrow: yes;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 93.0pt;" valign="bottom" width="155">
<div class="MsoNormal">
£ millions<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 29.0pt;" valign="bottom" width="48"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
</tr>
</tbody></table>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
Sources: GDP, Unemployment, M3: Economic Trends Supplement (ETAS) 1990, <o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
RPI: Office for National Statistics, Wages, Trade
in Goods: OECD. <o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
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" o:spid="_x0000_i1039" style="height: 195pt; visibility: visible; width: 402pt;" type="#_x0000_t75">
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<o:lock aspectratio="f" v:ext="edit">
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<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
Source: Bloomberg<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
The Conservatives
inherited an economy with a low unemployment rate of 2.6% and positive balance
of payments, but by the end of 1971, the Government’s first full year in
office, the economy had suffered weaker growth (1.6% compared to 2.2% in 1970) with
unemployment soon to rise sharply. In 1972, the current account, which had been
positive due to the Labour Government’s monetary squeeze, started deteriorating
because of the higher volume of imports following the August 1971 dollar
devaluation.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn13" name="_ftnref13" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[13]</span></span><!--[endif]--></span></a>
The earlier squeeze had been made necessary by a large overhang of Government
debt and a negative balance of payments up to and following the 1967
devaluation. In 1972, the unadjusted unemployment figure rose above the politically
sensitive 1 million and although the seasonally adjusted figures were more
reliable, the number was considered intolerable.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn14" name="_ftnref14" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[14]</span></span><!--[endif]--></span></a> With hindsight the fear of
rising unemployment was partly misplaced. The Bank of England in early June
1972 noted a positive employment trend and expressed more concern about
inflation, but the political pressure
from rising unemployment had broken the Government’s will.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn15" name="_ftnref15" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[15]</span></span><!--[endif]--></span></a> When the Chief Constable of
Glasgow feared civil disorder during the militant strike action in shipbuilding
yards, the rescue of Upper Clyde Shipbuilders had become almost inevitable.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn16" name="_ftnref16" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[16]</span></span><!--[endif]--></span></a><o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
Fixed
investment in manufacturing industry: £
millions at 1975 prices<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 5.4pt; width: 337px;">
<tbody>
<tr style="height: 15.0pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 87.8pt;" valign="bottom" width="146">
<div class="MsoNormal">
1970<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 29.8pt;" valign="bottom" width="50"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 84.8pt;" valign="bottom" width="141">
<div align="center" class="MsoNormal" style="text-align: center;">
4,177<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 1;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 87.8pt;" valign="bottom" width="146">
<div class="MsoNormal">
1971<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 29.8pt;" valign="bottom" width="50"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 84.8pt;" valign="bottom" width="141">
<div align="center" class="MsoNormal" style="text-align: center;">
3,898<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 2;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 87.8pt;" valign="bottom" width="146">
<div class="MsoNormal">
1972<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 29.8pt;" valign="bottom" width="50"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 84.8pt;" valign="bottom" width="141">
<div align="center" class="MsoNormal" style="text-align: center;">
3,370<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 3;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 87.8pt;" valign="bottom" width="146">
<div class="MsoNormal">
1973<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 29.8pt;" valign="bottom" width="50"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 84.8pt;" valign="bottom" width="141">
<div align="center" class="MsoNormal" style="text-align: center;">
3,440<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 4;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 87.8pt;" valign="bottom" width="146">
<div class="MsoNormal">
1974<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 29.8pt;" valign="bottom" width="50"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 84.8pt;" valign="bottom" width="141">
<div align="center" class="MsoNormal" style="text-align: center;">
3,782<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 5; mso-yfti-lastrow: yes;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 87.8pt;" valign="bottom" width="146">
<div class="MsoNormal">
1975<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 29.8pt;" valign="bottom" width="50"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 84.8pt;" valign="bottom" width="141">
<div align="center" class="MsoNormal" style="text-align: center;">
3,522<o:p></o:p></div>
</td>
</tr>
</tbody></table>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
Source: HMSO, Coopey and Woodward
(1996)<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
Fixed investment into manufacturing dropped
by over 6% in 1971 and was forecast to drop further in 1972. The pessimistic
view was well founded as the decline in 1972 was eventually over 13 %. Despite
cutting purchase tax in 1971, activity in the economy was subdued, reflected by
the 5% Bank Rate in January 1972, its lowest since 1964.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn17" name="_ftnref17" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[17]</span></span><!--[endif]--></span></a> Heath wanted British
Industry to be more competitive before it joined the EEC in January 1973.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn18" name="_ftnref18" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[18]</span></span><!--[endif]--></span></a> Cabinet discussion over the
winter 1971/1972 focused on further monetary expansion with The Industry Act as
a further conduit for policy aimed at promoting growth. On 3 January, Heath
invited to dinner several bankers and industrialists including Jacob Rothschild,
Jim Slater (who had founded the conglomerate Slater Walker with the
Conservative minister Peter Walker) and Nigel Broackes who ran the construction
firm Trafalgar House. Nigel Broackes recalled the government “wanted to
encourage an investment boom with an abundance of easy credit.”<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn19" name="_ftnref19" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[19]</span></span><!--[endif]--></span></a><o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
The budget was set for 21
March 1972 and although the outcome has been called the “Barber Boom”, the architect
was Heath himself. The leader imposed his will on a resigned cabinet and disapproving
Treasury.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn20" name="_ftnref20" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[20]</span></span><!--[endif]--></span></a>
Samuel Brittan acknowledged this in 1977 when he wrote that Barber was the
cabinet minister with the least responsibility for the “Barber Boom”.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn21" name="_ftnref21" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[21]</span></span><!--[endif]--></span></a> Barber had skilfully
implemented Macleod’s tax reforms but was unable to match his predecessor’s
political agility in forming policy.<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<u>March 1972 Budget<o:p></o:p></u></div>
<div class="MsoNormal" style="line-height: 150%;">
<u> <o:p></o:p></u></div>
<table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 4.65pt; width: 618px;">
<tbody>
<tr style="height: 15.0pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 81.0pt;" valign="bottom" width="135">
<div align="center" class="MsoNormal" style="text-align: center;">
Budget Year<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 86.0pt;" valign="bottom" width="143">
<div align="center" class="MsoNormal" style="text-align: center;">
Projected Change
in Tax <o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 108.0pt;" valign="bottom" width="180">
<div align="center" class="MsoNormal" style="text-align: center;">
Party<o:p></o:p></div>
</td>
</tr>
<tr style="height: 14.45pt; mso-yfti-irow: 1;">
<td nowrap="" style="height: 14.45pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 81.0pt;" valign="bottom" width="135">
<div align="center" class="MsoNormal" style="text-align: center;">
April - April<o:p></o:p></div>
</td>
<td nowrap="" style="height: 14.45pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 14.45pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 86.0pt;" valign="bottom" width="143">
<div align="center" class="MsoNormal" style="text-align: center;">
£ Millions<o:p></o:p></div>
</td>
<td nowrap="" style="height: 14.45pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 14.45pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 108.0pt;" valign="bottom" width="180"></td>
</tr>
<tr style="height: 14.45pt; mso-yfti-irow: 2;">
<td nowrap="" style="height: 14.45pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 81.0pt;" valign="bottom" width="135"></td>
<td nowrap="" style="height: 14.45pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 14.45pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 86.0pt;" valign="bottom" width="143"></td>
<td nowrap="" style="height: 14.45pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 14.45pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 108.0pt;" valign="bottom" width="180"></td>
</tr>
<tr style="height: 14.45pt; mso-yfti-irow: 3;">
<td nowrap="" style="height: 14.45pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 81.0pt;" valign="bottom" width="135">
<div align="center" class="MsoNormal" style="text-align: center;">
1960<o:p></o:p></div>
</td>
<td nowrap="" style="height: 14.45pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 14.45pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 86.0pt;" valign="bottom" width="143">
<div align="center" class="MsoNormal" style="text-align: center;">
71<o:p></o:p></div>
</td>
<td nowrap="" style="height: 14.45pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 14.45pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 108.0pt;" valign="bottom" width="180">
<div align="center" class="MsoNormal" style="text-align: center;">
Conservative<o:p></o:p></div>
</td>
</tr>
<tr style="height: 14.45pt; mso-yfti-irow: 4;">
<td nowrap="" style="height: 14.45pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 81.0pt;" valign="bottom" width="135">
<div align="center" class="MsoNormal" style="text-align: center;">
1961<o:p></o:p></div>
</td>
<td nowrap="" style="height: 14.45pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 14.45pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 86.0pt;" valign="bottom" width="143">
<div align="center" class="MsoNormal" style="text-align: center;">
58<o:p></o:p></div>
</td>
<td nowrap="" style="height: 14.45pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 14.45pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 108.0pt;" valign="bottom" width="180">
<div align="center" class="MsoNormal" style="text-align: center;">
Conservative<o:p></o:p></div>
</td>
</tr>
<tr style="height: 14.45pt; mso-yfti-irow: 5;">
<td nowrap="" style="height: 14.45pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 81.0pt;" valign="bottom" width="135">
<div align="center" class="MsoNormal" style="text-align: center;">
1962<o:p></o:p></div>
</td>
<td nowrap="" style="height: 14.45pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 14.45pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 86.0pt;" valign="bottom" width="143">
<div align="center" class="MsoNormal" style="text-align: center;">
9<o:p></o:p></div>
</td>
<td nowrap="" style="height: 14.45pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 14.45pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 108.0pt;" valign="bottom" width="180">
<div align="center" class="MsoNormal" style="text-align: center;">
Conservative<o:p></o:p></div>
</td>
</tr>
<tr style="height: 14.45pt; mso-yfti-irow: 6;">
<td nowrap="" style="height: 14.45pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 81.0pt;" valign="bottom" width="135">
<div align="center" class="MsoNormal" style="text-align: center;">
1963<o:p></o:p></div>
</td>
<td nowrap="" style="height: 14.45pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 14.45pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 86.0pt;" valign="bottom" width="143">
<div align="center" class="MsoNormal" style="text-align: center;">
-594<o:p></o:p></div>
</td>
<td nowrap="" style="height: 14.45pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 14.45pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 108.0pt;" valign="bottom" width="180">
<div align="center" class="MsoNormal" style="text-align: center;">
Conservative<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 7;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 81.0pt;" valign="bottom" width="135">
<div align="center" class="MsoNormal" style="text-align: center;">
1964<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 86.0pt;" valign="bottom" width="143">
<div align="center" class="MsoNormal" style="text-align: center;">
341<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 108.0pt;" valign="bottom" width="180">
<div align="center" class="MsoNormal" style="text-align: center;">
Con /
Labour<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 8;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 81.0pt;" valign="bottom" width="135">
<div align="center" class="MsoNormal" style="text-align: center;">
1965<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 86.0pt;" valign="bottom" width="143">
<div align="center" class="MsoNormal" style="text-align: center;">
223<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 108.0pt;" valign="bottom" width="180">
<div align="center" class="MsoNormal" style="text-align: center;">
Labour<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 9;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 81.0pt;" valign="bottom" width="135">
<div align="center" class="MsoNormal" style="text-align: center;">
1966<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 86.0pt;" valign="bottom" width="143">
<div align="center" class="MsoNormal" style="text-align: center;">
265<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 108.0pt;" valign="bottom" width="180">
<div align="center" class="MsoNormal" style="text-align: center;">
Labour<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 10;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 81.0pt;" valign="bottom" width="135">
<div align="center" class="MsoNormal" style="text-align: center;">
1967<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 86.0pt;" valign="bottom" width="143">
<div align="center" class="MsoNormal" style="text-align: center;">
-12<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 108.0pt;" valign="bottom" width="180">
<div align="center" class="MsoNormal" style="text-align: center;">
Labour<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 11;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 81.0pt;" valign="bottom" width="135">
<div align="center" class="MsoNormal" style="text-align: center;">
1968<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 86.0pt;" valign="bottom" width="143">
<div align="center" class="MsoNormal" style="text-align: center;">
923<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 108.0pt;" valign="bottom" width="180">
<div align="center" class="MsoNormal" style="text-align: center;">
Labour<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 12;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 81.0pt;" valign="bottom" width="135">
<div align="center" class="MsoNormal" style="text-align: center;">
1969<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 86.0pt;" valign="bottom" width="143">
<div align="center" class="MsoNormal" style="text-align: center;">
340<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 108.0pt;" valign="bottom" width="180">
<div align="center" class="MsoNormal" style="text-align: center;">
Labour<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 13;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 81.0pt;" valign="bottom" width="135">
<div align="center" class="MsoNormal" style="text-align: center;">
1970<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 86.0pt;" valign="bottom" width="143">
<div align="center" class="MsoNormal" style="text-align: center;">
-220<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 108.0pt;" valign="bottom" width="180">
<div align="center" class="MsoNormal" style="text-align: center;">
Conservative<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 14;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 81.0pt;" valign="bottom" width="135">
<div align="center" class="MsoNormal" style="text-align: center;">
1971<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 86.0pt;" valign="bottom" width="143">
<div align="center" class="MsoNormal" style="text-align: center;">
-671<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 108.0pt;" valign="bottom" width="180">
<div align="center" class="MsoNormal" style="text-align: center;">
Conservative<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 15; mso-yfti-lastrow: yes;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 81.0pt;" valign="bottom" width="135">
<div align="center" class="MsoNormal" style="text-align: center;">
<b>1972<o:p></o:p></b></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 86.0pt;" valign="bottom" width="143">
<div align="center" class="MsoNormal" style="text-align: center;">
<b>-1809<o:p></o:p></b></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 108.0pt;" valign="bottom" width="180">
<div align="center" class="MsoNormal" style="text-align: center;">
<b>Conservative<o:p></o:p></b></div>
</td>
</tr>
</tbody></table>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
Source: The Banker April 1972<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
Barber targeted annual growth of 5% for 24
months, and deliberately mentioned the high growth rate because he wanted an
“announcement effect.” <a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn22" name="_ftnref22" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[22]</span></span><!--[endif]--></span></a> The target was twice the
average rate of the previous decade and was to be achieved by increasing
consumer demand with unprecedented tax cuts of over £1,800m (£1,200m through
raising personal tax thresholds) and tax relief for loan- interest over £35 per
year. Notably industry was awarded tax concessions to increase employment by
allowing depreciation on all plant and machinery. William Keegan, writing the
lead article for the Financial Times, estimated that Barber’s measures aimed to
raise Government assistance to manufacturing investment by £115m in 1973-74 and
ultimately by £200m thereafter.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn23" name="_ftnref23" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[23]</span></span><!--[endif]--></span></a> The editorial page called the budget a “Financial
Gamble” and quoted Barber: “The
high growth of output which I intend to sustain with this budget will entail a
growth of money supply that is also high by the standards of past years, in
order to ensure that adequate finance is available for the extra output.”<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn24" name="_ftnref24" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[24]</span></span><!--[endif]--></span></a><o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
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" o:spid="_x0000_i1038" style="height: 217.2pt; visibility: visible; width: 390pt;" type="#_x0000_t75">
<v:imagedata o:title="" src="file:///C:\Users\User\AppData\Local\Temp\msohtmlclip1\01\clip_image004.png">
<o:lock aspectratio="f" v:ext="edit">
</o:lock></v:imagedata></v:shape><o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
Source: Bloomberg<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
Barber also
hinted at the intention to float Sterling, saying it was not “desirable to
distort domestic economies to an unacceptable extent in order to maintain
unrealistic exchange rates.”<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn25" name="_ftnref25" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[25]</span></span><!--[endif]--></span></a>
The Government was cognisant that an investment boom would possibly lead to a
balance of payments crisis, which would undermine the “dash for growth.” It had
been less than five years since Sterling’s forced devaluation against the
Dollar and cabinet thought that they could pre-empt a payments crisis by
floating Sterling and allowing any inflationary fears to be translated into a
weaker exchange rate. The Chancellor, emphasising the expansionary policy,
concluded his budget by saying that he had never agreed with those who had
advocated unemployment as a cure for inflation.<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<b><i>2<o:p></o:p></i></b></div>
<div class="MsoNormal" style="line-height: 150%;">
<b><i>The Secondary Banking Sector and Changes in the
Money-markets.<o:p></o:p></i></b></div>
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<br /></div>
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<div class="MsoNormal" style="line-height: 150%;">
In 1955
local authorities (councils) were required by Treasury to raise money in the
open market to supplement Government loans.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn26" name="_ftnref26" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[26]</span></span><!--[endif]--></span></a>
Cash-rich industrial groups, attracted by the higher deposit rates, competed
with hire-purchase firms to lend money to the local authorities. A new
inter-bank market was created with secondary banks matching the requirements of
borrowers and depositors. The traditional banking sector, “the Clearers”, was
still restricted in its lending practices and missed out on this “whole-sale”
business. The controls imposed on the clearers were partly due to the numerous
sterling crises in the 1960s and they felt unfavourably treated. The other noticeable
difference between the clearers and the secondary banks was that deposits in
the wholesale market were not guaranteed.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn27" name="_ftnref27" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[27]</span></span><!--[endif]--></span></a>
The clearers deposited their excess funds with discount houses, which had a
preferential position; they were ultimately guaranteed by the Bank of England. The
discount houses had the unique facility of being able to discount their assets
for cash with the central bank. In other words, the advantage of higher deposit
rates in the wholesale market was counterbalanced by the absence of a lender of
last resort.<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal">
New money markets (£ millions):<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Local
Authority loans Inter-bank
deposits CDs<o:p></o:p></div>
<div class="MsoNormal">
<span style="font-size: 11.0pt; mso-bidi-font-family: "Times New Roman";"> <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-size: 11.0pt; mso-bidi-font-family: "Times New Roman";">1971 1,974 2,200 2,372<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-size: 11.0pt; mso-bidi-font-family: "Times New Roman";">1972 2,408 4,760 4,930<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-size: 11.0pt; mso-bidi-font-family: "Times New Roman";">1973 3,368 7,694 5,983<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Source: ECMC <i><span style="font-size: 11.0pt; mso-bidi-font-family: "Times New Roman";">Monetary
Policy in the Countries EEC, supplement 1974<o:p></o:p></span></i></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
The election of a Conservative Government in
1970, keen to encourage competition and free-enterprise, allowed the Bank of
England the opportunity to modify the two-tier system of guaranteed and
unguaranteed deposits. British Banking had been extremely stable since the
Barings crisis in 1890 and consequently the danger of a potential crisis was
rarely discussed.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn28" name="_ftnref28" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[28]</span></span><!--[endif]--></span></a>
The late 1960s monetary squeeze had slowed demand and balanced the external
deficit so the timing was propitious to institute expansionary change. <o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
The Bank had
relied too heavily on credit control by quantitatively restricting lending by
clearing banks; the secondary banks had had the advantage of being subject to
less scrutiny. The Bank was pessimistic about the effectiveness of controls, in
particular loan ceilings, and also believed that they were inequitable and
undermined relations between the clearers and the Treasury department.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn29" name="_ftnref29" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[29]</span></span><!--[endif]--></span></a>
The clearing banks had operated a cartel since 1914 which fixed deposit and
loan rates at levels closely aligned to the official Bank Rate, a method which
contrasted with the whole- sale money market. In the whole-sale market for
local authority funds, inter-bank deposits and CDs, deposit and lending rates
were determined competitively with less concern for the official Bank Rate. The
Bank of England wanted to reassert her monetary influence and narrow the divide.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn30" name="_ftnref30" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[30]</span></span><!--[endif]--></span></a><o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<u>Competition and Credit Control<o:p></o:p></u></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
In May 1971 the Bank of England unveiled its
consultation document for “Competition and Credit Control” (C+CC). Quantitative
controls on lending and interest rate agreements between banks were abandoned.
There was to be greater reliance on the market for determining the interest
rate and all banks were to place 12.5% of their deposits as “Special Deposits”
in the form of Treasury bills, short duration bonds or cash at the Bank of
England. The Bank reserved the right to call on the Special Deposits of <i>all </i>the banks and would abandon its
previous policy of supporting a weak Gilt market. Lord O’Brien, the Governor of
the Bank, emphasised the new ethos: “the allocation of credit is primarily
determined by cost.”<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn31" name="_ftnref31" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[31]</span></span><!--[endif]--></span></a> The Economist praised the proposal (“Yes, at
last, a Revolution for the City”) but concluded that the Bank had essentially
admitted to the part played by poor monetary policy in a “disastrous decade for
British Economic History.”<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn32" name="_ftnref32" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[32]</span></span><!--[endif]--></span></a>
<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
The
Treasury was more circumspect in its praise. Abandoning loan ceilings caused
them concern, because they viewed such controls as the <i>primary</i> means of squeezing credit. Also, the clearers had used a
28% liquidity ratio (although that included notes and coins), rather than the
12.5%, and it was concluded that interest rates would have to rise to
unprecedented levels in the case of a credit boom. In particular, the Treasury
feared that Industry would suffer unusually high rates when their traditional
lenders, the clearers, were not bound by the agreed cartel rate.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn33" name="_ftnref33" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[33]</span></span><!--[endif]--></span></a>
In fact Treasury’s prescient assessment of the future Bank Rate in a credit
boom was ironically understated because the 5% Bank Rate at the time <o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
was so low, that a move above the politically sensitive 10%
rate appeared inconceivable. If the Bank Rate had been higher at the time, C+CC
might not have received full Government assent.<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
One later
change is worthy of note. In September 1972 the Bank Rate was replaced by the
Minimum Lending Rate (MLR) which was determined by the Treasury Bill Rate. This was to reinforce the new thinking; a market
determined cost of money that could immediately adapt to prevailing conditions. <o:p></o:p></div>
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<br /></div>
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<br /></div>
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<br /></div>
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<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<b><span style="font-size: 14.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">3<o:p></o:p></span></b></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<b><i>The Property Market 1955-1970.<o:p></o:p></i></b></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<u>Property Data<o:p></o:p></u></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
The sources and data for commercial
property up to 1971 draws on the work of Peter Scott who aggregated prices from
estate agents, trade magazines, newspapers and
the Royal Institutes of Chartered Surveyors (RICS). From 1971 national
data from the Investment Property Databank (IPD) and London data from CB Hillier Parker are
used, both widely accepted by the industry. The coverage and transparency of
current market indices cannot be matched before 1980 and even indices in the
1980s are based on very small samples. Data from the 1970s cannot be cross -
referenced or considered independent. In particular, valuations changed as rent
reviews became more frequent which undermined the consistency of prices and
indices. This will be discussed further in the next section. The Nationwide
Index is used for residential property, which is both comprehensive and consistent,
but it should be noted that data were sourced from property purchased with a
mortgage which ignored the relatively few debt- free property purchases. <o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
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<div class="MsoNormal" style="line-height: 150%;">
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<o:lock aspectratio="f" v:ext="edit">
</o:lock></v:imagedata></v:shape><u><o:p></o:p></u></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
Source: Scott
(1996)<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<u>Commercial Property<o:p></o:p></u></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
Up until 1955
investment into Commercial Property was considered a low risk fixed income
investment (bond) because the rent was fixed under long leases from 99 to 999
years. Inflation and institutional demand for an equity type (property) asset
changed the market to one where <i>upward </i>only
rent reviews were incorporated into leases.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn34" name="_ftnref34" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[34]</span></span><!--[endif]--></span></a>
Rent reviews became more frequent
falling through steps of 50, 40, 33, 21, 14 and 7 years until the 1970s when 5 <o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
years became the standard. Scott (1996) found strong statistical
evidence that institutional investment increased with more frequent rent
reviews. <o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
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<o:lock aspectratio="f" v:ext="edit">
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<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
Source: Scott
(1996) and IPD<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
More
frequent rent reviews also played a large part in increasing perceived property
values in the early 1970s. The British method of valuing property was
simplistic; divide the rent by the accepted market yield. Therefore if the rent
was £200.000 and accepted yield 5%, the property was valued at £4.000.000. An
upward rent review immediately increased its market value. As property itself
was the basis of collateral, a rent review would give the landlord more bargaining
power when negotiating larger loans. <o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
The market
to invest in commercial property was expanded by the Insurance Companies with (Unauthorised)
Property Unit Trusts, which allowed charities and pension funds the ability to
invest without having to manage the premises themselves. They were unauthorised
for sale to the public but the market was enlarged for the retail sector by the
introduction of single premium life policies. These life assurance policies
paid bonuses in excess of the life cover commensurate with the performance of a
successful property portfolio. Jonathan
Harris was repeatedly advised that the most efficient way for a large surveying
practice to start a property company was to create an insurance company or
consider a joint venture.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn35" name="_ftnref35" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[35]</span></span><!--[endif]--></span></a>
<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
Development of newly built commercial property
in the early 1960s was invigorated by business switching to the use of computers,
which required larger floor- space and load-bearing structure than traditional office
buildings. <a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn36" name="_ftnref36" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[36]</span></span><!--[endif]--></span></a> A computer
required an office with eight meter ceilings, open floor space of 250 square
meters and the ability to withstand the considerable weight of a mainframe. Traditional
office space was ill- equipped for the technological advance and corporations
needed to build property of unusually large dimensions. <o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
In November 1964 the Labour Government ostensibly
prohibited property development in Greater London. Their intention was to encourage
business to relocate out of London in an attempt to decentralise the economy
and revitalise towns with older property stock.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn37" name="_ftnref37" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[37]</span></span><!--[endif]--></span></a>
They were also concerned by traffic congestion in the Capital. The Labour Government
required that developers have both planning permission and a special permit
from the Board of Trade. They also abolished the practice of awarding
compensation of £10 per square foot when a <i>legitimate</i>
proposal for planning permission was turned down. <o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
Following the
supply constriction, The Finance Act 1965 introduced Corporation Tax (40%
rising to 45% in 1969) which made <i>direct</i>
investment into property more attractive than investment into property companies
because the latter resulted in a double taxation for corporate investors. Consequently
property companies traded at a discount to their net asset value which often
led to hostile takeovers of the weaker, under-capitalised ones.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn38" name="_ftnref38" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[38]</span></span><!--[endif]--></span></a> Developers had their position undermined
further in 1967 with the introduction of the Land Commission which bought land
for “essential purposes” and imposed a “betterment levy” of 40% when the land
was sold or leased. As a consequence of these three factors, the rate of
institutional <i>direct</i> investment in
property investment rose from an (annualised) average 5.6 % in the period
1948-1964 to 17.8% between 1964 and1973. In a 1971 conference hosted by the
Financial Times and Investors Chronicle, it was estimated that between 1966 and
1970 empty office space in the City of London declined from 3 to 0.5 million
square feet. Rents had increased by between 200 and 300% due to the tight supply,
compounding the inflationary effect, which made property investment appear even
more attractive.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn39" name="_ftnref39" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[39]</span></span><!--[endif]--></span></a> <o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
The
intention of the Finance Act which imposed Corporation Tax at the point of distribution
of dividends to investors was to encourage manufacturing firms to reinvest
profits, but this had an unforeseen consequence for the property sector. Property
companies now favoured<i> dealing</i>, which
was subject to 30% capital gains tax, over longer-term investment because the
latter would create (distributive) rental income that incurred a higher tax
liability of 40-45%. Property companies who had surplus rental income were now
incentivised to take out more debt and use the surplus to pay tax-deductible
interest charges. The optimum strategy was to be highly geared, service debt
and retain profits to speculatively buy more property with little intention of
investment. The corollary was that the companies that were taken over had many
of their assets stripped and sold for immediate profit.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn40" name="_ftnref40" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[40]</span></span><!--[endif]--></span></a><o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
In 1970, following the Conservative
election, Peter Walker, the Secretary for the Environment, relaxed controls on
office development and abolished the Land Commission and its system of
betterment levies. This was motivated by attempting to dampen the rental market
and it was also the Government’s view that Britain’s entry into the EEC would
increase demand for space.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn41" name="_ftnref41" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[41]</span></span><!--[endif]--></span></a>
The South East planning region had permitted just over 9 ¼ million square feet
of development in the 3 years 1966-69, and following Walker’s decision, over 26
¼ million square feet were developed by the end of 1973.In the 1971 budget, Corporation Tax was reduced by 5% which immediately increased corporate
retained- earnings. In 1971, the FT Actuaries Property Share Index was the best
performing stock-market sector with an annual rise of 61%.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn42" name="_ftnref42" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[42]</span></span><!--[endif]--></span></a>
<o:p></o:p></div>
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<div class="MsoNormal" style="line-height: 150%;">
<u> Residential Property <o:p></o:p></u></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
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<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
Source: Nationwide
Residential Index (property-base year 1960) <o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
OECD (inflation) <o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
The 1965 Rent Act introduced controls called “fair rents” that were
intended to regenerate the private, residential rental market.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn43" name="_ftnref43" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[43]</span></span><!--[endif]--></span></a>
One estimate in 1968 by Allsop suggested that central London rents were 8-10%
below open market value and it was often concluded that the Act galvanised
property companies to leave the residential sector.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn44" name="_ftnref44" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[44]</span></span><!--[endif]--></span></a>
However, the imposition of Corporation Tax also contributed because the tax
incentive to deal rather than hold favoured commercial property, because there were
more opportunities to trade in large commercial projects than commensurately
large blocks of residential flats. Consequently, any large scale transactions
in residential property usually involved the break-up of the blocks of flats for
immediate sale because holding rent-controlled property had a (corporation) tax
cost and implicit loss due to the inability to increase rents. Fear of higher
future inflation would make the rent-controlled residential sector even less appealing.<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
On the
demand side, there was a growing number of entrepreneurs willing to buy
residential property because it was sold at a discount to NAV with the
secondary banks able to provide credit with minimal central bank regulation. The
specialist companies had “trading status” which allowed them to sell property subject
to the lower Capital Gains Tax rate. The companies were often partly or even
wholly owned by the secondary banks which financed the project.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn45" name="_ftnref45" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[45]</span></span><!--[endif]--></span></a>
In 1968 the conglomerate Slater Walker bought Drages from Great Universal
Stores specifically because Drages owned 50% of a fully authorized bank, Ralli
Brothers (Bankers) Ltd.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn46" name="_ftnref46" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[46]</span></span><!--[endif]--></span></a>
After acquiring full control of Ralli,
the bank was utilised to finance almost all the conglomerate’s projects,
notably property.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn47" name="_ftnref47" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[47]</span></span><!--[endif]--></span></a>
Slater Walker moved into investment services, attracted depositors and created
pension funds partly to self- finance take- overs and property acquisitions in
the dual role of banker and trader.<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
Property had changed from a low-turnover
investment market in the early 1960s to an aggressive dealers market when the
Conservatives took office. There were 3 distinct groups: Corporate Landlords
including pension funds, who were selling the residential part of their
portfolios, new trading companies that only dealt and enjoyed lower taxation
(30% rather than 45%) and speculative traders who specialized in break-ups. Office
space was in short supply particularly in the City and the secondary banks had
access to the wholesale money markets to finance property. <o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<b><span style="font-size: 14.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";">4<o:p></o:p></span></b></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<b><span style="font-size: 14.0pt; line-height: 150%; mso-bidi-font-family: "Times New Roman";"> </span></b><b><i>Property, Inflation and the
Political Economy: 1970-1973<o:p></o:p></i></b></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<u>Shocks to the Property Market<o:p></o:p></u></div>
<div class="MsoNormal" style="line-height: 150%;">
<u> <o:p></o:p></u></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
Kiyotaki and Moore (1997) demonstrated that
even small temporary shocks to income distribution could generate large
fluctuations in asset prices and output.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn48" name="_ftnref48" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[48]</span></span><!--[endif]--></span></a> In their model economy,
debtors were free from recourse unless their collateral was secured, and credit
limits (and their abandonment) interacted strongly with asset prices. The early
1970s property market was financed by secured loans; secured on the property or
land itself. To review, there were two income distribution shocks before the
Heath Government which had the potential to greatly affect property prices; the
introduction of upward only rent reviews (1955-1970) and changes in corporate
taxation policy (1965). <o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
Equally,
between 1955 and Heath’s Government there were three other distinct developments that supported the building and
valuation of commercial property; a newly-created wholesale interbank
money-market (1955-1972), the incorporation of the computer which
necessitated new (larger) office space
(1961) and finally the Labour party’s effective ban on development in London
and the South East (1964). The reversal of the development ban in 1970
immediately incentivised new investors into a meagrely supplied market. The
Economist reflected that the Government had chosen to relax planning procedures
because it was a reflationary policy easy to achieve.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn49" name="_ftnref49" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[49]</span></span><!--[endif]--></span></a> <o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
After the election, a sixth policy change,
the Introduction of C+CC by the Bank of England (1971), allowed the Clearing
Banks to compete with the secondary Banks to allocate credit. This change
particularly supported residential property because the clearing banks offered
personal mortgages which were no longer subject to quantitative controls. The
seventh policy (and income distribution shock) was the volte face by the
Conservative Party. <o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
Having cut spending in 1970 and
1971, the dash for growth in 1972 incentivised individuals to borrow more for
house purchase because there was now income tax relief on all mortgage-interest.
Equally, fears of unemployment lessened
after the 1972 budget. The perceived risk of buying property with a mortgage repaid
from earnings diminished as unemployment fell from 3.1% in 1972 to 2.1% at the
end of 1973. Monthly Gallup polls asked the question “What do you think is the
most serious problem facing the country?” In 1971 an average of 27% answered
“Unemployment” but that figured dropped to fewer than 4% in 1973 and 1974.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn50" name="_ftnref50" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[50]</span></span><!--[endif]--></span></a><o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span style="font-size: 11.0pt; line-height: 150%;">% increase p.a. 1970 1971 1972 1973<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span style="font-size: 11.0pt; line-height: 150%;"> GDP (real) 2.2 1.6 3.4
5.6<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span style="font-size: 11.0pt; line-height: 150%;"> M3 8.6 14.0
27.2 27.1
<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%; text-align: justify;">
<span style="font-size: 11.0pt; line-height: 150%;">
Source: Economic Trends Supplement (1990)<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
Two further
shocks will be discussed in greater detail. One was the psychological effect of
the macroeconomic environment on property buyers, particularly in respect to
price-inflation and wage –inflation. The second was the effect of the changing political
economy which had prioritised growth and employment without a fully independent
central bank to counter inflationary pressures.<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<u><o:p></o:p></u></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<u>Inflation<o:p></o:p></u></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
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<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<u>
<o:p></o:p></u></div>
<div class="MsoNormal" style="line-height: 150%;">
Source: RPI - Office for National Statistics, Wages - OECD<o:p></o:p></div>
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<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
The quiet employment market of the
1960s was replaced by tougher wage bargaining at the start of the Conservative
term. The “Philips curve” relationship, correlating increased unemployment with
lower wage increases started breaking down in the early 1970s.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn51" name="_ftnref51" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[51]</span></span><!--[endif]--></span></a> Strike activity increased as
Trade Union members hardened their resolve to negotiate for higher wages <i>in response </i>to higher inflation. Their
attitude was not based on current conditions but expectation because it wasn’t
until 1975 that RPI actually exceeded annual wages. In other words, an
important source of inflation was the wage-price spiral that created a self-
fulfilling upward momentum. In addition to the endogenous wage-price spiral,
exogenous events like the breakdown of Bretton Woods and Gold convertibility
had precipitated a boom in commodities. Barber floated Sterling in June 1972
and despite its subsequent weakness the balance of payments worsened from a
positive £1,123 m in 1971 to negative £1,100 m in 1973 which reflected the overheating
economy. <o:p></o:p></div>
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<o:lock aspectratio="f" v:ext="edit">
</o:lock></v:imagedata></v:shape><o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
Source: Office for National Statistics; Economic Trends Annual
Supplement 2006<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
The intention of the 1972 budget was
to increase investment into manufacturing and create industrial employment;
however the Confederation of British Industry’s survey following the budget
reported that only 9% of firms planned to increase spending on plant and
machinery over the next twelve months.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn52" name="_ftnref52" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[52]</span></span><!--[endif]--></span></a> In fact investment fell 13%
in 1972 and the 1973 inflation-adjusted level was over 9% less than in 1970.
The strong property market had diverted investment away from manufacturing and
Heath blamed the Bank of England’s liberalisation of credit controls for the
distorted economy.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn53" name="_ftnref53" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[53]</span></span><!--[endif]--></span></a> <o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
The fall in unemployment to 500,000 after the
“dash for growth” was not due to an increase in industrial employment but the creation
of 400,000 new public sector jobs between 1971 and 1974, an explicit
contradiction of the original ethos of disengagement. Heath’s assignation of
blame to the Bank of England and C+CC neglected the part played by Government
economic policy, particularly in worsening the inflationary environment. Calomiris
(2009) emphasised the point that improving the financial system “depends on the
political environment.” <a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn54" name="_ftnref54" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[54]</span></span><!--[endif]--></span></a> Brendan Sewill, Barber’s
special assistant, wrote to minsters saying the property boom was “the froth on
the top of a pint of beer, undesirable…but perhaps inevitable” but this
transpired to be a naive assessment.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn55" name="_ftnref55" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[55]</span></span><!--[endif]--></span></a> <o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<u>Inflation and Property<o:p></o:p></u></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal">
New money markets (£ millions):<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Local Authority Loans Inter-bank deposits CDs<o:p></o:p></div>
<div class="MsoNormal">
<span style="font-size: 11.0pt; mso-bidi-font-family: "Times New Roman";"> <o:p></o:p></span></div>
<div class="MsoNormal">
<span style="font-size: 11.0pt; mso-bidi-font-family: "Times New Roman";">1971 1,974 2,200 2,372<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-size: 11.0pt; mso-bidi-font-family: "Times New Roman";">1972 2,408 4,760 4,930<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span style="font-size: 11.0pt; mso-bidi-font-family: "Times New Roman";">1973 3,368 7,694 5,983<o:p></o:p></span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Source:
ECMC <i><span style="font-size: 11.0pt; mso-bidi-font-family: "Times New Roman";">Monetary Policy in the Countries EEC,
supplement 1974<o:p></o:p></span></i></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
Evidence
of inflation’s effect on investment flows into property was linked to credit
creation and during 1972-1973 the combination was consistently cited by the
larger property investors as <i>the </i>reason
to buy property; it was considered the best hedge against higher prices and
easy to transact in a credit boom. Mike Slade, CEO of Helical Bar, remembered
that the secondary banks tried to lend money at “even more alarmingly
competitive levels” and Ronald Lyon, whose Lyon Group collapsed in 1974 with
£3m capital supporting £93m loans, recalled the effect inflation had on lenders:
“it is no exaggeration to say that we were having bank money thrust at us from
all directions.” <a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn56" name="_ftnref56" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[56]</span></span><!--[endif]--></span></a> <o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
The management of Centre Point on
Oxford Street was a more concrete example of the distorting effects of
inflation. The skyscraper was deliberately left unoccupied for years by demanding
unrealistically high rent. The logic was that a strong trend in rising rents
(which reflected inflation) would implicitly revalue the building higher the
longer it was left unoccupied. In other words, loss of rent for a given period would
be more than made up by increased value and higher <i>expected </i>rent in the future.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn57" name="_ftnref57" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[57]</span></span><!--[endif]--></span></a><o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
Britain was facing its highest
inflation rate since the First World War and there was a lack of confidence in
fiat currency. The banks considered property the least risky asset in an
inflationary environment.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn58" name="_ftnref58" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[58]</span></span><!--[endif]--></span></a> Their view was mirrored by
insurance companies and pension funds who needed to invest large cash inflows
as inflation increased policy premiums and pension contributions.<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
Jim Slater’s expansion into property “was very
much stimulated by the availability of easy credit.”<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn59" name="_ftnref59" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[59]</span></span><!--[endif]--></span></a> Walker had relaxed development controls when empty
office space in London was only 20% of the 1966 level and Slater’s decision to
move into banking to finance property created a niche for the conglomerate. He
observed that primary merchant banks and clearers rarely took direct stakes in
property development.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn60" name="_ftnref60" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[60]</span></span><!--[endif]--></span></a> This was symptomatic of the
embedded nature of British Banking which eschewed the co-investment between
finance and industry favoured by Germany and other continental countries. Banks and large investors had tended to avoid
corporate management preferring liquidity and the ability to sell stock (in a
secondary market) rather than deal with the consequences of direct (illiquid)
primary investment, particularly during a crisis.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn61" name="_ftnref61" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[61]</span></span><!--[endif]--></span></a> They also feared exposure to a mismatched
balance sheet of equity and debt. The banks, unused to direct investment, were forced
to increase lending and their focus on the property sector reflected the view
that land was sound collateral in an inflationary environment. <o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
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<o:lock aspectratio="f" v:ext="edit">
</o:lock></v:imagedata></v:shape><o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
Source: OECD<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
The banks’ move into property
lending had three direct consequences that would undermine the government’s
policy to increase industrial investment. Firstly, it created a paucity of
credit for industry that prompted a letter from The Governor of the Bank of
England to the banks specifically asking “for further restraint on lending for
property development and financial transactions.”<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn62" name="_ftnref62" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[62]</span></span><!--[endif]--></span></a> The Bank of England was
particularly concerned that industry would be unable to increase exports in the
face of a deteriorating trade balance. Secondly, short term speculation pushed
up property values that dissuaded industry from expansion that required new premises
and thirdly, property development increased more quickly than industry’s need
for the new supply, distorting the economy with an allocation of unused
resources. Veblen (1904) observed that credit for property, which has no
industrial use, may be “coined into means of payment” but the property
“represents, in the aggregate, only fictitious industrial equipment.”<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn63" name="_ftnref63" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[63]</span></span><!--[endif]--></span></a> In other words, the
speculative property market would not further an increase in British
manufacturing productivity favoured by the Bank of England.<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
Aside from these reasons, there was a
pervasive attitude in Britain that property was an essential part of investment
policy. Following the 1972 budget, the editorial of Estate’s Gazette concluded:
“Mr Barber’s work can only realise its potential if Mr Walker’s department can
be persuaded to adopt a more positive attitude towards the release of land for
development.”<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn64" name="_ftnref64" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[64]</span></span><!--[endif]--></span></a><o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<u>The Political Economy and Inflation<o:p></o:p></u></div>
<table border="0" cellpadding="0" cellspacing="0" class="MsoNormalTable" style="border-collapse: collapse; margin-left: 5.4pt; mso-padding-alt: 0cm 5.4pt 0cm 5.4pt; mso-table-layout-alt: fixed; mso-yfti-tbllook: 1184;">
<tbody>
<tr style="height: 15.0pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 175.2pt;" valign="bottom" width="292">
<div class="MsoNormal">
<br /></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 45.0pt;" valign="bottom" width="75">
<div align="center" class="MsoNormal" style="text-align: center;">
1972<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 11.1pt;" valign="bottom" width="19"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 45.0pt;" valign="bottom" width="75">
<div align="center" class="MsoNormal" style="text-align: center;">
1973<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 11.1pt;" valign="bottom" width="19"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 76.8pt;" valign="bottom" width="128">
<div class="MsoNormal">
1974 <o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 1;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 175.2pt;" valign="bottom" width="292"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 45.0pt;" valign="bottom" width="75">
<div align="center" class="MsoNormal" style="text-align: center;">
<br /></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 11.1pt;" valign="bottom" width="19">
<div align="center" class="MsoNormal" style="text-align: center;">
<br /></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 45.0pt;" valign="bottom" width="75">
<div align="center" class="MsoNormal" style="text-align: center;">
<br /></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 11.1pt;" valign="bottom" width="19">
<div align="center" class="MsoNormal" style="text-align: center;">
<br /></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 76.8pt;" valign="bottom" width="128">
<div align="center" class="MsoNormal" style="text-align: center;">
<br /></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 2;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 175.2pt;" valign="bottom" width="292">
<div class="MsoNormal">
Food<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 45.0pt;" valign="bottom" width="75">
<div align="center" class="MsoNormal" style="text-align: center;">
125<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 11.1pt;" valign="bottom" width="19"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 45.0pt;" valign="bottom" width="75">
<div align="center" class="MsoNormal" style="text-align: center;">
179<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 11.1pt;" valign="bottom" width="19"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 76.8pt;" valign="bottom" width="128">
<div align="center" class="MsoNormal" style="text-align: center;">
246<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 3;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 175.2pt;" valign="bottom" width="292">
<div class="MsoNormal">
Industrial Materials<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 45.0pt;" valign="bottom" width="75">
<div align="center" class="MsoNormal" style="text-align: center;">
113<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 11.1pt;" valign="bottom" width="19"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 45.0pt;" valign="bottom" width="75">
<div align="center" class="MsoNormal" style="text-align: center;">
178<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 11.1pt;" valign="bottom" width="19"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 76.8pt;" valign="bottom" width="128">
<div align="center" class="MsoNormal" style="text-align: center;">
195<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 4;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 175.2pt;" valign="bottom" width="292">
<div class="MsoNormal">
Fibres<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 45.0pt;" valign="bottom" width="75">
<div align="center" class="MsoNormal" style="text-align: center;">
136<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 11.1pt;" valign="bottom" width="19"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 45.0pt;" valign="bottom" width="75">
<div align="center" class="MsoNormal" style="text-align: center;">
238<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 11.1pt;" valign="bottom" width="19"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 76.8pt;" valign="bottom" width="128">
<div align="center" class="MsoNormal" style="text-align: center;">
216<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 5;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 175.2pt;" valign="bottom" width="292">
<div class="MsoNormal">
Metals<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 45.0pt;" valign="bottom" width="75">
<div align="center" class="MsoNormal" style="text-align: center;">
98<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 11.1pt;" valign="bottom" width="19"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 45.0pt;" valign="bottom" width="75">
<div align="center" class="MsoNormal" style="text-align: center;">
141<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 11.1pt;" valign="bottom" width="19"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 76.8pt;" valign="bottom" width="128">
<div align="center" class="MsoNormal" style="text-align: center;">
181<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 6; mso-yfti-lastrow: yes;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 175.2pt;" valign="bottom" width="292">
<div class="MsoNormal">
All Items<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 45.0pt;" valign="bottom" width="75">
<div align="center" class="MsoNormal" style="text-align: center;">
121<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 11.1pt;" valign="bottom" width="19"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 45.0pt;" valign="bottom" width="75">
<div align="center" class="MsoNormal" style="text-align: center;">
178<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 11.1pt;" valign="bottom" width="19"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 76.8pt;" valign="bottom" width="128">
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226<o:p></o:p></div>
</td>
</tr>
</tbody></table>
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<div class="MsoNormal" style="line-height: 150%;">
Source: OECD, Coopey
and Woodward Commodity Price Indices
1971=100<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
In November 1972, the Heath Government
was forced into another U-turn: incomes policy. The miners had won a 20% wage
increase in strict contradiction of the N-1 policy which advocated a wage
increase had to be less than the previous settlement. The new directive was
implemented in three stages and the 3<sup>rd</sup> stage particularly distorted
prices by indexing wages to consumer prices, over and above a 7 % hurdle. The indexation
was partly based on import prices which rose rapidly during the post -1971
commodity booms and consequently threshold payments were regularly triggered. <a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn65" name="_ftnref65" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[65]</span></span><!--[endif]--></span></a>A combination of the new
incomes policy, costly imports due to Sterling weakness and policy aimed at
stimulating demand exaggerated asset price inflation because it built up
expectations of future price increases. It would become harder to deal with
shocks without creating excessive inflation if monetary policy were eased or
higher unemployment if either monetary or fiscal policy were tightened. Hartley
(1977) described the Heath incomes policy without a concomitant decrease in aggregate
demand as an example of “King Canute Economics”; it was simply unequal to the
task of restraining militant Trade Unions in an over- heating economy. <o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
Gallup Opinion Polls, questioning the public
on the most serious problem facing the country, also suggested an over-heating
economy. In 1971 27 % of the population thought inflation was the most pressing
concern but this had risen to 54 % by 1974.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn66" name="_ftnref66" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[66]</span></span><!--[endif]--></span></a> <o:p></o:p></div>
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£ Billions<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 79.0pt;" valign="bottom" width="132">
<div align="center" class="MsoNormal" style="text-align: center;">
£ Thousands<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 2;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 26.0pt;" valign="bottom" width="43"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 122.0pt;" valign="bottom" width="203"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 79.0pt;" valign="bottom" width="132"></td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 3;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="center" class="MsoNormal" style="text-align: center;">
Q4 71<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 26.0pt;" valign="bottom" width="43"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 122.0pt;" valign="bottom" width="203">
<div align="center" class="MsoNormal" style="text-align: center;">
£8,526<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 79.0pt;" valign="bottom" width="132">
<div align="center" class="MsoNormal" style="text-align: center;">
£5,533<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 4;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="center" class="MsoNormal" style="text-align: center;">
Q1 72<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 26.0pt;" valign="bottom" width="43"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 122.0pt;" valign="bottom" width="203">
<div align="center" class="MsoNormal" style="text-align: center;">
£9,594<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 79.0pt;" valign="bottom" width="132">
<div align="center" class="MsoNormal" style="text-align: center;">
£6,008<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 5;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="center" class="MsoNormal" style="text-align: center;">
Q2 72<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 26.0pt;" valign="bottom" width="43"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 122.0pt;" valign="bottom" width="203">
<div align="center" class="MsoNormal" style="text-align: center;">
£12,394<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 79.0pt;" valign="bottom" width="132">
<div align="center" class="MsoNormal" style="text-align: center;">
£6,557<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 6;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="center" class="MsoNormal" style="text-align: center;">
Q3 72<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 26.0pt;" valign="bottom" width="43"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 122.0pt;" valign="bottom" width="203">
<div align="center" class="MsoNormal" style="text-align: center;">
£13,486<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 79.0pt;" valign="bottom" width="132">
<div align="center" class="MsoNormal" style="text-align: center;">
£7,395<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 7;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="center" class="MsoNormal" style="text-align: center;">
Q4 72<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 26.0pt;" valign="bottom" width="43"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 122.0pt;" valign="bottom" width="203">
<div align="center" class="MsoNormal" style="text-align: center;">
£14,479<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 79.0pt;" valign="bottom" width="132">
<div align="center" class="MsoNormal" style="text-align: center;">
£7,880<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 8;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="center" class="MsoNormal" style="text-align: center;">
Q1 73<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 26.0pt;" valign="bottom" width="43"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 122.0pt;" valign="bottom" width="203">
<div align="center" class="MsoNormal" style="text-align: center;">
£16,119<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 79.0pt;" valign="bottom" width="132">
<div align="center" class="MsoNormal" style="text-align: center;">
£8,396<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 9;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="center" class="MsoNormal" style="text-align: center;">
Q2 73<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 26.0pt;" valign="bottom" width="43"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 122.0pt;" valign="bottom" width="203">
<div align="center" class="MsoNormal" style="text-align: center;">
£16,804<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 79.0pt;" valign="bottom" width="132">
<div align="center" class="MsoNormal" style="text-align: center;">
£8,832<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 10;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="center" class="MsoNormal" style="text-align: center;">
Q3 73<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 26.0pt;" valign="bottom" width="43"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 122.0pt;" valign="bottom" width="203">
<div align="center" class="MsoNormal" style="text-align: center;">
£18,648<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 79.0pt;" valign="bottom" width="132">
<div align="center" class="MsoNormal" style="text-align: center;">
£9,183<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 11;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="center" class="MsoNormal" style="text-align: center;">
Q4 73<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 26.0pt;" valign="bottom" width="43"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 122.0pt;" valign="bottom" width="203">
<div align="center" class="MsoNormal" style="text-align: center;">
£20,057<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 79.0pt;" valign="bottom" width="132">
<div align="center" class="MsoNormal" style="text-align: center;">
£9,767<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 12;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="center" class="MsoNormal" style="text-align: center;">
Q1 74<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 26.0pt;" valign="bottom" width="43"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 122.0pt;" valign="bottom" width="203">
<div align="center" class="MsoNormal" style="text-align: center;">
£21,130<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 79.0pt;" valign="bottom" width="132">
<div align="center" class="MsoNormal" style="text-align: center;">
£9,928<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 13;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="center" class="MsoNormal" style="text-align: center;">
Q2 74<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 26.0pt;" valign="bottom" width="43"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 122.0pt;" valign="bottom" width="203">
<div align="center" class="MsoNormal" style="text-align: center;">
£21,602<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 79.0pt;" valign="bottom" width="132">
<div align="center" class="MsoNormal" style="text-align: center;">
£10,027<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 14;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="center" class="MsoNormal" style="text-align: center;">
Q3 74<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 26.0pt;" valign="bottom" width="43"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 122.0pt;" valign="bottom" width="203">
<div align="center" class="MsoNormal" style="text-align: center;">
£22,863<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 79.0pt;" valign="bottom" width="132">
<div align="center" class="MsoNormal" style="text-align: center;">
£10,148<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 15;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="center" class="MsoNormal" style="text-align: center;">
Q4 74<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 26.0pt;" valign="bottom" width="43"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 122.0pt;" valign="bottom" width="203">
<div align="center" class="MsoNormal" style="text-align: center;">
£23,082<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 79.0pt;" valign="bottom" width="132">
<div align="center" class="MsoNormal" style="text-align: center;">
£10,208<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 16; mso-yfti-lastrow: yes;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80">
<div align="center" class="MsoNormal" style="text-align: center;">
Q1 75<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 26.0pt;" valign="bottom" width="43"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 122.0pt;" valign="bottom" width="203">
<div align="center" class="MsoNormal" style="text-align: center;">
£23,362<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 48.0pt;" valign="bottom" width="80"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 79.0pt;" valign="bottom" width="132">
<div align="center" class="MsoNormal" style="text-align: center;">
£10,388<o:p></o:p></div>
</td>
</tr>
</tbody></table>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
Source: BEQB March
1972-June 1975, Nationwide Property Index<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
The rush into
residential property during the boom was reflected by the extent of domestic UK
bank lending. Between January 1972 and January 1974 advances to UK residents
climbed 135% to over £23 billion with a commensurate 76% rise in the Nationwide
Housing Index over the same period.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn67" name="_ftnref67" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[67]</span></span><!--[endif]--></span></a> <o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<u>The Political Economy<o:p></o:p></u></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
Intervention<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
In March 1973 upward market pressure on
interest rates influenced the Government to intervene in the mortgage market.
The building societies required a 10% mortgage rate but the Government felt
that its incomes policy was sufficiently punitive to dampen consumer spending.
10% was an emotive headline number which garnered popular criticism as the
1,000,000 unemployment figure had the previous year. The cabinet awarded grants
to the building societies to cap the mortgage rate at 9.5%, a policy that was
fiercely opposed by Barber, who wanted a much tighter monetary policy.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn68" name="_ftnref68" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[68]</span></span><!--[endif]--></span></a> The Bank of England had
intended that the quid pro quo for credit expansion in an overheating economy
would be higher rates and although the Bank was sympathetic to Barber, did not
have the authority to prevent the directive. Lord O’Brien, while expressing
admiration for Heath’s integrity, later wrote “He was not easily deflected from
what he felt he wanted to do.” <a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn69" name="_ftnref69" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[69]</span></span><!--[endif]--></span></a><o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
Cross- country analysis has suggested that
excess monetary growth was indicative of a central bank with limited authority
and M3 growth in Britain was over 27% in both 1973 and 1974.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn70" name="_ftnref70" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[70]</span></span><!--[endif]--></span></a> The Bank had enjoyed considerable
freedom, but once Sterling floated its influence on monetary policy waned and
Heath’s ministers began to question the Bank’s methods and techniques.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn71" name="_ftnref71" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[71]</span></span><!--[endif]--></span></a> The governor made clear in his annual speech
to bankers in late 1972 that monetary policy was too loose and the property
market had become speculative: “The state of the property and housing market
has become unruly with prices moving wildly ahead; unnecessarily far to provide
an incentive for new building.”<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn72" name="_ftnref72" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[72]</span></span><!--[endif]--></span></a><o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<u>Historical Examples of Property
Speculation and Bank Crises<o:p></o:p></u></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
Calomiris (2009) noted the correlation
between property speculation and bank crises. The four countries before World
War One with the worst episodes of bank failures, Argentina, Australia, Italy
and Norway had two things in common; their Governments had all granted
subsidies to real estate risk takers and<i> </i>all
four countries had<i> </i>property booms that
burst resulting in large losses to the financial system.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn73" name="_ftnref73" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[73]</span></span><!--[endif]--></span></a> The Australian boom and bust
between 1885 and 1893 was stimulated by Government “land-banks” which lent
money on the security of the land. The banks also invested on their own account
and the 1864 Victoria Companies Act allowed speculators and banks to exploit
accounting loopholes in an unethical manner. Many were associated with fraud at
the top of the boom.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn74" name="_ftnref74" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[74]</span></span><!--[endif]--></span></a><o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
The British speculative boom continued in
early 1973, despite rising interest rates, for two reasons. Rather than tightening
credit, lenders made the assumption that a liquidation of higher valued
property would recoup the interest charges. Their optimism was supported by the
questionable valuations assigned by surveyors, particularly at the initial
stages of development, and auditors who rarely questioned the (optimistic)
estimated completion dates and projected rents. The debt interest often
exceeded rental income and unethical accounting made the negative funding more
dangerous as entrepreneurs added interest to the cost of their development,
when it should have been deducted from profit.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn75" name="_ftnref75" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[75]</span></span><!--[endif]--></span></a> It must be remembered that the secondary banks
often had equity stakes in property companies and were reluctant to curtail
business. They also had increased operations outside London; office space
increased by 25 and 33% in Bristol and Leeds respectively between 1970 and
1975. <a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn76" name="_ftnref76" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[76]</span></span><!--[endif]--></span></a> <o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
The second reason for
continued speculation was found in the political economy. Development was
widely expected to be constrained by the Government in early 1973. Office space
deliberately left unoccupied and low development (capital gains) taxes were creating
public disquiet and central bank disapproval. The Government ignored change and
even helped the residential sector when they capped the building society
mortgage rate. The Economist teased Barber using the imagery of a poodle that did
not bite.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn77" name="_ftnref77" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[77]</span></span><!--[endif]--></span></a>
London commercial property prices rose by
over 25% in the first half of 1973 and in July Heath gave a press conference to
financial journalists. Asked whether it was time to restrict credit to help the
deteriorating balance of payments, Heath said no.<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<u>The End of the Bull Market<o:p></o:p></u></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
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<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
Source: BEQB April 1973-June 1974<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
Three distinct policy changes in
response to further deterioration in the balance of payments and excessive Government
spending finally halted the property market in late 1973; higher interest
rates, fiscal tightening and a re-imposition of bank-lending controls. The
money market forced a historically large interest rate rise of 4% in July (MLR
11.5 %) which effectively set property borrowing costs at 14% or higher. The
trade gap worsened in November and the MLR was raised to 13%. More ominously
the secondary banks now experienced wider credit spreads as the margin they had
to pay over the inter-bank rate widened from around 50 basis points to 100-200
basis points as rumours circulated about the solvency of certain secondary
banks, in particular London and County.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn78" name="_ftnref78" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[78]</span></span><!--[endif]--></span></a> Consequently there were
widespread withdrawals of deposits from the money markets which the secondary
banks relied on for liquidity and in some cases the banks lost all access to
the credit markets and faced collapse.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn79" name="_ftnref79" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[79]</span></span><!--[endif]--></span></a> The second policy change,
implemented by Barber in an emergency budget (December 1973), increased the top
tier of personal tax by 10 % reversing the stated intention of abolition. Finally
a “corset” was imposed on banks which penalised them for borrowing in the
wholesale market above a prescribed low threshold. <o:p></o:p></div>
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Source: Hillier Parker City of
London Property Index (base Q3 1972)<o:p></o:p></div>
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Many developers were caught
by the severe rise in interest rates before project completion. Their plan had
been to borrow short- term during development and subsequently secure longer-
term finance after completion, when tenants took five year (or longer) leases. However many had underestimated the upward
pressure on rates and had chosen to wait before securing the longer term
finance.<o:p></o:p></div>
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The record MLR and restricted
access to credit markets meant that borrowing costs varied from 16-20+%. In
December the Bank of England was faced with the insolvency of London and County
and Cedar Holdings, the first of the secondary banks requiring help. At the
same time the Government’s credibility diminished with the miner’s strike in
late 1973-1974 and failure of negotiations to halt industrial action. OPEC 1
had forced oil prices higher following the Yom Kippur war (October 1973) and expensive
oil combined with the coal shortage meant industry was forced into working a 3
day week. In early February 1974 Heath <o:p></o:p></div>
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called a snap election asking “Who
governs Britain?” and was defeated by Harold Wilson leading the Labour Party. <o:p></o:p></div>
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<b><span style="font-size: 14.0pt; line-height: 150%;">5<o:p></o:p></span></b></div>
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<b><i>The Secondary Banking Crisis: 1973
– 1977<o:p></o:p></i></b></div>
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The secondary banking crisis unfolded between late 1973 and mid 1977 in three
distinct stages; lack of liquidity between November 1973 and March 1974,
potential insolvency as the property market collapsed into December 1974 and a
final phase when the Bank directly intervened and then forcibly took over
several institutions . However in early 1973 the Scottish Co-operative
Wholesale Society (SCOOP) got into difficulty, a case which exemplified the
problems facing the sector and even as
late as 1977 Johnson Matthey and Slater
Walker created complications for the Bank and the Labour Chancellor Denis
Healey.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn80" name="_ftnref80" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[80]</span></span><!--[endif]--></span></a><o:p></o:p></div>
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SCOOP had a portfolio of £90 million of Certificates
of Deposits (CDs) with commitments to buy £365 million more, which was financed
in the inter-bank market at a higher interest rate than the average yield of
the CDs. The negative cash flow between low yielding CDs and higher borrowings necessitated
financial assistance to avoid insolvency. The Bank of England formed a
syndicate with the clearers to support SCOOP but the Bank’s small stake (5 %)
created resentment among the other members because of the inevitable losses.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn81" name="_ftnref81" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[81]</span></span><!--[endif]--></span></a> <o:p></o:p></div>
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<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
Source: BEQB April 1973-
September 1974<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
Accurate matching of assets and liabilities
was the central requirement to keep secondary banks solvent in a crisis.
Clearing banks depended on sufficient cash (and near-cash) assets to meet depositors
withdrawing their money and in extremis could rely on the central bank as
lender of last resort. The secondary banks accessed the wholesale market for
deposits and correspondingly lent large amounts to property companies and other
financial institutions rather than holding (lower yielding) Government bonds.
Matching assets and liabilities was central to their solvency; that is to say,
the aggregate amount of loans and deposits within a given lending period had to
be relatively similar. If adequate liquidity was pivotal for the clearing banks,
adroit matching was central to the secondary banks.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn82" name="_ftnref82" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[82]</span></span><!--[endif]--></span></a> <o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
In order to create profit, the secondary banks
might borrow short term and lend longer term in the more usual situation that
the rate of interest increases the longer the duration of the loan.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn83" name="_ftnref83" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[83]</span></span><!--[endif]--></span></a> A certain mismatching using
a positive yield curve was the accepted way to be profitable. However, in late
1973 when interest rates rose sharply, the secondary banks found they had to
borrow at increasingly higher rates and their cash flow turned negative as short
term rates often exceeded longer term rates. Figures from the Bank of England’s
quarterly bulletin show that at the end of April 1973 40 % of the secondary
banks’ borrowings were short term and due to be refinanced within 90 days.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn84" name="_ftnref84" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[84]</span></span><!--[endif]--></span></a> The 4% rise in the MLR in
July would have greatly harmed cash-flow. The secondary banks with the most
mismatched loan books were under the greatest pressure and highly vulnerable to
financial contagion because many of their deposits were from other financial
institutions. Even premier institutions’ share prices collapsed in a developing
situation described by the Governor of the Bank of England as a “contagion of
fear.”<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn85" name="_ftnref85" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[85]</span></span><!--[endif]--></span></a><o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
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<div class="MsoNormal" style="line-height: 150%;">
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Source: Bloomberg <o:p></o:p></div>
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<br /></div>
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<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
The secondary banks faced
two major difficulties from late 1973. Industrial companies were able to
continue in the 1973/1974 recession because even if plant and machinery were depreciating
in value, they still appeared on the balance sheet at cost less depreciation. In
contrast, the assets of the secondary banks included equities and quoted loan
stock which had to be valued at the market price; between 1973 and 1974 the Financial
Times Stock Exchange Index fell 68%. Furthermore, many of their loans to
property companies were made on 33% (land) collateral and consequently in a
period when many land values halved, the property companies whom they lent to
were already insolvent. This would force the secondary banks to discount their
loan books.<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
It should be remembered that since C+CC
secondary banks had had to compete with established banks that were preferred
by the more financially secure counterparts. The secondary sector had riskier,
less well matched loan portfolios and large concentrated equity stakes as a consequence
of their need to secure business. Lack of banking experience in volatile
markets added to their vulnerability.<o:p></o:p></div>
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<o:p></o:p></div>
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<div class="MsoNormal" style="line-height: 150%;">
<u>Solution<o:p></o:p></u></div>
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<br /></div>
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The
initial solution to the crisis was to ensure immediate adequate liquidity for
the secondary banks, whose depositors were not guaranteed by a lender of last
resort. The inability of London and County and Cedar Holdings to borrow funds
had prompted crisis meetings and The Bank of England coerced the clearers and
larger pension funds to contribute to a support fund of £1 billion (“The Lifeboat”)
on the evening of 19 December 1973, stating that the meeting would not end
until a solution had been found. <a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn86" name="_ftnref86" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[86]</span></span><!--[endif]--></span></a> The Bank deemed it necessary to have a
credible plan before the stock market opened the following day and demanded
full cooperation from the clearers. The Economist on 5 January 1974 (“How the
City was saved”) made it clear that many “arms had to be twisted in Camelot”
even though “the City of London was on the brink of a terrifying collapse”<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn87" name="_ftnref87" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[87]</span></span><!--[endif]--></span></a> Aware of earlier criticism
during the bailout of SCOOP, the Bank contributed 10% to Lifeboat.<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
In
May 1974, the crisis entered the second stage with the collapse of William
Stern’s £250 million property empire, financed with an unusually high debt to total-assets
ratio of 80 %, with interest costs three times the group’s income. The £200
million of bad debt that emanated from Stern made the initial support fund of
£1 billion appear inadequate to support the secondary banks, and by July the
Lifeboat had already advanced £675 million. Internal correspondence within the
Bank of England about a necessary increase to Lifeboat of between £.5 billion
and £1 billion contrasted with the anxiety of the clearers who felt that their
own depositors, fearing contagion, might withdraw funds as it became clear how dangerous
the clearer’s balance sheets had become.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn88" name="_ftnref88" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[88]</span></span><!--[endif]--></span></a> The average capital and
declared reserves of the clearers was 6 % of total liabilities, less than half
the 12.5 % demanded by C+CC. A compromise fund limit of £1.2 billion was agreed
and the Bank deemed it necessary for <i>direct
</i>intervention into the property market, which was in danger of falling too
rapidly. <o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
Having enforced
cooperation between the clearers and pension funds to add liquidity at the
beginning of the crisis, the Bank now persuaded creditors to abstain from
demanding whole sale liquidation of property stock when property companies
collapsed. For example, under the chair of Sir Kenneth Cork, fifty creditors of
Stern agreed not to call in receivers, nor to impose penal interest charges
(which they were entitled to) and all promised <o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
property should be slowly sold
“off-market” to prevent attention and negative publicity.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn89" name="_ftnref89" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[89]</span></span><!--[endif]--></span></a> The “Cork Dam” was
supplemented with cooperation by the pension funds and insurance companies who
bought large blocks of distressed property to support the market. The larger
institutions had retained their faith in property being a good investment
during an inflationary period to meet increased liabilities but their
commitment to supporting the market was still surprising. There was a necessary
collegiate spirit to protect jobs and the City’s reputation, but Plender (1982)
suggested the allegiance may have stemmed from the fear of more punitive
regulation from a newly elected Labour party.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn90" name="_ftnref90" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[90]</span></span><!--[endif]--></span></a> However, as Veblen (1904) predicted, it
certainly constituted a transfer of assets from debtors to creditors.<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
The third stage of the crisis,
when the Bank made direct<i> </i>bailouts,
was made inevitable by the depletion of Lifeboat’s funds and the need for
discretion to allay public alarm. Although the Bank would be forced to take
over and wind down Slater Walker in late 1977, files in the Bank’s archives
clearly demonstrate an early example of secret support. On 31 December 1974 the
Bank advanced Slater Walker £10 million of unsecured cash following a meeting
10 days earlier between Slater and the Governor,
Gordon Richardson. In response to a letter on the 6 February 1975 by the
financial director of Slater Walker, asking for written confirmation of the
loan, D. Somerset, deputy chief cashier to the Bank of England, replied “I
should perhaps explain that the advance of £10 million…was treated here as
strictly confidential and, as a consequence, the staff dealing with your
request were not aware that it had been made.”<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn91" name="_ftnref91" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[91]</span></span><!--[endif]--></span></a> The Bank’s concern with
Slater Walker increased during 1975 and after Slater’s resignation and a full
audit by accountants Peat Marwick and Mitchell and Price Waterhouse, the extent
and complexities of the conglomerate’s borrowings necessitated a Bank of
England bail out of £40 million to protect the group’s depositors. When Richardson
briefed the new Chancellor, Denis Healey, it was agreed that knowledge of the
bailout should be kept “to a select few”.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn92" name="_ftnref92" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[92]</span></span><!--[endif]--></span></a><o:p></o:p></div>
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<td colspan="3" nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 244.8pt;" valign="bottom" width="408">
<div class="MsoNormal">
Three Largest Secondary Banks by Gross Assets<o:p></o:p></div>
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<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 64.8pt;" valign="bottom" width="108"></td>
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</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 1;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 135.05pt;" valign="bottom" width="225"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 69.8pt;" valign="bottom" width="116"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 39.95pt;" valign="bottom" width="67"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 64.8pt;" valign="bottom" width="108"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 64.8pt;" valign="bottom" width="108"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 59.8pt;" valign="bottom" width="100"></td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 2;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 135.05pt;" valign="bottom" width="225"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 69.8pt;" valign="bottom" width="116">
<div align="center" class="MsoNormal" style="text-align: center;">
1971<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 39.95pt;" valign="bottom" width="67">
<div align="center" class="MsoNormal" style="text-align: center;">
1971<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 64.8pt;" valign="bottom" width="108">
<div align="center" class="MsoNormal" style="text-align: center;">
1973<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 64.8pt;" valign="bottom" width="108">
<div align="center" class="MsoNormal" style="text-align: center;">
1975<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 59.8pt;" valign="bottom" width="100">
<div align="center" class="MsoNormal" style="text-align: center;">
Peak- <o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 3;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 135.05pt;" valign="bottom" width="225"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 69.8pt;" valign="bottom" width="116"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 39.95pt;" valign="bottom" width="67"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 64.8pt;" valign="bottom" width="108"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 64.8pt;" valign="bottom" width="108"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 59.8pt;" valign="bottom" width="100">
<div align="center" class="MsoNormal" style="text-align: center;">
trough %<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 4;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 135.05pt;" valign="bottom" width="225"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 69.8pt;" valign="bottom" width="116">
<div align="center" class="MsoNormal" style="text-align: center;">
Gross Assets<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 39.95pt;" valign="bottom" width="67">
<div align="center" class="MsoNormal" style="text-align: center;">
Pre-tax<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 64.8pt;" valign="bottom" width="108">
<div align="center" class="MsoNormal" style="text-align: center;">
Pre-tax<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 64.8pt;" valign="bottom" width="108">
<div align="center" class="MsoNormal" style="text-align: center;">
Pre-tax<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 59.8pt;" valign="bottom" width="100">
<div align="center" class="MsoNormal" style="text-align: center;">
share price<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 5;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 135.05pt;" valign="bottom" width="225">
<div class="MsoNormal">
£ millions<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 69.8pt;" valign="bottom" width="116"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 39.95pt;" valign="bottom" width="67">
<div align="center" class="MsoNormal" style="text-align: center;">
profit<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 64.8pt;" valign="bottom" width="108">
<div align="center" class="MsoNormal" style="text-align: center;">
profit<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 64.8pt;" valign="bottom" width="108">
<div align="center" class="MsoNormal" style="text-align: center;">
profit<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 59.8pt;" valign="bottom" width="100">
<div class="MsoNormal">
change<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 6;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 135.05pt;" valign="bottom" width="225"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 69.8pt;" valign="bottom" width="116"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 39.95pt;" valign="bottom" width="67"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 64.8pt;" valign="bottom" width="108"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 64.8pt;" valign="bottom" width="108"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 59.8pt;" valign="bottom" width="100"></td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 7;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 135.05pt;" valign="bottom" width="225"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 69.8pt;" valign="bottom" width="116"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 39.95pt;" valign="bottom" width="67"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 64.8pt;" valign="bottom" width="108"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 64.8pt;" valign="bottom" width="108"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 59.8pt;" valign="bottom" width="100"></td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 8;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 135.05pt;" valign="bottom" width="225">
<div class="MsoNormal">
Slater Walker
Securities<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 69.8pt;" valign="bottom" width="116">
<div align="center" class="MsoNormal" style="text-align: center;">
280<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 39.95pt;" valign="bottom" width="67">
<div align="center" class="MsoNormal" style="text-align: center;">
16<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 64.8pt;" valign="bottom" width="108">
<div align="center" class="MsoNormal" style="text-align: center;">
23<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 64.8pt;" valign="bottom" width="108">
<div align="center" class="MsoNormal" style="text-align: center;">
-40<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 59.8pt;" valign="bottom" width="100">
<div align="center" class="MsoNormal" style="text-align: center;">
-89<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 9;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 135.05pt;" valign="bottom" width="225"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 69.8pt;" valign="bottom" width="116"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 39.95pt;" valign="bottom" width="67"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 64.8pt;" valign="bottom" width="108"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 64.8pt;" valign="bottom" width="108"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 59.8pt;" valign="bottom" width="100"></td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 10;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 135.05pt;" valign="bottom" width="225">
<div class="MsoNormal">
FNFC*<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 69.8pt;" valign="bottom" width="116">
<div align="center" class="MsoNormal" style="text-align: center;">
182<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 39.95pt;" valign="bottom" width="67">
<div align="center" class="MsoNormal" style="text-align: center;">
8<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 64.8pt;" valign="bottom" width="108">
<div align="center" class="MsoNormal" style="text-align: center;">
18<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 64.8pt;" valign="bottom" width="108">
<div align="center" class="MsoNormal" style="text-align: center;">
-83<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 59.8pt;" valign="bottom" width="100">
<div align="center" class="MsoNormal" style="text-align: center;">
-92<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 11;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 135.05pt;" valign="bottom" width="225"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 69.8pt;" valign="bottom" width="116"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 39.95pt;" valign="bottom" width="67"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 64.8pt;" valign="bottom" width="108"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 64.8pt;" valign="bottom" width="108"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 59.8pt;" valign="bottom" width="100"></td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 12;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 135.05pt;" valign="bottom" width="225">
<div class="MsoNormal">
United Dominions Trust <o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 69.8pt;" valign="bottom" width="116">
<div align="center" class="MsoNormal" style="text-align: center;">
466<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 39.95pt;" valign="bottom" width="67">
<div align="center" class="MsoNormal" style="text-align: center;">
11<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 64.8pt;" valign="bottom" width="108">
<div align="center" class="MsoNormal" style="text-align: center;">
24<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 64.8pt;" valign="bottom" width="108">
<div align="center" class="MsoNormal" style="text-align: center;">
-54<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 59.8pt;" valign="bottom" width="100">
<div align="center" class="MsoNormal" style="text-align: center;">
-98<o:p></o:p></div>
</td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 13;">
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 135.05pt;" valign="bottom" width="225"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 69.8pt;" valign="bottom" width="116"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 39.95pt;" valign="bottom" width="67"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 64.8pt;" valign="bottom" width="108"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 64.8pt;" valign="bottom" width="108"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 59.8pt;" valign="bottom" width="100"></td>
</tr>
<tr style="height: 15.0pt; mso-yfti-irow: 14; mso-yfti-lastrow: yes;">
<td colspan="2" nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 204.85pt;" valign="bottom" width="341">
<div class="MsoNormal">
*First National Finance Corporation<o:p></o:p></div>
</td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 39.95pt;" valign="bottom" width="67"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 64.8pt;" valign="bottom" width="108"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 64.8pt;" valign="bottom" width="108"></td>
<td nowrap="" style="height: 15.0pt; padding: 0cm 5.4pt 0cm 5.4pt; width: 59.8pt;" valign="bottom" width="100"></td>
</tr>
</tbody></table>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
Source:
Reid (1982)<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
Eight of the twenty six
companies that received Lifeboat support eventually went into liquidation,
eleven were taken over but four banks did manage to regain profitability and survive.
Richardson was widely praised for Lifeboat and the handling of the crisis, particularly
as the necessary cooperation between clearers, pension funds and insurance
companies had been achieved by his ability to negotiate terms that were not in
everyone’s interest. <a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn93" name="_ftnref93" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[93]</span></span><!--[endif]--></span></a> By organising the private,
off-market sale of property stock from specialist companies to pension funds
and insurance companies, an avalanche of sales and adverse publicity were avoided.
The transaction prices were artificially high but the wider interests of the
financial system had been satisfied. The solvency levels of the insurance
companies had fallen to 25% in 1974 (the accepted minimum level was 40%) and
because property was being transacted at support- price levels, institutions
were able to mark the rest of their property portfolio at commensurately higher
valuations.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn94" name="_ftnref94" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[94]</span></span><!--[endif]--></span></a>
Richardson had possibly used this as a bargaining tool to allay the insurance
companies’ fears of even lower and more dangerous solvency levels.<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<b><span style="font-size: 14.0pt; line-height: 150%;">6<o:p></o:p></span></b></div>
<div class="MsoNormal" style="line-height: 150%;">
<b><i>The Property Market 1974-1976<o:p></o:p></i></b></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<u>Commercial Property<o:p></o:p></u></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
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" o:spid="_x0000_i1026" style="height: 205.2pt; visibility: visible; width: 433.2pt;" type="#_x0000_t75">
<v:imagedata o:title="" src="file:///C:\Users\User\AppData\Local\Temp\msohtmlclip1\01\clip_image016.png">
<o:lock aspectratio="f" v:ext="edit">
</o:lock></v:imagedata></v:shape><o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
Source: Hillier Parker London
Property index <o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
The rise in the value of collateral
(land) influenced the expansion of credit during the boom, but when land prices
fell and loans had to be written down, credit quickly diminished and the
property companies found themselves isolated. The bailout of London and County
and Cedar Holdings was a tipping point that marked large, sometimes enforced,
liquidation of property. Lifeboat only advanced capital to the secondary banks,
not to property companies themselves. Pension funds had mistakenly entered the
market with the attitude that buildings decayed, but land did not and upward
only (ground) rent reviews would lend support to land prices. If the Pension
funds and Insurance Companies had not kept participating in the 1974 / 75 bear
market (with Bank of England encouragement) the self-fulfilling cycle down of lower land
values leading to even less credit might have been more dangerous. It should
therefore be seen that the crash was a banking and property company crisis
rather than a crisis in land investment with pension funds and insurance
companies buying distressed property from property companies and secondary
banks.<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<u>Net Investment in Property (£
million)<o:p></o:p></u></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 115%;">
1970
1974 1975
1976 1977 <o:p></o:p></div>
<div class="MsoNormal" style="line-height: 115%;">
<br /></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Insurance Cos and 294 710 748 962
944<o:p></o:p></div>
<div class="MsoNormal">
Pension Funds<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Capital Market and 47
(2) 106
90
54<o:p></o:p></div>
<div class="MsoNormal">
Property Unit Trusts
<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Banks 16 979
98
(58)
(166)<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 115%;">
<br /></div>
<div class="MsoNormal" style="line-height: 115%;">
Total 357
1.687 1.052 994 832<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 115%;">
<br /></div>
<div class="MsoNormal" style="line-height: 115%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
Source: Financial Statistics
HMSO.<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
By March 1974 property
auctions were being cancelled and the few property deals being transacted were
done privately at large discounts to 1973 valuations. Deposit rates of over 15%
were too attractive in comparison to investing in property and the newly
elected Labour Party was not considered sympathetic to the sector. Michael
Peachey of Hammerson, the builder of Brent Cross, Europe’s largest shopping
Centre, recalled “we didn’t panic at Hammerson, but we certainly had to start
selling.” In August 1974 the environment darkened. The Bank of England demanded
more disclosure from the secondary banks and commercial Estate Agents Jones,
Lang and LaSalle held a crisis director’s conference and the minutes state
“there remains very little evidence of completed transactions at any level.” <a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn95" name="_ftnref95" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[95]</span></span><!--[endif]--></span></a> Property companies rapidly
contracted in size and even after the late 1970s recovery, their assets of £7
billion in 1980 were a third less than in 1970 despite a decennial inflation
rate of over 13% compounded.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn96" name="_ftnref96" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[96]</span></span><!--[endif]--></span></a><o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
During 1974 financial companies struggled as
the stock market fell to its nadir in December when the Bank of England had to
quash rumours that National Westminster Bank was insolvent. The declining stock
market added pressure to the assets of the secondary banks, restricting their
ability to lend and at the same time the clearers had most of their reserves
placed in Lifeboat. By the end of 1974 Lifeboat had only £18 million with the
Bank<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
facing the likelihood of requiring
its reserves to support the failing secondary sector. After a 1.7% fall in GDP
in 1974 neither the clearers nor secondary banks had sufficient capital to
consider industrial investment, however five large insurance companies
collaborated and bought the oversold stock market in early 1975. This was
widely believed to be with Bank of England encouragement and it helped many vulnerable
balance sheets as the market rose dramatically 50% in January alone.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn97" name="_ftnref97" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[97]</span></span><!--[endif]--></span></a> <o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<u>Residential Property</u><o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
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" o:spid="_x0000_i1025" style="height: 203.4pt; visibility: visible; width: 433.2pt;" type="#_x0000_t75">
<v:imagedata o:title="" src="file:///C:\Users\User\AppData\Local\Temp\msohtmlclip1\01\clip_image017.png">
<o:lock aspectratio="f" v:ext="edit">
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<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
Source: Nationwide and OECD<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
The newly
elected Labour party in February 1974 lost control of incomes policy and the
miners’ victory heralded unparalleled wage inflation of over 26% in 1974. The
Residential sector rose 15% (nominally) in 1974-75 but fell over 25% in real
terms. The market mechanism for unwinding excess speculation came from higher
wages (26.4%, 16.8%) which returned UK average house prices to the longer term
average of 2.8 times average-income.<b><span style="font-size: 14.0pt; line-height: 150%;"> </span></b>Individuals tended to
have only one property and did not have the complex, over-leveraged balance
sheets of the secondary banks and property companies. The clearers and building
societies rarely lent more than three times income and consequently even late
buyers in the boom remained solvent as higher wages allowed overstretched
borrowers to maintain interest payments. If the Labour party had managed a
tight fiscal policy in the mid-1970s, with the same success as they had following
the 1967 devaluation, and controlled wage inflation, the residential market (and
clearers) may well have been under considerable pressure. This counterfactual
would be an interesting topic for further research.<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<b><span style="font-size: 14.0pt; line-height: 150%;"> <o:p></o:p></span></b></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<u>Property Unit Trusts<o:p></o:p></u></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
Property unit trusts were the other
long-term losers in the crisis with the secondary banks and property companies.
In 1973 property unit trusts accounted for 8.6% of all institutional investment
into property but fell to 5.1% by 1980 due to forced selling when redemption
requests increased. Furthermore, during the bear market surveyors had been slow
to lower valuations, because they required evidence of comparable transaction
prices, and consequently unit trust valuations were often too high.<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftn98" name="_ftnref98" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 12.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[98]</span></span><!--[endif]--></span></a> This had enticed unit holders to immediately
sell their holdings and in a low-volume, falling market only the best property
could be sold with the remainder lowering the quality of a portfolio. In many
cases investors who remained had had to accept unusually large losses by in
effect compensating the early sellers. The combination of mispricing and
ability to exit easily was an unforeseen consequence because previously high
transactions costs in property trading had thwarted short term selling. When
the property market did recover later in the decade, investors were more
circumspect when considering unit trusts.<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<b><span style="font-size: 14.0pt; line-height: 150%;">7<o:p></o:p></span></b></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<b><i>Conclusion<o:p></o:p></i></b></div>
<div class="MsoNormal" style="line-height: 150%;">
<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
The property boom and bust in the
early 1970s cannot be blamed on the Conservative Government and Bank of England
alone. Institutional demand for commercial property had been incentivised by upward-only
rent reviews, particularly in an inflationary environment. Earlier changes in
policy had created the foundation for upward shocks to property prices: severe
development restrictions in the South East, anomalies from changes in taxation
and the creation of a whole-sale money market open to the secondary banking
sector. In effect an extraordinary confluence of specific property shocks and
macroeconomic events culminated in the speculative bubble following the 1972
budget. The Bank of England was complacent about C+CC due to a long, uninterrupted
period of safe banking but at least recognised early an overheating economy. Lack
of independence prevented the Bank asserting authority but considerable kudos
was regained by adept handling of the secondary banking crisis. <o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
Britain was not the only country
that experienced an investment boom in 1972/1973. The world economy had grown
quickly, and other countries’ policy makers had underestimated the inflationary
environment following the breakdown of Bretton Woods. However there were two strategies
that reflect badly on the Conservative Government and Heath in particular. Firstly,
the Government naively concluded that capital formation from cutting taxes,
protecting wages from price increases and consenting to easier credit would primarily
benefit industry. Secondly, the volte-face in economic policy; the Government
had prepared for four years a policy of disengagement only to reverse course
when public opinion changed. Heath had chosen to reject party policy to manage
the economy and prioritise growth and employment with little concern for
inflation and the balance of payments. This was particularly lamentable as many
sources suggest Heath often ignored prescient advice from the Bank of England, Treasury
and his own Cabinet.<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<b><i>Bibliography<o:p></o:p></i></b></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<u>Primary Sources<o:p></o:p></u></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
Bank of England Archive: File 6A
70/3<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
Harris, J. Inter alia: Senior
Partner (1974-1994): Pepper Angliss and Yarwood, Chartered Surveyors
1959-1994, Advisory Property Group of
Bank of England 1999-2000, President of Royal Institute of Chartered Surveyors
2000-2001<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<u>Research Papers</u>.<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
Calomiris, C. 2009 <i>Banking Crises and the Rules of the Game </i>(NBER
Working Paper 15403)<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
Kiyotaki, N and Moore, J., 1997, <i>Credit Cycles </i>(The Journal of Political
Economy, Vol.105)<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
Royal Institute of Chartered
Surveyors 1999, <i>The UK Property Cycle-a
History from 1921-1997 </i>(RICS, 1999)<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
Scott, P., and Judge, G., 2000, <i>Cycles and Steps in British Commercial
Property Values. </i>(Applied Economics, 2000, 32 1287-1297)<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
Simon, J., 2003 <i>Three Australian Asset Price Bubbles. </i>(Reserve
Bank of Australia Publications)<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
<br /></div>
<div class="MsoNormal" style="line-height: 150%;">
<u>Books<o:p></o:p></u></div>
<div class="MsoNormal" style="line-height: 150%;">
Blackaby, F., 1978 <i>British Economic Policy </i>(Cambridge
University Press)<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
Brittan, S., 1997, <i>The Economic Consequences of Democracy </i>(Temple
Smith)<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
Broackes, N., 1979, A<i> Growing Concern </i>(Littlehampton Book
Services)<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
Capie, F., 2010, <i>The Bank of England: 1950s-1979 </i>(Cambridge
University Press)<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
Campbell, J., 1993, <i>Edward Heath: A Biography </i>(Jonathan
Cape, Random House)<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
Coopey, R., and Woodward, N, 1996, <i>Britain in the 1970s: The Troubled Economy </i>(UCL
Press)<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
Crafts, N., and Woodward, N, (eds.)
1991, <i>The British Economy since 1945 </i>(Clarendon
Press, Oxford)<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
Harris, R., and Sewill, B., 1975, <i>British Economic Policy 1970-1974; Two Views
</i>(The Institute of Economic Affairs)<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
Hartley, K., 1977, <i>Problems of Economic Efficiency </i>(Allen
and Unwin)<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
Hamnett, C., and Randolf, B., 1988,
<i>Cities Housing and Profits </i>(Hutchinson)<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
Healey, D., 1989, <i>The Time of my Life </i>(Michael Joseph)<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
Holmes, M., 1997, <i>The Failure of the Heath Government </i>(Macmillan
Press)<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
Homes, M., 1982, <i>Political Pressure and Economic Policy:
British Government 1970-1974 </i>(Butterworth Scientific)<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
Marriott, O., 1989,<i>The Property Boom </i>(Abingdon Publishing)<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
Plender, J., 1982, <i>That’s the way the Money Goes </i>(Andre
Deutsche)<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
Raw, C., 1977, <i>Slater Walker: An investigation of a Financial Phenomenon </i>(Coronet
Books)<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
Reid, M., 1982, <i>The Secondary Banking Crisis, 1973-75 </i>(Macmillan
Press)<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
Scott, P., 1996, <i>The Property Masters: A History of the
British Commercial Property <o:p></o:p></i></div>
<div class="MsoNormal" style="line-height: 150%;">
<i>Sector
</i>(Taylor and Francis)<o:p></o:p></div>
<div class="MsoNormal" style="line-height: 150%;">
Slater, J., 1997 <i>Return to Go </i>(Weidenfield and Nicholson)<o:p></o:p></div>
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Veblen, T., 1904 <i>The Theory of Business Enterprise (</i>The
New American Library)<o:p></o:p></div>
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<br /></div>
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<u>Publications.<o:p></o:p></u></div>
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Bank of England Quarterly Bulletin:
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June, September and December 1971 <o:p></o:p></div>
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March, June, September and December
1972
<o:p></o:p></div>
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March, June, September and December
1973<o:p></o:p></div>
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March, June, September and December
1974<o:p></o:p></div>
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March 1975<o:p></o:p></div>
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The Banker:<o:p></o:p></div>
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April 1972 <o:p></o:p></div>
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The Economist:<o:p></o:p></div>
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November 7 1964<o:p></o:p></div>
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April 4
1972<o:p></o:p></div>
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May 13
1972<o:p></o:p></div>
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May 22
1972<o:p></o:p></div>
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January 27
1973<o:p></o:p></div>
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January 5
1974<o:p></o:p></div>
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Estates Gazette: April 1 1972<o:p></o:p></div>
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Investors Chronicle:
April 7 1972<o:p></o:p></div>
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<br /></div>
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Financial
Times: March 22 1972<o:p></o:p></div>
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<br /></div>
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Opinion of the
Lords of Appeal for Judgment; Regina v. Secretary of State 7 xii 2000<o:p></o:p></div>
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<br /></div>
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Property Week: September 21 2007. Penfold, D., <i>A History of Modern Property: part one
1971-1979 </i>(Ref no. L140533 RICS) <o:p></o:p></div>
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Property Week: September 25 2009. Hipwell, D., <i>Return to the 1970s to predict 2010 revival <o:p></o:p></i></div>
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<br /></div>
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Times: August 21 1974<i><o:p></o:p></i></div>
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<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref1" name="_ftn1" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[1]</span></span><!--[endif]--></span></a>
Harris, R. and Sewill, B. (1975) <i>British Economic Policy 1970-1974; Two views</i> p.31<o:p></o:p></div>
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<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref2" name="_ftn2" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[2]</span></span><!--[endif]--></span></a>
Kirby, M. (1991) in Crafts, N., and Woodward, N; <i>The British Economy since 1945</i>
p.251<o:p></o:p></div>
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<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref3" name="_ftn3" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[3]</span></span><!--[endif]--></span></a>
Capie, F (2010) <i>The Bank of England 1950s to 1979</i>
p. 324<o:p></o:p></div>
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<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref4" name="_ftn4" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[4]</span></span><!--[endif]--></span></a>
Harris and Sewill, Op. cit., p.31<o:p></o:p></div>
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<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref5" name="_ftn5" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[5]</span></span><!--[endif]--></span></a>
Holmes, M (1997) <i>The Failure of the Heath
Government</i> p.9<o:p></o:p></div>
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<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref6" name="_ftn6" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[6]</span></span><!--[endif]--></span></a> Ibid.,
p.11<o:p></o:p></div>
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<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref7" name="_ftn7" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[7]</span></span><!--[endif]--></span></a> Campbell, J (1993) <i>Edward Heath: A Biography</i>
p.266<o:p></o:p></div>
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<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref8" name="_ftn8" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[8]</span></span><!--[endif]--></span></a> Holmes Op. cit., p.40, Kirby Op. cit., p.250<o:p></o:p></div>
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<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref9" name="_ftn9" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[9]</span></span><!--[endif]--></span></a> Coopey, R. and Woodward, N (1996) <i>Britain
in the 1970s: The Troubled Economy</i>
p. 121<o:p></o:p></div>
</div>
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<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref10" name="_ftn10" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[10]</span></span><!--[endif]--></span></a> <i>The
Economist</i> 4 April 1972<o:p></o:p></div>
</div>
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<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref11" name="_ftn11" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[11]</span></span><!--[endif]--></span></a> Coopey and Woodward Op. cit.,
p.40<o:p></o:p></div>
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<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref12" name="_ftn12" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[12]</span></span><!--[endif]--></span></a> Ibid., p.39
the Act “provided the most comprehensive armoury of Government control
that has ever been assembled for use over private industry”<o:p></o:p></div>
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<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref13" name="_ftn13" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[13]</span></span><!--[endif]--></span></a> Nixon closed the Gold window and the dollar
fell sharply against all major currencies.<o:p></o:p></div>
</div>
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<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref14" name="_ftn14" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[14]</span></span><!--[endif]--></span></a> Holmes,
Op. cit., p.46<o:p></o:p></div>
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<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref15" name="_ftn15" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[15]</span></span><!--[endif]--></span></a> <i>Bank of
England Quarterly Bulletin</i> (BEQB) 2 June 1972 p. 179
pp. 226-238<o:p></o:p></div>
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<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref16" name="_ftn16" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[16]</span></span><!--[endif]--></span></a> Holmes,
Op. cit., p.44<o:p></o:p></div>
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<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref17" name="_ftn17" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[17]</span></span><!--[endif]--></span></a> Capie,
Op. cit., p.512<o:p></o:p></div>
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<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref18" name="_ftn18" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[18]</span></span><!--[endif]--></span></a> Reid, M. (1982) <i>The
Secondary Banking Crisis, 1973-1975</i>
p.70<o:p></o:p></div>
</div>
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<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref19" name="_ftn19" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[19]</span></span><!--[endif]--></span></a> Broackes, N. (1979) <i>A
Growing Concern</i> p.221<o:p></o:p></div>
</div>
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<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref20" name="_ftn20" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[20]</span></span><!--[endif]--></span></a> Campbell
(1993) op. cit., p.523<o:p></o:p></div>
</div>
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<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref21" name="_ftn21" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[21]</span></span><!--[endif]--></span></a> Brittan, S
(1977) <i>The Economic Consequences
of Democracy</i> p.9<o:p></o:p></div>
</div>
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<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref22" name="_ftn22" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[22]</span></span><!--[endif]--></span></a> Blackaby, F
(1978) <i>British Economic Policy
1960-1974</i> p.64<o:p></o:p></div>
</div>
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<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref23" name="_ftn23" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[23]</span></span><!--[endif]--></span></a> <i>The Financial
Times</i> 22 March 1972 p.1<o:p></o:p></div>
</div>
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<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref24" name="_ftn24" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[24]</span></span><!--[endif]--></span></a> Ibid p.8<o:p></o:p></div>
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<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref25" name="_ftn25" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[25]</span></span><!--[endif]--></span></a> Ibid p.9<o:p></o:p></div>
</div>
<div id="ftn26">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref26" name="_ftn26" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[26]</span></span><!--[endif]--></span></a> Reid,
Op. cit., p.24<o:p></o:p></div>
</div>
<div id="ftn27">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref27" name="_ftn27" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[27]</span></span><!--[endif]--></span></a> Ibid
p.25<o:p></o:p></div>
</div>
<div id="ftn28">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref28" name="_ftn28" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[28]</span></span><!--[endif]--></span></a> Capie,
Op. cit. p. 484, p.524<o:p></o:p></div>
</div>
<div id="ftn29">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref29" name="_ftn29" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[29]</span></span><!--[endif]--></span></a> Ibid p. 427<o:p></o:p></div>
</div>
<div id="ftn30">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref30" name="_ftn30" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[30]</span></span><!--[endif]--></span></a> Dimsdale,
Op. cit., p.118<o:p></o:p></div>
</div>
<div id="ftn31">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref31" name="_ftn31" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[31]</span></span><!--[endif]--></span></a> <i>BEQB</i>
June 1971 p.196<o:p></o:p></div>
</div>
<div id="ftn32">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref32" name="_ftn32" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[32]</span></span><!--[endif]--></span></a> <i>The Economist</i> 22 May 1972
p.75<o:p></o:p></div>
</div>
<div id="ftn33">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref33" name="_ftn33" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[33]</span></span><!--[endif]--></span></a> Capie,
Op. cit., p.506<o:p></o:p></div>
</div>
<div id="ftn34">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref34" name="_ftn34" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[34]</span></span><!--[endif]--></span></a> Scott, P and Judge, G (2000) <i>Cycles
and Steps in British Commercial Property Values</i><o:p></o:p></div>
</div>
<div id="ftn35">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref35" name="_ftn35" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[35]</span></span><!--[endif]--></span></a>
<i>Interview with Jonathan Harris</i>:
President of the Royal Institute of Chartered Surveyors 2000/2001 (see
bibliography for brief résumé)<o:p></o:p></div>
</div>
<div id="ftn36">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref36" name="_ftn36" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[36]</span></span><!--[endif]--></span></a> Harris. Op. cit.<o:p></o:p></div>
</div>
<div id="ftn37">
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<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref37" name="_ftn37" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[37]</span></span><!--[endif]--></span></a> <i>The Economist</i>
7 November 1964. “Full Stop for London Offices”<o:p></o:p></div>
</div>
<div id="ftn38">
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<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref38" name="_ftn38" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[38]</span></span><!--[endif]--></span></a> Scott, P (1996) <i>The Property Masters: A History of the British Commercial Property
Sector</i>. p.167<o:p></o:p></div>
</div>
<div id="ftn39">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref39" name="_ftn39" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[39]</span></span><!--[endif]--></span></a> <i>Estates
Gazette</i> 1 April 1972 p.93<o:p></o:p></div>
</div>
<div id="ftn40">
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<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref40" name="_ftn40" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[40]</span></span><!--[endif]--></span></a> Hamnett, C and Randolf, B (1988) <i>Cities Housing and Profits</i> pp. 107-109, 126<o:p></o:p></div>
</div>
<div id="ftn41">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref41" name="_ftn41" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[41]</span></span><!--[endif]--></span></a> Scott,
Op. cit., p.184<o:p></o:p></div>
</div>
<div id="ftn42">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref42" name="_ftn42" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[42]</span></span><!--[endif]--></span></a> <i>Investors
Chronicle</i> April 7 1972.<o:p></o:p></div>
</div>
<div id="ftn43">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref43" name="_ftn43" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[43]</span></span><!--[endif]--></span></a> <i>Opinion
of the Lords of Appeal for Judgment; Regina v. Secretary of State</i> 7
December 2000.<o:p></o:p></div>
</div>
<div id="ftn44">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref44" name="_ftn44" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[44]</span></span><!--[endif]--></span></a> Hamnett and Randolf, Op .cit., p. 103<o:p></o:p></div>
</div>
<div id="ftn45">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref45" name="_ftn45" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[45]</span></span><!--[endif]--></span></a> Hamnett and Randolph, Op. cit., p.113<o:p></o:p></div>
</div>
<div id="ftn46">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref46" name="_ftn46" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[46]</span></span><!--[endif]--></span></a> Slater, J (1977) <i>Return
to Go</i> p.100<o:p></o:p></div>
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<div id="ftn47">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref47" name="_ftn47" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[47]</span></span><!--[endif]--></span></a> Capie, Op. cit., p.559<o:p></o:p></div>
</div>
<div id="ftn48">
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<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref48" name="_ftn48" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[48]</span></span><!--[endif]--></span></a> Kiyotaki, N and Moore, J (1997) <i>Credit
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<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref49" name="_ftn49" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[49]</span></span><!--[endif]--></span></a> <i>The
Economist</i> 27 January 1973 p. 56 What Price Land for Housing?<o:p></o:p></div>
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<div id="ftn50">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref50" name="_ftn50" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[50]</span></span><!--[endif]--></span></a> Coopey and Woodward, Op. cit., p.1 <o:p></o:p></div>
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<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref51" name="_ftn51" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[51]</span></span><!--[endif]--></span></a> Ibid.,
p.110<o:p></o:p></div>
</div>
<div id="ftn52">
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<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref52" name="_ftn52" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[52]</span></span><!--[endif]--></span></a> <i>BEQB</i> June 1972
p.163<o:p></o:p></div>
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<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref53" name="_ftn53" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[53]</span></span><!--[endif]--></span></a> Campbell, Op. cit., p527<o:p></o:p></div>
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<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref54" name="_ftn54" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[54]</span></span><!--[endif]--></span></a> Calomiris, C (2009) <i>Banking
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<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref55" name="_ftn55" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[55]</span></span><!--[endif]--></span></a>
Campbell, Op. cit., p.531<o:p></o:p></div>
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<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref56" name="_ftn56" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[56]</span></span><!--[endif]--></span></a> <i>Property
Week</i> 21 September 2007 p.38; Quote
from Mike Slade, CEO of Helical Bar.<o:p></o:p></div>
<div class="MsoFootnoteText">
<i>The</i> <i>Times</i>
30 November 2004. Obituary of Ronald Lyon.<o:p></o:p></div>
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<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref57" name="_ftn57" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[57]</span></span><!--[endif]--></span></a> Scott, Op. cit., p. 195<o:p></o:p></div>
</div>
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<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref58" name="_ftn58" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[58]</span></span><!--[endif]--></span></a> Plender, J (1982) <i>That’s the way the money goes</i>
p.97<o:p></o:p></div>
</div>
<div id="ftn59">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref59" name="_ftn59" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[59]</span></span><!--[endif]--></span></a> Slater,
Op. cit., p 152<o:p></o:p></div>
</div>
<div id="ftn60">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref60" name="_ftn60" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[60]</span></span><!--[endif]--></span></a> Ibid,
p 120<o:p></o:p></div>
</div>
<div id="ftn61">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref61" name="_ftn61" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[61]</span></span><!--[endif]--></span></a> <i>The
Banker</i> April 1972 p.433<o:p></o:p></div>
</div>
<div id="ftn62">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref62" name="_ftn62" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[62]</span></span><!--[endif]--></span></a> <i>BEQB</i> December 1973 p.445<o:p></o:p></div>
</div>
<div id="ftn63">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref63" name="_ftn63" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[63]</span></span><!--[endif]--></span></a> Veblen, T (1904) <i>The Theory of Business Enterprise</i> p.54<o:p></o:p></div>
</div>
<div id="ftn64">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref64" name="_ftn64" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[64]</span></span><!--[endif]--></span></a> <i>Estates
Gazette</i> 1 April 1972<o:p></o:p></div>
</div>
<div id="ftn65">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref65" name="_ftn65" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[65]</span></span><!--[endif]--></span></a> Crafts and Woodward, Op. cit., p.251<o:p></o:p></div>
</div>
<div id="ftn66">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref66" name="_ftn66" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[66]</span></span><!--[endif]--></span></a> Coopey and Woodward, Op. cit., p.1<o:p></o:p></div>
</div>
<div id="ftn67">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref67" name="_ftn67" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[67]</span></span><!--[endif]--></span></a> <i>BEQB</i>
table, 8 March 1972, March 1974.
Nationwide Housing index: End 1973, 1971 average prices.<o:p></o:p></div>
</div>
<div id="ftn68">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref68" name="_ftn68" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[68]</span></span><!--[endif]--></span></a> Reid, Op. cit., p. 75<o:p></o:p></div>
</div>
<div id="ftn69">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref69" name="_ftn69" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[69]</span></span><!--[endif]--></span></a> Ibid p.76<o:p></o:p></div>
</div>
<div id="ftn70">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref70" name="_ftn70" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[70]</span></span><!--[endif]--></span></a> For example see Coopey and Woodward p.251<o:p></o:p></div>
</div>
<div id="ftn71">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref71" name="_ftn71" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[71]</span></span><!--[endif]--></span></a> Capie, Op. cit., pp. 773-775.<o:p></o:p></div>
</div>
<div id="ftn72">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref72" name="_ftn72" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[72]</span></span><!--[endif]--></span></a> <i>BEQB</i>
December 1972 p 517<o:p></o:p></div>
</div>
<div id="ftn73">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref73" name="_ftn73" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[73]</span></span><!--[endif]--></span></a> Calomiris, C (2009) <i>Banking Crises and the Rules of the Game</i>.<o:p></o:p></div>
</div>
<div id="ftn74">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref74" name="_ftn74" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[74]</span></span><!--[endif]--></span></a> Simon, J (2003 <i>Three Australian Asset-price Bubbles.<o:p></o:p></i></div>
</div>
<div id="ftn75">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref75" name="_ftn75" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[75]</span></span><!--[endif]--></span></a> Plender, Op.cit., pp. 96-97<o:p></o:p></div>
</div>
<div id="ftn76">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref76" name="_ftn76" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[76]</span></span><!--[endif]--></span></a> Scott, Op.cit., p.186<o:p></o:p></div>
</div>
<div id="ftn77">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref77" name="_ftn77" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[77]</span></span><!--[endif]--></span></a>
<i>The Economist</i>: 10 March 1973<o:p></o:p></div>
</div>
<div id="ftn78">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref78" name="_ftn78" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[78]</span></span><!--[endif]--></span></a> Capie, Op. cit., p. 534. On 30 November 30
share- trading was suspended in London and County.<o:p></o:p></div>
</div>
<div id="ftn79">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref79" name="_ftn79" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[79]</span></span><!--[endif]--></span></a> Reid, Op. cit., p. 82 and Capie, Op. cit., p. 534<o:p></o:p></div>
</div>
<div id="ftn80">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref80" name="_ftn80" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[80]</span></span><!--[endif]--></span></a>
Healey, D (1989) <i>The Time of my Life</i>
p. 374<o:p></o:p></div>
</div>
<div id="ftn81">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref81" name="_ftn81" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[81]</span></span><!--[endif]--></span></a> Capie, Op. cit., p. 530. It is also worth
noting that rising interest rates in 1973 would create even more expensive
borrowings for SCOOP when it was time to honour their commitment to buy the
extra CDs.<o:p></o:p></div>
</div>
<div id="ftn82">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref82" name="_ftn82" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[82]</span></span><!--[endif]--></span></a> Reid, Op. cit., p. 27. It is interesting to note that Reid had
concluded that “matching” was relatively little understood even at the time of
publication (1982). This was confirmed in the April 2011 interview with Harris.<o:p></o:p></div>
</div>
<div id="ftn83">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref83" name="_ftn83" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[83]</span></span><!--[endif]--></span></a> This is called a positive yield curve. A
negative yield curve is where short term rates are higher than longer term
rates<o:p></o:p></div>
</div>
<div id="ftn84">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref84" name="_ftn84" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[84]</span></span><!--[endif]--></span></a> <i>BEQB</i>
September 1973 p.309<o:p></o:p></div>
</div>
<div id="ftn85">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref85" name="_ftn85" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[85]</span></span><!--[endif]--></span></a> Capie, Op. cit., p.538<o:p></o:p></div>
</div>
<div id="ftn86">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref86" name="_ftn86" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[86]</span></span><!--[endif]--></span></a> Ibid, p. 537 Chapter 1 of Reid (1982) further
describes the meeting.<o:p></o:p></div>
</div>
<div id="ftn87">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref87" name="_ftn87" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[87]</span></span><!--[endif]--></span></a> <i>The
Economist</i> 5 January 1974.<o:p></o:p></div>
</div>
<div id="ftn88">
<div class="MsoFootnoteText">
<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref88" name="_ftn88" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[88]</span></span><!--[endif]--></span></a> Capie, Op. cit., pp. 548-9<o:p></o:p></div>
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Cork Gulley the largest insolvency practice in Britain.<o:p></o:p></div>
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<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref90" name="_ftn90" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[90]</span></span><!--[endif]--></span></a> <i>Interview:
Jonathan Harris</i><o:p></o:p></div>
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<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref91" name="_ftn91" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[91]</span></span><!--[endif]--></span></a> <i>Bank
of England File 6A.70/3 on Slater Walker</i>.<o:p></o:p></div>
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<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref92" name="_ftn92" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[92]</span></span><!--[endif]--></span></a> Capie, Op. cit., p. 562<o:p></o:p></div>
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<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref93" name="_ftn93" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[93]</span></span><!--[endif]--></span></a> Capie, Op.cit.,p.586, Reid, Op. cit., p. 193, Slater, Op. cit., p.
199, Healey, Op. cit., p.375 and <i>interview
with Harris.<o:p></o:p></i></div>
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<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref94" name="_ftn94" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[94]</span></span><!--[endif]--></span></a> Scott, Op. cit.,p.198. A Solvency level is the excess of assets over
liabilities.<o:p></o:p></div>
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<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref95" name="_ftn95" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[95]</span></span><!--[endif]--></span></a> <i>The
Times</i> 21 August 1974 p.15 and <i>Property Week</i> 25 September 2009 p.22<o:p></o:p></div>
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<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref96" name="_ftn96" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[96]</span></span><!--[endif]--></span></a> Plender, Op. cit., p. 89 Note that 13.6% compounded over the 1970s
represented a 258% increase in prices.<o:p></o:p></div>
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<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref97" name="_ftn97" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[97]</span></span><!--[endif]--></span></a> Capie, Op. cit., p. 551 and Slater,
Op. cit., p. 206<o:p></o:p></div>
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<a href="file:///C:/Users/User/Documents/EH499%20%20DISSERTATION%20%20APRIL%202012.docm#_ftnref98" name="_ftn98" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-family: "Times New Roman","serif"; font-size: 10.0pt; mso-ansi-language: EN-GB; mso-bidi-font-family: Shruti; mso-bidi-language: GU; mso-fareast-font-family: Calibri; mso-fareast-language: ZH-CN; mso-fareast-theme-font: minor-latin;">[98]</span></span><!--[endif]--></span></a> <i>Interview:
Jonathan Harris</i>.<o:p></o:p></div>
</div>
</div>simon gillishttp://www.blogger.com/profile/16044016585608130667noreply@blogger.com0tag:blogger.com,1999:blog-6579922648042811376.post-57839213535022442182011-11-17T00:04:00.000-08:002011-11-17T00:14:00.809-08:00LAST CHANCEFor several years this blog has warned of inadequate policy formation, the necessity of owning gold as a hedge against financial default and the length of the crisis. This is a last warning.<div> Governments wont pay. Bonds will default and pensions will be decimated.</div><div> By 2020 Health Care services will be a fraction of what they are now.</div><div>Owning Gold is an insurance. Do not regard it as an investment.</div><div>Civil unrest will be become more violent.</div><div>Democracy will be undermined.</div><div><br /></div><div> There is a sound principle that doctors are not allowed to cure themselves. The equivalent should be true today with politicians. Politicians are the root of the crisis (although they have ably helped by bankers) and yet they are charged with curing the crisis. A cure will not be found</div>simon gillishttp://www.blogger.com/profile/16044016585608130667noreply@blogger.com2tag:blogger.com,1999:blog-6579922648042811376.post-68866707589980860322011-09-06T01:55:00.000-07:002011-09-06T01:58:59.549-07:00Swiss fix Franc vs EuroThis is a very poor decision by the SNB. They will now find depositors from all over Europe choosing the Swiss Franc. Marginally solvent European banks will also choose the Franc as a haven. We are now in a new stage of Currency Wars and uncooperative economic decision making. That is dangerous.simon gillishttp://www.blogger.com/profile/16044016585608130667noreply@blogger.com1tag:blogger.com,1999:blog-6579922648042811376.post-65918193532162557892011-09-05T00:59:00.000-07:002011-09-05T01:13:59.097-07:00Heading into the Storm The markets are set for achieving the minimum objective of Dow : Gold of 5:1 On both sides of the Atlantic puerile posturing, ignorance and complacency by politicians only worsens the environment. The European banking system is close to insolvency ( liberal marking of debt and derivatives masks the danger) which has obviously wider ramifications. Bernanke's pledge to keep a quasi-zero rate policy for 2 years is not only unprecedented but is even more dramatic than QE3. Expect further dramatic liquidity injections (QE9, one day?) not because it works, but its the only tool that policy makers can think of as they are caught "in the headlights". If Gold reaches 2.800 this autumn, it <i style="font-weight: bold; ">might </i>be worth considering taking a partial profitsimon gillishttp://www.blogger.com/profile/16044016585608130667noreply@blogger.com0tag:blogger.com,1999:blog-6579922648042811376.post-964617318078875482011-08-18T22:41:00.000-07:002011-08-18T22:42:46.786-07:00<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiSQSSOGjL9oEXzjyfniMNZxkbXNO5z_8s4ZiRPQ1oROgHwiunmANoSqr12vWl1_7vT16R1fxChec9ZG5odxrAE0Yd1o9nIDPfrN_iifCsTxu_lNRheojBnN6YS2sflKhb__1ci9S5Mt9g/s1600/sg2011081858694.gif" onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 229px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiSQSSOGjL9oEXzjyfniMNZxkbXNO5z_8s4ZiRPQ1oROgHwiunmANoSqr12vWl1_7vT16R1fxChec9ZG5odxrAE0Yd1o9nIDPfrN_iifCsTxu_lNRheojBnN6YS2sflKhb__1ci9S5Mt9g/s320/sg2011081858694.gif" border="0" alt="" id="BLOGGER_PHOTO_ID_5642438375274808690" /></a>
<br />simon gillishttp://www.blogger.com/profile/16044016585608130667noreply@blogger.com0tag:blogger.com,1999:blog-6579922648042811376.post-18267597211381246582011-08-18T22:33:00.000-07:002011-08-18T22:56:59.803-07:00What now? Above you will see an update of a chart posted before (see blog 21 September 2010). It is a semi-logarithmic chart of the Dow <i>priced in Gold, </i>since 1921. Support is coming at 5 (Dow 10.000 / Gold 2.000 ?) This has been the minimum objective commensurate with the 1932-1935 basing in the stock-market. Its possible that in this Global Government Debt crisis the ratio falls even lower. <div> Politicians still do not appreciate the size of the problem. Markel and Sarkozy appear naive and Congress's teenage posturing lamentable.There are many years of debt-delevaraging ahead and the continual issuence of debt simply enslaves our children's generation to pay interest to emerging Asia.</div>simon gillishttp://www.blogger.com/profile/16044016585608130667noreply@blogger.com0tag:blogger.com,1999:blog-6579922648042811376.post-31549942752774292912011-05-03T07:42:00.000-07:002011-06-19T03:56:57.495-07:00STERLING VS EURO<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh6MpTX-P663AvDLJt1L0puxQdln2ZiUPujJiEcd3153dmwugRnKkfPQH5i_1KxaUkhOknPJZOvbhxySe3nCBrPsZzV1ikMwUtk8xCXOf9PN42SFPScfVC2fgi0fcdZmgMLFMbg3spnbic/s1600/STG+EUR" onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 229px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh6MpTX-P663AvDLJt1L0puxQdln2ZiUPujJiEcd3153dmwugRnKkfPQH5i_1KxaUkhOknPJZOvbhxySe3nCBrPsZzV1ikMwUtk8xCXOf9PN42SFPScfVC2fgi0fcdZmgMLFMbg3spnbic/s320/STG+EUR" border="0" alt="" id="BLOGGER_PHOTO_ID_5602501221770198786" /></a><br /><div><br /></div><div> The long term chart of Sterling vs. Euro confirms the budget proposal that the Government and Bank of England will sell Sterling to build up reserves of currency. Tight fiscal policy will be counterbalanced by weak monetary policy; <span class="blsp-spelling-error" id="SPELLING_ERROR_0">QE</span> keeping longer term rates artificially low and a weakening exchange rate to boost the export sector.</div><div><br /></div><div> Unfortunately this policy is typical of a "race to the bottom" where countries try and weaken exchange rates (UK, USA) or impose capital controls (Brazil) to gain competitive advantage. It might be the case that countries that act in this manner quickly will get an advantage over countries that do not, but the sum total of such <span class="blsp-spelling-error" id="SPELLING_ERROR_1">mercantilist</span> behaviour is usually zero at best. A competitive battle between Coke and Pepsi where bottom line is paramount is quite different to a win-lose battle between countries. Mercantilism does not succeed now and Ricardo's view of comparative advantage means that free trade and cooperation <i>always </i>wins over a nationalistic competitive ethos. We are back to the 1930s.</div><div><br /></div><div> On top of this, the UK policy of zero rates is understandable in terms of preventing a deflationary nightmare but zero rates distort capital formation. Investment is eschewed for speculation (commodities) hoarding (gold) or simply flees to other currencies that do pay interest.</div><div><br /></div><div> We live in a world where there is little cooperation between the main players (G20) and if the UK and USA really think they can outwit China they are niave as well as isolationist.</div><div><br /></div><div> </div>simon gillishttp://www.blogger.com/profile/16044016585608130667noreply@blogger.com0tag:blogger.com,1999:blog-6579922648042811376.post-87341615749086470872011-04-16T22:53:00.000-07:002011-04-16T22:58:36.288-07:00Unfortunately (for students) this is the exception.<span class="Apple-style-span" style="font-family: Arial, sans-serif, 'Lucida Grande', Verdana; font-size: 12px; line-height: 25px; "><b style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">Texas University Endowment Storing About $1 Billion in Gold Bars </b><p style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; padding-top: 10px; padding-right: 0px; padding-bottom: 10px; padding-left: 0px; "><i style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">By David Mildenberg and Pham-Duy Nguyen – Apr 15, 2011 6:13 PM ET</i></p><p style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; padding-top: 10px; padding-right: 0px; padding-bottom: 10px; padding-left: 0px; "><i style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">The University of Texas Investment Management Co., the second-largest U.S. academic endowment, took delivery of almost $1 billion in gold bullion as the metal reaches a record, according to the fund’s board.</i></p><p style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; padding-top: 10px; padding-right: 0px; padding-bottom: 10px; padding-left: 0px; "><i style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; ">he fund, whose $19.9 billion in assets ranked it behind Harvard University’s endowment as of August, according to the National Association of College and University Business Officers, last year added about $500 million in gold investments to an existing stake, said Bruce Zimmerman, the endowment’s chief executive officer. The holdings reached about $987 million yesterday, as Comex futures closed at $1,486 an ounce.</i></p></span>simon gillishttp://www.blogger.com/profile/16044016585608130667noreply@blogger.com0tag:blogger.com,1999:blog-6579922648042811376.post-2262945113981190332011-03-25T00:16:00.000-07:002011-03-25T00:33:21.920-07:00The UK Budget 2011Having promised a budget for growth, Mr. Osbourne gave the country an indication that his stewardship of the economy will lack innovative thinking. Taking from Oil Companies will give concern to other industries that future profits may be expropriated and then giving to the consumer via lowering petrol duty is shamefully populist. Mr. Snow on Channel 4 news skilfully questioned Danny Alexander and pointed out that higher petrol prices would have forced the population to adapt to higher energy prices; a market mechanism for perhaps considering ways to embrace new sources of energy. Unfortunately the coalition are interventionist at heart despite the rhetoric.<div> Of note was the reference to currencies. Mr. Osbourne made clear that the Bank would be building reserves; a clear statement that Sterling will be sold to complement the low interest rates.</div><div>The comment that it was important that G7 <i>buys</i> yen to support the Japanese economy was the highlight of a dull budget. Was that a faux pas or a Freudian Slip?</div>simon gillishttp://www.blogger.com/profile/16044016585608130667noreply@blogger.com0tag:blogger.com,1999:blog-6579922648042811376.post-16078888179277729812011-03-07T10:42:00.000-08:002011-03-07T10:54:42.261-08:00Upcoming 2011 UK Budget.Mr. Cameron is trying to prepare the country for a budget that will be the most pro-growth in a generation and one which will encourage the entrepreneur. At the same time there is an emphasis on getting banks to lend to small business.<div> </div><div> Mr. Cameron might find British Economic History from the early 1970s interesting. Ted Heath pressed cabinet and the chancellor, Tony Barber, into an expansionary budget; a dash for growth. At the same time the Bank of England had liberalised the high street banks to lend money without credit constraint and the World was embarking on a commodity boom fueled by the break down of the dollar peg. </div><div> </div><div> The result was a classic Keynesian expansion, UK style. Investment into industry actually fell as the banks chose property as the sector to invest in. ( British banks have always favored property with its natural collateral, rather than small business). Billions went into property and when interest rates rose in November 1973 and a rent freeze was imposed, the whole house of cards collapsed. The Bank of England was forced to rescue the secondary banks and property companies collapsed alongside the banks. </div><div><br /></div><div> In other words, the combination of pushing banks to lend, a reflationary budget with ever increasing commodity prices and low interest rates produced a classic boom and bust. Sounds familiar?</div>simon gillishttp://www.blogger.com/profile/16044016585608130667noreply@blogger.com0tag:blogger.com,1999:blog-6579922648042811376.post-82422821107669418412011-03-06T00:15:00.000-08:002011-03-06T00:31:32.872-08:00Proposed Pension Reform will encourage Government to inflate the economyThe Pension reform being proposed by Lord Hutton may have dangerous consequences. It is clear that the public sector will have to see a cut in their final salary schemes, but a more transparent solution must be preferable to one which may have dangerous consequences.<div><br /></div><div> What is being proposed is that workers receive a pension in line with their <i>average life-time earnings.</i> What is not being disclosed is that wage inflation will seriously erode that average. If compounded interest is a marvel for savers, it is a nightmare for pension beneficiaries.</div><div><br /></div><div> Suppose wage inflation is 5% compounded over 40 years. A person starting on £30.000 p.a will receive £201,000 after 40 years with an average salary of £90,600.</div><div> </div><div> If wage inflation is 8% compounded, that same person will receive £603,000 with an average salary of £194,300</div><div><br /></div><div> In the 1st scenario, the pension will be 45% of leaving salary and in the second just 32%</div><div><br /></div><div> Once again government is changing to policy that undermines the population through inflation.</div><div> </div><div> </div><div> </div>simon gillishttp://www.blogger.com/profile/16044016585608130667noreply@blogger.com0tag:blogger.com,1999:blog-6579922648042811376.post-28667173860951784462011-02-19T08:49:00.000-08:002011-02-19T08:57:04.230-08:00The Bank of England is both candid and economic with the truthMr. King was one of the few leaders in 2008 to be candid about our economic future. He said that standards of living would fall; i.e. wages would not increase as much as prices. However, his recent comments might suggest that he might raise rates to curb inflation. True, but it is a little economic with the truth. The market's assessment through short sterling futures suggest rates at 1.5% by the end of the year. That is hardly enough to deal with CPI above 4% and RPI above 5%. (RPI is conveniently being dropped by government). Both the Government and the Bank want inflation. It is the only palatable way to reduce our debt in real terms. Don't be fooled.simon gillishttp://www.blogger.com/profile/16044016585608130667noreply@blogger.com0tag:blogger.com,1999:blog-6579922648042811376.post-42971119870151447752010-12-14T00:58:00.000-08:002010-12-14T01:04:55.975-08:00<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgPr3_x213OtkZrPhmFPl_jAk8SozkeBEw9MfANLEnkoD6Eh3YpjOKkST3l1n-EokHZ8Yh2LB4zTUnAgqAddMOVngwt4e1hSd4Q4rGeO1VjOGO4LOjIRKVVvXxJzCXcdfz3ynWlAOztU7I/s1600/Gold+Cup+3.JPG"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 240px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgPr3_x213OtkZrPhmFPl_jAk8SozkeBEw9MfANLEnkoD6Eh3YpjOKkST3l1n-EokHZ8Yh2LB4zTUnAgqAddMOVngwt4e1hSd4Q4rGeO1VjOGO4LOjIRKVVvXxJzCXcdfz3ynWlAOztU7I/s320/Gold+Cup+3.JPG" border="0" alt="" id="BLOGGER_PHOTO_ID_5550459964098527234" /></a> <div><br /></div><div> With all the Economic Doom and Gloom around in the West, it was a real pleasure to become British Gold Cup Bridge Champions in 2010. The team of Zia, Gunnar Hallberg, Robert Sheehan, David Burn, Fredrick Bjornlund all played magnificently for team Gillis. It's also ironic that the Cup is made of the Yellow Metal.</div>simon gillishttp://www.blogger.com/profile/16044016585608130667noreply@blogger.com0tag:blogger.com,1999:blog-6579922648042811376.post-68979025488758664562010-11-30T02:24:00.000-08:002010-11-30T02:35:32.007-08:0039.25 Year Cycle Kicking In.<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgdgw4s8fMm2RXJwaesH6ltsLd9L-BuPNO_WSSmAI1YvpWDGYxujaX96PExvpUlEqFUo6ackFMkV8XNHvrI3EuIWdfnZbOmUvmjjyKqsBiY6Kud3kHp1dF4f1A_3WjpXSEZrEV_eJ8wpd0/s1600/sggoldeuro"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 229px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgdgw4s8fMm2RXJwaesH6ltsLd9L-BuPNO_WSSmAI1YvpWDGYxujaX96PExvpUlEqFUo6ackFMkV8XNHvrI3EuIWdfnZbOmUvmjjyKqsBiY6Kud3kHp1dF4f1A_3WjpXSEZrEV_eJ8wpd0/s320/sggoldeuro" border="0" alt="" id="BLOGGER_PHOTO_ID_5545289156708061266" /></a><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg-CKE8FQoCfJ48R3SLjhQNfb8ZVt56u3RJre1CVIdPE6-VbKMcnooKL8yIPZq7nR5wF7TxWcJRw0bhgbK23EJS3bpMaVt_IUlUpPY-8w2qYrqaYDE4teDz1l1vAJPiucdRQvyQKey0cxU/s1600/sgspanish+bond"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 320px; height: 229px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg-CKE8FQoCfJ48R3SLjhQNfb8ZVt56u3RJre1CVIdPE6-VbKMcnooKL8yIPZq7nR5wF7TxWcJRw0bhgbK23EJS3bpMaVt_IUlUpPY-8w2qYrqaYDE4teDz1l1vAJPiucdRQvyQKey0cxU/s320/sgspanish+bond" border="0" alt="" id="BLOGGER_PHOTO_ID_5545287002861006722" /></a><br /><div> The first chart is Gold in terms of the Euro. The 2nd chart is a 30 year Spanish Government Bond.</div><div><br /><div> The 39.25 year cycle (November 2010) mentioned 2 blogs ago is really kicking in. Irish, Italian and Spanish Bonds are collapsing and Gold is making new highs against the Euro. This is a debt crisis first and foremost. Restructuring will inevitably mean that many governments will not pay the full amount of their debt back.Protect yourself.</div><div><br /></div></div>simon gillishttp://www.blogger.com/profile/16044016585608130667noreply@blogger.com0tag:blogger.com,1999:blog-6579922648042811376.post-92118275108495233302010-11-23T08:02:00.000-08:002010-11-24T01:50:44.114-08:00The discord among G20 is of greater concern than fears of capital controls and protectionism<p class="MsoNormal"><span style="LETTER-SPACING: 1pt"><?xml:namespace prefix = o /><o:p></o:p></span></p><p class="MsoNormal"><span style="LETTER-SPACING: 1pt"><span style="mso-spacerun: yes"></span> Manchester Liberalism was an early 19<sup>th</sup> century school of thought that combined belief in free-trade and<span style="mso-spacerun: yes"> </span>consensual politics. Rooted in the work of Hume and Smith , and championed by Cobden it lead to the repeal of the corn laws in 1846 and the Cobden-Chevalier treaty for free-trade in 1860.It opposed mercantilism .The Washington Consensusarising from the economic leanings of Thatcher and Reagan advocated free trade, liberalising markets and capital flows, privatisation and falling barriers; however, America’s determination to effect open trade and promote the world economy had been evident since the late 1940s.This paper will argue that the effectiveness and willingness of both Britain and America to influence other countries with free-trade policies (namely the Manchester school and Washington Consensus) was conditional not just on their hegemon status but also when they acted in a cooperative manner with trading partners. In other words, when Britain and America were not cooperative, world trade and business would suffer from protectionism, myopia and lack of leadership. <o:p></o:p></span></p><p class="MsoNormal"><span style="LETTER-SPACING: 1pt"><span style="mso-spacerun: yes"></span> The 1<sup>st</sup> era of Globalisation from 1870 to 1914 was championed by Britain as the Hegemon. Britain’s ability to have minimal tariffs when the international average was 15%demonstrated her being a “strong state”. Government had overcome landed-interests to reduce tariffs, promote free-trade and raise revenue with more equitable higher income- taxes. America in this period had tariffs set considerably above the 15% average. America’s share of Customs revenue to total revenue was 51% from 1870-1910 compared to Britain’s 22%. America was not anti-free-trade per se but in a labour scarce economy preferred openness in immigration to the removal of trade barriers. As Irwindemonstrates, customs revenue was an efficient way of collecting taxes in a country (like America) which had a low population density. Her influential land-owners were able to pressure the taxation of imports over the direct taxation of their land.<o:p></o:p></span></p><p class="MsoNormal"><span style="LETTER-SPACING: 1pt"><span style="mso-spacerun: yes"></span> The 1980s Washington Consensus that suggested lower tariffs, and almost demanded capital account liberalisation, was seen as the policy mix to best promote world trade. This mix was not necessarily true 100 years earlier. Estevadeordal, Frantz and Taylor showed that the decline in transport costs alongside a well run monetary system were more trade-creating forces than lowering tariffs. They demonstrated that the correlation between high growth and high tariffs was misleading. Britain played a major part in both reducing transport costs and supporting the Gold Standard. Before the steam ship, Britain’s superior navy ensured safe-cargo and her mature insurance market<a style="mso-footnote-id: ftn7" title="" href="file:///C:/Users/User/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/3H7BFYP4/EH464%20ESSAY.docx" name="_ftnref7"><span class="MsoFootnoteReference"><span style="mso-special-character: footnote"> </span></span></a>kept insurance rates to a minimum. The steamship and the opening of the Suez Canal led to dramatically lower transport costs and quicker journeys. The pre-eminent position of the City of London to discount bills, transact in sterling (rather than bullion) and most importantly, to be fully committed to the Gold standard , was the 2<sup>nd</sup> <span style="mso-spacerun: yes"></span>key to increased trade .Lopez-Cordova and Meissner<a style="mso-footnote-id: ftn8" title="" href="file:///C:/Users/User/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/3H7BFYP4/EH464%20ESSAY.docx" name="_ftnref8"><span class="MsoFootnoteReference"><span style="mso-special-character: footnote"> </span></span></a>showed that 2 countries on the Gold Standard were likely to trade 60% more than 2 countries who did not. Therefore the success of trade between 1870 and 1913 owes as much to the <b style="mso-bidi-font-weight: normal">commitment</b> that Britain gave to monitoring the Gold Standard and lowering transaction costs as to her actual trade policy. This cooperation was matched by other countries’ policies acceptable to their own political interests; America was open to immigration, Northern European countries joined the Gold Standard to standardise their currency regimes and Asian countries lowered tariffs on imported British textiles. Britain, in turn, recycled her Gold through the capital account investing in crucial infrastructure (particularly railroads and canals) in primary producing countries.<o:p></o:p></span></p><p class="MsoNormal"><span style="LETTER-SPACING: 1pt"><span style="mso-spacerun: yes"></span><span style="mso-spacerun: yes"></span> America’s U turn on tariff policy was evident soon after the 2<sup>nd</sup> World War with the establishment of GATT and a desire to see some European trade barriers come down; however she did not advocate that total free trade be imposed everywhere. <span style="mso-spacerun: yes"></span><span style="mso-spacerun: yes"></span>Her cooperative position was evident with the Marshall Plan and the creation of the EPU<a style="mso-footnote-id: ftn9" title="" href="file:///C:/Users/User/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/3H7BFYP4/EH464%20ESSAY.docx" name="_ftnref9"><span class="MsoFootnoteReference"><span style="mso-special-character: footnote"> </span></span></a> as the necessary institutional support to bring Europe out of its economic devastation. Ruggie<a style="mso-footnote-id: ftn10" title="" href="file:///C:/Users/User/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/3H7BFYP4/EH464%20ESSAY.docx" name="_ftnref10"><span class="MsoFootnoteReference"><span style="mso-special-character: footnote"> </span></span></a>showed that America was not so dogmatic that her free trade-policy should be replicated as a quid pro quo for aid. For example, France was allowed protection for agriculture, Britain a more interventionist government in building the welfare state. The growth of the European Union from a coal and steel alliance between Germany and Belgium to a fully integrated currency union was always endorsed by America, but at no time did America insist on laissez-faire free trade. America’s position was always pragmatic and respectful of the European desire for a larger welfare state. America used her dominant position not to eulogise free-trade but to run Bretton Woods (and overcome the problems of lack of convertible currency) help Europe <b style="mso-bidi-font-weight: normal"><i style="mso-bidi-font-style: normal">and </i></b>benefit her mass-producing home industries. The large plants which had helped the allies in the War<a style="mso-footnote-id: ftn11" title="" href="file:///C:/Users/User/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/3H7BFYP4/EH464%20ESSAY.docx" name="_ftnref11"><span class="MsoFootnoteReference"><span style="mso-special-character: footnote"> </span></span></a> still needed an export market when they switched from armaments in 1945.In the post war period the “Washington Consensus” was indeed consensual.<o:p></o:p></span></p><p class="MsoNormal"><span style="LETTER-SPACING: 1pt"><span style="mso-spacerun: yes"></span> The interwar period was the opposite. Both Britain and America resorted to more insular policy and withdrew from the International Political economy. Although Britain imposed the deflationary policy of re-joining the Gold Standard <span style="mso-spacerun: yes"></span>supposedly to promote world trade, it has been argued by Baines<a style="mso-footnote-id: ftn12" title="" href="file:///C:/Users/User/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/3H7BFYP4/EH464%20ESSAY.docx" name="_ftnref12"><span class="MsoFootnoteReference"><span style="mso-special-character: footnote"> </span></span></a>and others that it was also trying to move resources and labour from the old and inefficient businesses of coal, ship building and textiles to the more modern sectors like power, motors and durable goods. This was called “Rationalisation”. In September 1931 when Britain withdrew from the gold standard, not only did she break with 200 years of Gold convertibility<a style="mso-footnote-id: ftn13" title="" href="file:///C:/Users/User/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/3H7BFYP4/EH464%20ESSAY.docx" name="_ftnref13"><span class="MsoFootnoteReference"><span style="mso-special-character: footnote"> </span></span></a>she also imposed higher tariffs at the same time. <o:p></o:p></span></p><p class="MsoNormal"><span style="LETTER-SPACING: 1pt"><span style="mso-spacerun: yes"></span> After the First World War, America did not use her new premier economic position in a cooperative way. Firstly she withdrew from the political economy by neither attempting to rebuild a safer Germany nor by arguing against the dangerous level of reparations set at Versailles. From 1926, America and France chose to hoard their Gold rather than recycle it through the capital account.<a style="mso-footnote-id: ftn14" title="" href="file:///C:/Users/User/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/3H7BFYP4/EH464%20ESSAY.docx" name="_ftnref14"><span class="MsoFootnoteReference"><span style="mso-special-character: footnote"> </span></span></a> In 1929 USA and France had over 50% of the World Gold reserves and after the 1929 Crash, America imposed even higher tariffs (Smoot Hawley) and did not help the allies until Pearl Harbour.<o:p></o:p></span></p><p class="MsoNormal"><span style="LETTER-SPACING: 1pt"><span style="mso-spacerun: yes"></span> The misleading correlation between higher growth and higher tariffs is also prevalent from the 1980s under the Washington Consensus. The USA did successfully persuade many western countries to join GATT as well as Bretton Woods. GATT an international institution aimed at the promotion of free trade did effect an impressive decrease in tariffs from 34% in 1980 to 12.6% in 2000 and world exports as a percentage of World GDP<a style="mso-footnote-id: ftn15" title="" href="file:///C:/Users/User/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/3H7BFYP4/EH464%20ESSAY.docx" name="_ftnref15"><span class="MsoFootnoteReference"><span style="mso-special-character: footnote"> </span></span></a> rose from 11% to 18.8%. However, the increase in trade had less to do with tariff reduction than assumed. Baier and Bergstrand<a style="mso-footnote-id: ftn16" title="" href="file:///C:/Users/User/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/3H7BFYP4/EH464%20ESSAY.docx" name="_ftnref16"><span class="MsoFootnoteReference"><span style="mso-special-character: footnote"> </span></span></a>demonstrated that 67-69% of Trade Growth in that period could be explained by GDP growth but only 23-26% by tariff reductions.<o:p></o:p></span></p><p class="MsoNormal"><span style="LETTER-SPACING: 1pt"><span style="mso-spacerun: yes"></span> The growth in world income is the major part of America’s contribution to free-trade, not her supposed adherence to free trade per se. Since the 2<sup>ND</sup> World War, America has contributed to world growth with Marshall Aid, the EPU (to overcome problems in currency convertibility) GATT, Bretton Woods and a strong military presence. She has been a large importer of world products and facilitated <span style="mso-spacerun: yes"></span><span style="mso-spacerun: yes"></span>new countries which had been restricted under the iron curtain. During financial crises of 1987 and 2001/2 she added liquidity. In other words, unlike the 1914-1939 <span style="mso-spacerun: yes"></span><span style="mso-spacerun: yes"></span>period, the USA since 1945 has largely tried to be cooperative as Britain was in the 19<sup>th</sup> century. America tried to be the “Leader of the Orchestra”. However, since 2008 there have been less consensual policies .America is critical of Chinese currency manipulation and is retaliating with QE and the latest round of GATT, the Doha round, has broken down. If there is to be a continuation of the Manchester School and the Washington Consensus, a “Shanghai View” ,say, later this century, then the lesson for China<span style="mso-spacerun: yes"> </span>is that simply advocating free-trade is not enough. China would need to use its Hegemon status to cooperate with the rest of the world and create new institutions to successfully manage the economic well- being of the <b style="mso-bidi-font-weight: normal">world</b> as well as her own primary economic position.<o:p></o:p></span></p><p class="MsoNormal"><span style="LETTER-SPACING: 1pt"><o:p></o:p></span></p><p class="MsoNormal"><span style="LETTER-SPACING: 1pt"> Simon GILLIS 4 XI 2010<o:p></o:p></span></p><p class="MsoNormal"><span style="LETTER-SPACING: 1pt"><o:p></o:p></span></p><p class="MsoFootnoteText">Baier and Bergstrand: The Growth of World Trade; tariffs, transport costs and income similarity.<o:p></o:p></p><p class="MsoFootnoteText"><o:p></o:p></p><p class="MsoNormal">Baines.<span style="mso-spacerun: yes"> </span>The 1920s P Johnson (ed.) Twentieth Century Britain; Economic, Social and Political Change<o:p></o:p></p><p class="MsoFootnoteText">Estevadeordal, Frantz, and Taylor: The Rise and fall of world Trade 1870-1939<o:p></o:p></p><p class="MsoNormal"><span style="mso-spacerun: yes"></span><o:p></o:p></p><p class="MsoNormal">Hatton and Williamson (2005).A dual policy paradox: Why have trade and immigration policies always differed in labour-scarce economies?<o:p></o:p></p><p class="MsoFootnoteText">Irwin (2002): Interpreting the Tariff –Growth Correlation of the late 19<sup>th</sup> century.<o:p></o:p></p><p class="MsoFootnoteText"><o:p></o:p></p><p class="MsoFootnoteText">Irwin (draft 2010) “Did France Cause the Great Depression”?<o:p></o:p></p><p class="MsoFootnoteText"><o:p></o:p></p><p class="MsoFootnoteText">Lopez-Cordova and Meissner: Exchange Rate regimes and International Trade.<o:p></o:p></p><p class="MsoFootnoteText"><o:p></o:p></p><p class="MsoNormal">Maddison (1995): Monitoring the World Economy<o:p></o:p></p><p class="MsoNormal">Matoo and Subramanian: Currency undervaluation and Sovereign Wealth Funds.<o:p></o:p></p><p class="MsoNormal"><span style="mso-spacerun: yes"></span>Overy (2005): Why the Allies Won.<o:p></o:p></p><p class="MsoFootnoteText">Ruggie 1994: Trade, Protectionism and the Future of Welfare Capitalism<o:p></o:p></p><p class="MsoNormal"><span style="LETTER-SPACING: 1pt"><o:p></o:p></span></p><div style="mso-element: footnote-list"><div style="mso-element: footnote" id="ftn1"><p class="MsoFootnoteText"> Williamson (2000): What should the World Bank think about the Washington Consensus?<o:p></o:p></p></div><div style="mso-element: footnote" id="ftn2"><p class="MsoFootnoteText"><a style="mso-footnote-id: ftn2" title="" href="file:///C:/Users/User/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/3H7BFYP4/EH464%20ESSAY.docx" name="_ftn2"><span class="MsoFootnoteReference"><span style="mso-special-character: footnote"> </span></span></a>Hatton and Williamson (2005).A dual policy paradox: Why have trade and immigration policies always differed in labour-scarce economies?<o:p></o:p></p></div><div style="mso-element: footnote" id="ftn3"><p class="MsoFootnoteText"><a style="mso-footnote-id: ftn3" title="" href="file:///C:/Users/User/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/3H7BFYP4/EH464%20ESSAY.docx" name="_ftn3"><span class="MsoFootnoteReference"><span style="mso-special-character: footnote"> </span></span></a>Hobson. The Wealth of States.<o:p></o:p></p></div><div style="mso-element: footnote" id="ftn4"><p class="MsoFootnoteText"><a style="mso-footnote-id: ftn4" title="" href="file:///C:/Users/User/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/3H7BFYP4/EH464%20ESSAY.docx" name="_ftn4"><span class="MsoFootnoteReference"><span style="mso-special-character: footnote"> </span></span></a>Hatton and Williamson. ibid<o:p></o:p></p></div><div style="mso-element: footnote" id="ftn5"><p class="MsoFootnoteText"><a style="mso-footnote-id: ftn5" title="" href="file:///C:/Users/User/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/3H7BFYP4/EH464%20ESSAY.docx" name="_ftn5"><span class="MsoFootnoteReference"><span style="mso-special-character: footnote"> </span></span></a>Irwin (2002): Interpreting the Tariff –Growth Correlation of the late 19<sup>th</sup> century.<o:p></o:p></p></div><div style="mso-element: footnote" id="ftn6"><p class="MsoFootnoteText"><a style="mso-footnote-id: ftn6" title="" href="file:///C:/Users/User/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/3H7BFYP4/EH464%20ESSAY.docx" name="_ftn6"><span class="MsoFootnoteReference"><span style="mso-special-character: footnote"> </span></span></a>Estevadeordal, Frantz, and Taylor: The Rise and Fall of world Trade 1870-1939<o:p></o:p></p></div><div style="mso-element: footnote" id="ftn7"><p class="MsoFootnoteText"><a style="mso-footnote-id: ftn7" title="" href="file:///C:/Users/User/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/3H7BFYP4/EH464%20ESSAY.docx" name="_ftn7"><span class="MsoFootnoteReference"><span style="mso-special-character: footnote"> </span></span></a>Lloyds had specialised in maritime insurance since the late 1600s.<o:p></o:p></p></div><div style="mso-element: footnote" id="ftn8"><p class="MsoFootnoteText"><a style="mso-footnote-id: ftn8" title="" href="file:///C:/Users/User/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/3H7BFYP4/EH464%20ESSAY.docx" name="_ftn8"><span class="MsoFootnoteReference"><span style="mso-special-character: footnote"> </span></span></a>Lopez-Cordova and Meissner: Exchange Rate regimes and International Trade.<o:p></o:p></p></div><div style="mso-element: footnote" id="ftn9"><p class="MsoFootnoteText"><a style="mso-footnote-id: ftn9" title="" href="file:///C:/Users/User/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/3H7BFYP4/EH464%20ESSAY.docx" name="_ftn9"><span class="MsoFootnoteReference"><span style="mso-special-character: footnote"> </span></span></a>EPU. An institution that overcame the problem of a shortage of hard currency in post-war Europe. Countries settled their trade monthly at the BIS allowing multilateral trade and with the aid of US credit.<o:p></o:p></p></div><div style="mso-element: footnote" id="ftn10"><p class="MsoFootnoteText"><a style="mso-footnote-id: ftn10" title="" href="file:///C:/Users/User/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/3H7BFYP4/EH464%20ESSAY.docx" name="_ftn10"><span class="MsoFootnoteReference"><span style="mso-special-character: footnote"> </span></span></a>Ruggie 1994: Trade, Protectionism and the Future of Welfare Capitalism.<o:p></o:p></p></div><div style="mso-element: footnote" id="ftn11"><p class="MsoFootnoteText"><a style="mso-footnote-id: ftn11" title="" href="file:///C:/Users/User/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/3H7BFYP4/EH464%20ESSAY.docx" name="_ftn11"><span class="MsoFootnoteReference"><span style="mso-special-character: footnote"> </span></span></a>US mass production of arms was partly sent to GB and Russia. 1/6 of Russian arms were American under the Land-lease scheme. Refer R. Overy (2005) : Why the Allies Won.<o:p></o:p></p></div><div style="mso-element: footnote" id="ftn12"><p class="MsoFootnoteText"><a style="mso-footnote-id: ftn12" title="" href="file:///C:/Users/User/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/3H7BFYP4/EH464%20ESSAY.docx" name="_ftn12"><span class="MsoFootnoteReference"><span style="mso-special-character: footnote"> </span></span></a>Baines. The 1920s P Johnson (ed.) Twentieth Century Britain; Economic, Social and Political Change (1994)<o:p></o:p></p></div><div style="mso-element: footnote" id="ftn13"><p class="MsoFootnoteText"><a style="mso-footnote-id: ftn13" title="" href="file:///C:/Users/User/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/3H7BFYP4/EH464%20ESSAY.docx" name="_ftn13"><span class="MsoFootnoteReference"><span style="mso-special-character: footnote"> </span></span></a>Britain did withdraw convertibility during times of War. This was an acceptable contingency of the Gold Standard. (1814 Napoleonic<span style="mso-spacerun: yes"> </span>War, 1914 WW1) <span style="mso-spacerun: yes"></span>but always intended to re-join after hostilities ended.<o:p></o:p></p></div><div style="mso-element: footnote" id="ftn14"><p class="MsoFootnoteText"><a style="mso-footnote-id: ftn14" title="" href="file:///C:/Users/User/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/3H7BFYP4/EH464%20ESSAY.docx" name="_ftn14"><span class="MsoFootnoteReference"><span style="mso-special-character: footnote"> </span></span></a>Irwin (draft 2010) “Did France Cause the Great Depression”?<o:p></o:p></p></div><div style="mso-element: footnote" id="ftn15"><p class="MsoFootnoteText"><a style="mso-footnote-id: ftn15" title="" href="file:///C:/Users/User/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/3H7BFYP4/EH464%20ESSAY.docx" name="_ftn15"><span class="MsoFootnoteReference"><span style="mso-special-character: footnote"> </span></span></a>Maddison<span style="mso-spacerun: yes"> </span>(1995): Monitoring the World Economy<o:p></o:p></p></div><div style="mso-element: footnote" id="ftn16"><p class="MsoFootnoteText"><a style="mso-footnote-id: ftn16" title="" href="file:///C:/Users/User/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/3H7BFYP4/EH464%20ESSAY.docx" name="_ftn16"><span class="MsoFootnoteReference"><span style="mso-special-character: footnote"> </span></span></a>Baier and Bergstrand: The Growth of World Trade; tariffs ,transport costs and income similarity.<o:p></o:p></p></div></div>simon gillishttp://www.blogger.com/profile/16044016585608130667noreply@blogger.com0tag:blogger.com,1999:blog-6579922648042811376.post-13738534949280441392010-11-02T09:32:00.000-07:002010-11-23T13:12:03.914-08:0039.25 Year Bond and Gold Cycle<div>May 1775</div>August 1814<div> Late 1853</div><div> February 1893</div><div> June 1932</div><div> August 1971</div><div> November 2010 ?</div><div><br /></div><div> These dates are all 39.25 years apart and are all starting points for rising bond yields ( falling bond prices ) and rising gold prices. In some cases the moves were quick and sudden in others, the dates were starting points for long trends.</div><div><br /></div><div>May 1775.Boston occupied by British Troops.Start of the revolutionary War.Continental currency introduced.(which would become worthless) British Bond yields climb from 1775 to 1780 by over 2%. i.e. 3% to 5.3%</div><div><br /></div><div>August 1814. Napoleonic War. Bullion convertibility is suspended. From that point the Rothschilds accumulate Gold and nearly corner the market and Consols collapse until Waterloo.</div><div><br /></div><div>Late 1853. The low deflationary point in the depression leading up to civil war. Gold convertibility is suspended in 1857. By 1869 Gold has climbed from $19.37 to $162.4.</div><div><br /></div><div>Feb 1893. Philadelphia and Reading Rail Road company collapses; start of the 1893-1897 depression. Gold leaves the USA and in order to buy it back the government issues high coupon bonds</div><div><br /></div><div>June 1932. the low point in the Dow and the market starts "pricing in" the devaluation of the dollar against Gold. 1933 Gold revalued by 70 pct from $20.67 to $35.00 Government bonds start declining in mid 1932</div><div><br /></div><div>August 1971. Breakdown of Bretton Woods. Gold soars from $35 to $873 in January 1980. Bonds decline for longer, not bottoming until 1981</div><div><br /></div><div>November 2010. QE2 marks the point that printing money is not just to save the system but is an active central bank policy. Government bonds start declining,particularly in countries without a printing-press(but it may be a slow process in the US). Gold moves to $4.000 per ounce?</div><div><br /></div><div><br /></div><div><br /></div>simon gillishttp://www.blogger.com/profile/16044016585608130667noreply@blogger.com0tag:blogger.com,1999:blog-6579922648042811376.post-44392191644236419202010-09-21T03:39:00.000-07:002010-09-21T03:54:46.407-07:00GOLD vs STOCKS<p class="MsoNormal"><span style="line-height: 115%; "><span> </span><span class="Apple-style-span" style="font-size: small;">If you refer to the chart below, it is time to look again at the stock market in terms of g</span></span><span style="line-height: 115%; "><span class="Apple-style-span"><span class="Apple-style-span" style="font-size: small;">old. This time it is the Dow since 1925 rather than the S+P.<o:p></o:p></span></span></span></p> <p class="MsoNormal"><span style="line-height: 115%; "><span class="Apple-style-span"><span class="Apple-style-span" style="font-size: small;"> </span></span><span class="Apple-style-span"><span class="Apple-style-span" style="font-size: small;">As the marke</span></span><span class="Apple-style-span" style="font-size: small;">t goes down, that means that the stock market is declining relative to Gold. The trend line is just below 5. The interesting question is </span><span><span class="Apple-style-span" style="font-size: small;"> </span></span><span class="Apple-style-span" style="font-size: small;">( if we get there and I believe we will ) </span><span><span class="Apple-style-span" style="font-size: small;"> </span></span><span class="Apple-style-span" style="font-size: small;">does that mean 10.000 Dow and 2.000 Gold or perhaps 7.500 Dow and 1.500 Gold.<o:p></o:p></span></span></p> <p class="MsoNormal"><span style="line-height: 115%; "><span><span class="Apple-style-span" style="font-size: small;"> </span></span><span class="Apple-style-span" style="font-size: small;">It’s possible that later in the decade, the trend-line is broken and the Dow falls (or gold goes ballistic) to very long-term support at 2. <o:p></o:p></span></span></p> <p class="MsoNormal"><span style="line-height: 115%; "><o:p><span class="Apple-style-span" style="font-size: small;"> </span></o:p></span></p> <p class="MsoNormal"><span style="line-height: 115%; "><span><span class="Apple-style-span" style="font-size: small;"> </span></span><span class="Apple-style-span" style="font-size: small;">Both the 1929-1932</span><span><span class="Apple-style-span" style="font-size: small;"> </span></span><span class="Apple-style-span" style="font-size: small;">and 1966-1982 bear markets were 86 pct </span><u><span class="Apple-style-span" style="font-size: small;">in real terms.<o:p></o:p></span></u></span></p> <p class="MsoNormal"><span style="line-height: 115%; "><span class="Apple-style-span" style="font-size: small;">The Great depression saw stocks fall by 89 pct but deflation reduced the real loss to 86 pct. The fall in the late 60s and 70s was only 50 pct but inflation added the real loss to 86 pct.<o:p></o:p></span></span></p> <p class="MsoNormal"><span style="line-height: 115%; "><span><span class="Apple-style-span" style="font-size: small;"> </span></span><span class="Apple-style-span" style="font-size: small;">For perspective, if this bear market started in 2000 and we have seen the S+P fall by 28 pct with inflation of 30 pct, then the net real loss has only been 50 pct. (.7*.72)<o:p></o:p></span></span></p> <p class="MsoNormal"><span style="line-height: 115%; "><span><span class="Apple-style-span" style="font-size: small;"> </span></span><span class="Apple-style-span" style="font-size: small;">In other words, for a comparable loss to the 1920s and 1970s , there needs to be a further 72 pct loss. (.72*.7*.28 = .14)<o:p></o:p></span></span></p> <p class="MsoNormal"><span style="line-height: 115%; "><span><span class="Apple-style-span" style="font-size: small;"> </span></span><span class="Apple-style-span" style="font-size: small;">It is my opinion that the lessons of the 1930s are clear. Deflation is the worse outcome. Central Banks will </span><i><span class="Apple-style-span" style="font-size: small;">try </span></i><span class="Apple-style-span" style="font-size: small;">to reflate enough to keep the market at least steady ( although that might ultimately require 20-40 trillion of QE as total US Dollar debt alone is $58 Trillion).<o:p></o:p></span></span></p> <p class="MsoNormal"><span style="line-height: 115%; "><span><span class="Apple-style-span" style="font-size: small;"> </span></span><span class="Apple-style-span" style="font-size: small;">Therefore if 72 pct of inflation can be engendered and the stock-market remains at around 10.000 ,the real price of Gold in comparison to the 1980 high of 873 will increase from 2.300 USD per ounce to 4.000 USD per ounce.<o:p></o:p></span></span></p> <p class="MsoNormal"><span style="line-height: 115%; "><span><span class="Apple-style-span" style="font-size: small;"> </span></span><span class="Apple-style-span" style="font-size: small;">This strikes me as plausible, although such ideas rarely come true.<o:p></o:p></span></span></p> <p class="MsoNormal"><span style="line-height: 115%; "><o:p><span class="Apple-style-span" style="font-size: small;"> </span></o:p></span></p> <p class="MsoNormal"><span class="Apple-style-span"><span class="Apple-style-span" style="font-size: 22px; line-height: 25px;"><br /></span></span></p>simon gillishttp://www.blogger.com/profile/16044016585608130667noreply@blogger.com0tag:blogger.com,1999:blog-6579922648042811376.post-64004848407637776472010-09-21T03:04:00.000-07:002010-09-21T03:07:19.362-07:00DOW JONES priced in GOLD<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjRrZmzP2XVqNxP9SUcf8z9hGL6Zlc5sevZ-oXESZXFhvvgH7gSkrFm7d7dH6X_XpezHxcZLdJXNTvxzL2RicvYwP7Y1abMWrrGEDweOfUAEoU0vzrRe8P_E3M6gWZCGlHx0DEqpuD-7os/s1600/sg2010092139459.gif"><img style="display:block; margin:0px auto 10px; text-align:center;cursor:pointer; cursor:hand;width: 384px; height: 274px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjRrZmzP2XVqNxP9SUcf8z9hGL6Zlc5sevZ-oXESZXFhvvgH7gSkrFm7d7dH6X_XpezHxcZLdJXNTvxzL2RicvYwP7Y1abMWrrGEDweOfUAEoU0vzrRe8P_E3M6gWZCGlHx0DEqpuD-7os/s320/sg2010092139459.gif" border="0" alt="" id="BLOGGER_PHOTO_ID_5519305722576855810" /></a>simon gillishttp://www.blogger.com/profile/16044016585608130667noreply@blogger.com0tag:blogger.com,1999:blog-6579922648042811376.post-88504359614219635302010-09-19T12:59:00.000-07:002010-09-19T13:11:52.775-07:00Is the Bank of England being disingenuous?In the UK CPI has been considerably higher than the allowed 2 pct. In fact its over 3 pct at the moment with RPI close to 5 pct.And yet time and time again, Mervyn King has suggested that due to the weak recovery, inflation will fall below target and there is no need for interest rate hikes.It is probably correct to keep rates at 0.5 pct but its not necessarily true that CPI will fall below 2 pct. Simply put, The Bank doesn't care about inflation any more. QE2 in USA, B of J Yen intervention, and the Bank not being tough are all strong clues that the world is changing from Central Bank Inflation targeting.Maybe they will start targeting property prices if the real estate market starts a bear trend again. The one thing the Central Bank can't say is that it doesn't care about inflation.Don't sell your Gold.You might need it one day<div><br /></div>simon gillishttp://www.blogger.com/profile/16044016585608130667noreply@blogger.com0tag:blogger.com,1999:blog-6579922648042811376.post-25986485439209529802010-06-01T03:16:00.000-07:002010-06-01T03:17:35.751-07:00Deflation first, then possibly inflationThe deflationary pressure in Europe and the USA is clearly increasing. Banks in Europe are becoming more reluctant to lend and $ libor is edging up too. The fear of inflation is still prevalent despite contrary evidence; why is this?<br /><br /> There is an assumption that monetising debt is de facto a route to inflation, but that is not necessarily the case. Referring to government orchestrated debt buying, Von Mises wrote in Human Action “The first stage of the Inflationary process may last for many years…..it is not too late for the government to abandon its inflationary policy”.<br /><br /> Monetising debt (or QE) is not an automatic route to the (hyper) inflation that many people fear. Firstly the banks need to use this new cash and be prepared to lend it out within the fractional banking system. They are not doing that. They prefer to hoard the money as reserve requirements are being raised and they are fearful of the current economic conditions (with good reason). Secondly, even if banks were prepared to lend the money, consumers must be prepared to borrow more and leverage their own balance sheets. That is equally not happening. In fact the saving rate in the US is increasing as people pay down their mortgages.<br /> In short, the velocity of money has collapsed and money available for exchange is contracting (M3). The money created by recent QE is merely plugging holes in the banking system. This is unlikely to change until Real Estate starts increasing, consumers chose to leverage themselves and quickly increase borrowings.<br /><br /> In the medium term, debt pay- down will drive assets lower and the dollar higher. It may also even drag gold down, but gold will not fall nearly as hard as Real Estate or the Stock market. Interest rates are set to stay low as there is a drive to cash. The reason the dollar stays strong is because it’s the reserve currency. Borrowers who cannot raise money in their own currency usually chose the dollar instead. As assets decline quickly in a disinflationary environment, the need for cash increases and de facto the need for dollars to pay down debt.<br /><br /> The end game of this crisis may well be a reflationary nightmare. Don’t worry about that now. In fact when it comes, it will be so horrendous that central banks may be forced to expand their balance-sheets by 50 x not the current 3 x.<br /><br /> With over USD 500 trillion of outstanding derivatives a breakdown in the banking system in a few years might precipitate the need for a new currency but in the meantime deal with a declining real estate, declining wages and a declining stock marketsimon gillishttp://www.blogger.com/profile/16044016585608130667noreply@blogger.com0tag:blogger.com,1999:blog-6579922648042811376.post-33074337294404881942010-04-28T23:56:00.000-07:002010-04-29T00:05:49.416-07:00Brown’s Gaffe; British Politicians underestimate the UK public<br /><br /> There is an interesting phenomenon in the UK that the public do have an excellent grasp of how serious our fiscal deficit is. In fact since 2008 they have been several steps ahead of what the politicians have been trying to paint over. Last night Mrs. Duffy made possibly the correct observation that taxes will rise and stay high for 20 years. 20 years; quite.<br /><br /> Unfortunately others like Mr. Mandelson warn us that comparisons with Greece are merely attempts to engender fear. I don’t think so. Unlike 1945-1951 where War debt was seen as worth paying for, the public might not accept the mismanagement of the Economy and incompetence of the banking sector.<br /><br /> Stay with Gold.simon gillishttp://www.blogger.com/profile/16044016585608130667noreply@blogger.com0tag:blogger.com,1999:blog-6579922648042811376.post-53774514952763580432010-03-16T15:17:00.000-07:002010-03-16T15:25:54.638-07:00I'm reluctant to call the market, but I think that Gold is a clear cut <strong>buy.</strong><br /><strong></strong><br /><strong> </strong> The market is not paying enough attention to the IMF's volte face. For 30 years since Reagan and Thatcher the IMF have slavishly followed the Washinton Consensus; namely that the pursuit of growth is best achieved through deficit cutting and trade liberalization. The IMF now advocate the delay of deficit cutting. Give politicians a chance to resist a hard choice and they will take it gladly. Every year , slow growth will be used as the excuse to avoid the painful medicine.<br /><br /> Similarly , inflation targeting, the mainstay of central bank policy since the 1990s.It is being questioned. We are in a period where deficits won't be addressed <strong>and</strong> inflation will be encouraged.<br /><br /> Gold, Gold Stocks, commodity stocks are all a clear cut buysimon gillishttp://www.blogger.com/profile/16044016585608130667noreply@blogger.com0tag:blogger.com,1999:blog-6579922648042811376.post-5614164001424691622010-03-14T03:52:00.000-07:002010-03-14T03:54:16.526-07:00Did Globalization lead to the end of government control of the economy?<br /><br /><br /> At the end of the 20th Century there were approximately 400 million<a style="mso-footnote-id: ftn1" title="" href="http://www.blogger.com/post-create.g?blogID=6579922648042811376#_ftn1" name="_ftnref1">[1]</a> workers in the leading 25 Industrial countries. If the proportion working in farming and services had been the same as 100 years earlier, rather than the current 20 million in agriculture and 270 million in services, there would instead be 190 million in agriculture and only 100 million in services. (The Manufacturing proportion has remained the same at 27 pct of the workforce). This dramatic shift exemplifies globalization. The rapid spread of technology, foreign direct investment and trade combined with the opening up of capital markets has changed the nature of labour to a more urban and skilled work force. Assets, particularly financial assets, are owned by different corporations all over the world. Globalization has perhaps moved faster than changes in government policy and the institutions that monitor, influence and regulate these markets. As the current world economy suffers under a weight of debt and unfunded liabilities, it is possible that the consequences of globalization may have been too rapid for governments to adequately negotiate the current economic difficulties.<br /><br /> The last period of Globalization between 1870 and 1914 saw a brisk increase in trade and migration. Britain was both the industrial and financial leader. Most of the trading nations operated under the Gold Standard and the core countries of Britain, France and Germany cooperated to ensure that the system worked efficiently. World exports<a style="mso-footnote-id: ftn2" title="" href="http://www.blogger.com/post-create.g?blogID=6579922648042811376#_ftn2" name="_ftnref2">[2]</a>, as a percentage of GDP, almost doubled from 1870 to 1913 and foreign assets more than doubled. Transportation costs fell dramatically and migration to the new world was an economic consequence of the shortage of labour and high wages outside Europe. The inter war period reversed many of these gains. The economic devastation of the Great Depression and 2 World Wars was accompanied by 2 breakdowns in the Gold Standard both in the post war period and then again between 1931 and 1936. Most significantly ,World Trade<a style="mso-footnote-id: ftn3" title="" href="http://www.blogger.com/post-create.g?blogID=6579922648042811376#_ftn3" name="_ftnref3">[3]</a> collapsed and the ratio of exports, as a percentage of GDP, was only marginally higher in 1950 than it had been in 1870. In this light, the Globalising period from 1950 until now seems even more remarkable. It started with scarce capital and a new monetary system based on semi - fixed exchange rates. Over 60 years World Exports<a style="mso-footnote-id: ftn4" title="" href="http://www.blogger.com/post-create.g?blogID=6579922648042811376#_ftn4" name="_ftnref4">[4]</a> have more than tripled and real GDP per person has grown by over 3.25 pct among globalising countries. HDI<a style="mso-footnote-id: ftn5" title="" href="http://www.blogger.com/post-create.g?blogID=6579922648042811376#_ftn5" name="_ftnref5">[5]</a>, perhaps a better measure of living standards, has jumped by 20 pct to 0.95. And yet, despite these gains, globalisation is questioned and governments in the western world seem unsure how to deal with the current problems. Government deficits , unfunded pension liabilities , popular disquiet with immigration and a world-wide weakness in real estate and mortgages appear to have left governments little room for manoeuvre. After so much success, why such pessimism?<br /><br /> The new monetary system of Bretton Woods had to cope with both the economic collapse of the period and the social implications of a world war that had left even the victors demanding change. Britain had lost her industrial and financial pre-eminence and Europe as a whole was short of capital. The Marshall Plan, with surprisingly little aid, kick - started the European economy. This was facilitated by the EPU in dealing with credit in a world short of foreign exchange.<br /><br /> The new monetary order required and allowed compromise. Ruggie<a style="mso-footnote-id: ftn6" title="" href="http://www.blogger.com/post-create.g?blogID=6579922648042811376#_ftn6" name="_ftnref6">[6]</a> described it as “Embedded Liberalism”. It would contrast the nationalistic tendencies of the 30s with a multilateral character but it would not embrace the laissez-faire liberalism of the 1st Gold Standard. There would be compromise. The USA allowed Europe her choice of greater social welfare and strong protection of agriculture. Domestic policy that granted safety nets for the disenfranchised, greatly increased spending on health and benefits and capitalist cooperation with the unions was the new pragmatic backdrop of the period. The Golden age that followed until 1973 witnessed average European growth<a style="mso-footnote-id: ftn7" title="" href="http://www.blogger.com/post-create.g?blogID=6579922648042811376#_ftn7" name="_ftnref7">[7]</a> of over 4 pct. The social contract that workers would forego excessive wage increases in order that capital could be reinvested was the mainstay of a virtuous economic circle. The workers believed the promise of delayed economic benefits. Both capitalists and workers trusted each other. Government spending<a style="mso-footnote-id: ftn8" title="" href="http://www.blogger.com/post-create.g?blogID=6579922648042811376#_ftn8" name="_ftnref8">[8]</a> rose as her part of the contract, by an average of over 5 pct of GDP from 1937-1960 in the 5 countries France, Germany, Sweden, UK and USA . Despite the economic problems that followed the Golden Age (inflation, high unemployment, strikes and wage disputes), the Globalising countries still kept a steady pace up until 2007.<br /><br /> Standards of Living were rising for the majority but it is only since the downturn in 2008, and the subsequent deterioration in government finances, that there has been universal recognition that policy might be ineffectual or out dated. Ruggie had suggested that concerns of trade wars and protectionism, particularly in the 1980s, were misplaced. He feared that it would be government’s inability to maintain her share of the social contract that would be the greatest threat to prosperity and open trade. Krugman<a style="mso-footnote-id: ftn9" title="" href="http://www.blogger.com/post-create.g?blogID=6579922648042811376#_ftn9" name="_ftnref9">[9]</a> validated this view . He observed that continuous reference to “poor competiveness” , whether in terms of exchange rate policy or trade openness , was either a means of deflecting from the real problem of poor productivity growth or perhaps an ignorance of it. His conclusion is that “national living standards are overwhelmingly determined by domestic productivity”.<br /><br /> Poor productivity is at the heart of policy inaction. As “migrating” agriculture and manufacturing labourers move to the service sector, living standards are in jeopardy of falling because services have the worst sector- productivity rate. It is here that Government policy faces a dilemma. In order to increase the productivity rate of the service sector , the workforce needs to be re-skilled to a higher level. The comparative advantage of the Globalising countries lies in design and highly skilled work. However , in order to pay for this advanced education , it will require cuts in health care and perhaps pensions. That is unlikely be endorsed by the electorate. It’s a timing dilemma. Short term losses to living standards are required for longer-term economic gains, but voters will choose shorter term benefits.<br /><br /> The difficulty in accommodating sectoral change in the workforce is only one area of policy inaction. Coincidentally, governments need to fund themselves as well as their citizens’ retirements. Are they capable of it? At the end of previous long waves of economic growth, there have been market crashes that have required major policy adjustments to rectify the market failure. As Eichengreen , Bordo and Irwin<a style="mso-footnote-id: ftn10" title="" href="http://www.blogger.com/post-create.g?blogID=6579922648042811376#_ftn10" name="_ftnref10">[10]</a> show, the Canal and Railroad investment manias of 1825 and 1873 required new accounting rules and greater contractual transparency .The agriculture depression of the 1870s resulted in tariff increases and generalised protectionism. After the 1929 Crash, Glass –Steagall was introduced to prevent commercial banks dealing in securities and both GATT and the IMF were institutions devised to implement the new monetary system. The collapse of the Gold Standard and the Great Depression needed a complete change, not just an overhaul. Martin Woolf<a style="mso-footnote-id: ftn11" title="" href="http://www.blogger.com/post-create.g?blogID=6579922648042811376#_ftn11" name="_ftnref11">[11]</a> suggests that although Globalization in the long term may be inexorable, over the short term, corrections and pauses are inevitable. The contemporary market crash in US real estate and its mortgage market is a crash with a global complexion. Unlike the 1870s era, capital markets are open, countries use fiat currency and credit is plentiful within a lightly regulated system. US mortgages are split up, and repackaged , and owned all over the world. Low interest rates following the 2001-2002 recession led to Real Estate speculation. The monetary policy of the 2000s is suggestive of government losing control. In the USA, the administration applied pressure to the FED to accommodate the busting of the technology bubble with an inappropriately low interest rate. It would appear that fear of popular disapproval prevented the much needed deleveraging that should have occurred after the bubble. In Europe, monetary policy is applied singularly by the European Central Bank. Interest rates that might have been appropriate for Germany and France , were not for Ireland and Spain who were experiencing real estate and construction booms. In the current reversal, interest rates are now too high for these countries. Their governments have both lost the ability to lower rates and ease policy through the exchange rate.<br /><br /> Government borrowing is also unusually high. The Western governments have found that the drop in tax revenues since 2008, combined with the monetary injections into the banking system, have left them competing with each other for domestic and international funding .Greece<a style="mso-footnote-id: ftn12" title="" href="http://www.blogger.com/post-create.g?blogID=6579922648042811376#_ftn12" name="_ftnref12">[12]</a>, for example, despite rigorous deficit criteria codified in the Maastricht Treaty, has overextended herself and now needs to borrow at 2.8 pct higher than Germany. It is interesting to note that the IMF<a style="mso-footnote-id: ftn13" title="" href="http://www.blogger.com/post-create.g?blogID=6579922648042811376#_ftn13" name="_ftnref13">[13]</a> has warned countries of cutting spending too early. The Washington Consensus of trade liberalization and fiscal reform has been expounded since the early 1980s as necessary requisites for growth and higher living standards. Is procrastination on deficit- cutting a clue that the IMF recognises Government inertia and inability to implement the necessary policies to ease the debt burden. Only in 2009, the IMF forced Hungary to retrench and cuts its deficit and such an abrupt change in policy reflects the bewildering complexities that the IMF and governments face in choosing what to cut and where to invest in order to attract capital and win votes.<br /><br /> Aging population is a demographic phenomenon which can partially be explained by the benefits of globalization, but it also threatens to undermine government policy. Rising living standards , the breakdown of the nuclear family and a long spell of economic prosperity has been reflected in fertility rates in Europe dropping well below the replacement level of 2. The ratio of persons<a style="mso-footnote-id: ftn14" title="" href="http://www.blogger.com/post-create.g?blogID=6579922648042811376#_ftn14" name="_ftnref14">[14]</a> aged 15-64 to those aged over 65 is projected to drop from over 4.3 in 2000 to under 3.0 by 2025 and threaten the ability of government to provide pensions and health provision. During the Golden Age there were two coincident misunderstandings. a. Fertility rates would stay above the replacement level of 2 and consequently population ageing would not be an issue and b. The failure to recognise that improvement in health would greatly increase life expectancy. In Britain the Labour Party reneged on its commitment to increase the retirement age of certain workers in the public sector. Continental Europe is in a more serious position as private pensions are quite rare unlike Britain. It is clear , that at some point, retirement ages will need to rise dramatically and/ or pension benefits be cut in real terms. However, the inability to take any decisive action thus far reflects how governments have been unable to undo the policy mistakes and misunderstandings of several decades ago.<br /><br /> <br /> The Losers of Globalization<br /><br /> Low productivity in the service sector, high government debt , unfunded liabilities ( particularly in pensions) , an ageing population requiring health care and ,not least, the bursting of a real estate bubble have left government with complex problems. However, central to these 5 issues lies perhaps the core dilemma. How can these problems be solved equitably? Or, put another way, how are the losers compensated so that they do not bear an overwhelming burden? The losers , inter alia, are low- skilled workers, the elderly who do not have private pension provision and property owners who entered the market late, particularly in the USA. Perhaps in the future, the greatest losers will tragically be the younger generation if these problems are merely ignored.<br /><br /> Two of the greatest periods of Globalization, 1870 -1914 and 1950 - 1973 had one noticeable similarity; they were periods of cooperation. In the first period Britain ,in particular, acted benignly as the hegemon and facilitated the monetary system and trading environment to work efficiently. Equally the “Golden Age” was cemented by the trust between capitalists and workers in ensuring the best allocation of capital. Unfortunately, in today’s climate, we see the reverse. World Trade liberalization has stalled in the Doha round and discriminatory<a style="mso-footnote-id: ftn15" title="" href="http://www.blogger.com/post-create.g?blogID=6579922648042811376#_ftn15" name="_ftnref15">[15]</a> free-trade areas (FTAs) have replaced the brief period of “Open Regionalization”<a style="mso-footnote-id: ftn16" title="" href="http://www.blogger.com/post-create.g?blogID=6579922648042811376#_ftn16" name="_ftnref16">[16]</a>. The Copenhagen conference was not just marred in terms of lack of progress on climate change , but was damaged by the conclusion that USA and China had little to discuss in terms of economic cooperation. As in Davos and G20 meetings, their antipathy is clear and disquietening. Japan’s own Golden Age has been halted by a 20 year period of infighting between rival factions, notably the Central Bank and the Finance Ministry. An unfortunate example of the(multi) prisoner’s dilemma; the government lacking ability to enhance cooperation.<br /> <br /> In a period of cooperation, losers have a better chance of being compensated . Between 1870 and 1914 , countries who would not have been able to access capital or would have had high transaction costs , were included in the “orchestra”. In the Golden Age, manual and semi skilled workers were promised a completely new level of welfare , education and health-provision. The working classes were so confident that they were not society’s losers that they were prepared to defer wage increases and abstain from disruptive bargaining.<br /><br />Today’s losers are not so confident. The banking sector , which was the biggest player in the real estate boom through leveraging its balance sheet with direct property loans, mortgage-backed securities and real-estate derivatives , has required a bail-out of unprecedented proportion. Despite punishment taxes on banks, all workers will have higher fiscal demands to fund the bail-outs.The poorest paid will proportionally have the most to pay. The unskilled and the young are actually facing cuts in education at the time they most need an increase and a chance to re-train. The countries most in need of liberalization are watching the larger countries choose NTAs.<br /><br />The 2nd half of the 20th century has seen an unparalleled increase in prosperity among western industrializing countries, East Asia and others but also a new and larger group of dispossessed; an underclass. Alongside the winners , there has been a growing group; the undereducated, sub Saharan countries and the Afro American community in the USA (who are the predominant losers in the sub-prime crisis.) In order to pay for higher education, lower worker retiree ratios and an ageing population governments will need to retrench and reallocate. Unfortunately those they wish to tax can change domicile (multi nationals) , or simply form a quorum large enough to vote against that change .Governments have run out of money. With over 50 pct of GDP allocated by European governments, there is not much scope for increase (Sweden went as high as 63 pct and since needed to retrench).<br /><br />The necessary market mechanism to reallocate capital is several steps behind the pace of globalization. This in itself is a symptom of loss of control. In particular, Governments are unable to apply macro economic policy as many nations have unified monetary policy or fixed exchange rates. Equally, fiscal policy is constrained by the convergence of tax rates (which itself is a consequence of monetary harmonisation) and voter appeasement. It is also hampered by multi- nationals with their choice of domicile and voters reluctant to bail out the financial sector. (The regulators of the open capital-market system were unable to recognise the real estate bubble and were reluctant to restrict balance-sheet leverage).Immigration to overcome the age-imbalance of a population is unpopular and market liberalization has been reversed in favour of discriminatory blocs. If governments are unable to embrace the losers and overcome this current period of non-cooperation then it is possible that loss of control will lead to a reversal of the World Economy that may partially reflect the chaos of the 1930s.<br /><br />Simon GILLIS 10 iii 2010<br /><br /><br />C.H.Feinstein. Structural change in developed countries during the twentieth century.<br /><br />N.Crafts. Globalization and Growth in the Twentieth Century.<br /><br />J.Ruggie. Trade, Protectionism and the Future of Welfare Capitalism.<br /><br /> P.Krugman . Competitiveness, a dangerous obsession .<br /> <br />M.Bordo B.Eichengreen and D.Irwin Is Globalization really different than Globalization a Hundred Years ago.<br /><br />M.Wolf Is Globalization in danger?<br /><br />R.Garnault and D.Vines. Regional free-trade areas: sorting out the tangled spaghetti<br /><br />D.Baines N Cummins M Schulze Population and Living Standards<br /><br />D.Baines European Demographic Change since 1945 in Schulze Western Europe.<br /><br />M.Bordo H Rockoff The Gold standard as a “Good Housekeeping Seal of Approval”<br /><br />J de Long B Eichengreen The Marshall Plan: History’s Most Successful Structural Adjustment Programme<br /><br />N Crafts. The Great Boom 1950-1973 Schulze Western Europe<br /><br />P Temin. The Golden Age of European Growth Reconsidered.<br /> <br /> <br /><br /><a style="mso-footnote-id: ftn1" title="" href="http://www.blogger.com/post-create.g?blogID=6579922648042811376#_ftnref1" name="_ftn1">[1]</a> C.H.Feinstein. Structural change in developed countries during the twentieth century<br /><a style="mso-footnote-id: ftn2" title="" href="http://www.blogger.com/post-create.g?blogID=6579922648042811376#_ftnref2" name="_ftn2">[2]</a> D. Baines . Class Lecture Notes<br /><a style="mso-footnote-id: ftn3" title="" href="http://www.blogger.com/post-create.g?blogID=6579922648042811376#_ftnref3" name="_ftn3">[3]</a> Ibid<br /><a style="mso-footnote-id: ftn4" title="" href="http://www.blogger.com/post-create.g?blogID=6579922648042811376#_ftnref4" name="_ftn4">[4]</a> N.Crafts. Globalization and Growth in the Twentieth Century<br /><a style="mso-footnote-id: ftn5" title="" href="http://www.blogger.com/post-create.g?blogID=6579922648042811376#_ftnref5" name="_ftn5">[5]</a> Ibid<br /><a style="mso-footnote-id: ftn6" title="" href="http://www.blogger.com/post-create.g?blogID=6579922648042811376#_ftnref6" name="_ftn6">[6]</a> J. Ruggie. Trade, Protectionism and the Future of Welfare Capitalism.<br /><br /><br /><a style="mso-footnote-id: ftn7" title="" href="http://www.blogger.com/post-create.g?blogID=6579922648042811376#_ftnref7" name="_ftn7">[7]</a> N.Crafts. Globalization and Growth in the Twentieth Century<br /><a style="mso-footnote-id: ftn8" title="" href="http://www.blogger.com/post-create.g?blogID=6579922648042811376#_ftnref8" name="_ftn8">[8]</a> Ibid<br /><a style="mso-footnote-id: ftn9" title="" href="http://www.blogger.com/post-create.g?blogID=6579922648042811376#_ftnref9" name="_ftn9">[9]</a> P.Krugman . Competitiveness, a dangerous obsession.<br /><a style="mso-footnote-id: ftn10" title="" href="http://www.blogger.com/post-create.g?blogID=6579922648042811376#_ftnref10" name="_ftn10">[10]</a> M.Bordo B.Eichengreen and D.Irwin Is Globalization really different than Globalization a Hundred Years ago<br /><a style="mso-footnote-id: ftn11" title="" href="http://www.blogger.com/post-create.g?blogID=6579922648042811376#_ftnref11" name="_ftn11">[11]</a> M.Wolf Is Globalization in danger?<br /><a style="mso-footnote-id: ftn12" title="" href="http://www.blogger.com/post-create.g?blogID=6579922648042811376#_ftnref12" name="_ftn12">[12]</a> March 4, 2010 . Most recent Greek Government Bond issue<br /><a style="mso-footnote-id: ftn13" title="" href="http://www.blogger.com/post-create.g?blogID=6579922648042811376#_ftnref13" name="_ftn13">[13]</a> IMF policy paper February 2010.Strategies for Fiscal Consolidation in the Post-Crisis World<br /><a style="mso-footnote-id: ftn14" title="" href="http://www.blogger.com/post-create.g?blogID=6579922648042811376#_ftnref14" name="_ftn14">[14]</a> OECD, Employment Outlook 2007: Weighted average of France, Germany, Italy, Spain, Sweden and UK<br /><a style="mso-footnote-id: ftn15" title="" href="http://www.blogger.com/post-create.g?blogID=6579922648042811376#_ftnref15" name="_ftn15">[15]</a> R.Garnault and D.Vines. Regional free-trade areas: sorting out the tangled spaghetti<br /><a style="mso-footnote-id: ftn16" title="" href="http://www.blogger.com/post-create.g?blogID=6579922648042811376#_ftnref16" name="_ftn16">[16]</a> Ibidsimon gillishttp://www.blogger.com/profile/16044016585608130667noreply@blogger.com0tag:blogger.com,1999:blog-6579922648042811376.post-81779844165194986322009-12-04T02:56:00.000-08:002009-12-04T02:57:21.803-08:00Gold in Terms of the S+P Index 1927-2009<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEggBTSH5Menf1BeaUzub0KOCX5TNntCs0hA-zBxQoNNK_0RGBnFkwff0jcCmgIgr5SqLhSmaA4mg1pSPrF7vgLzrYh7rurmhsYJMcVNOF5_ilCmin883yGP2nsbfwPwWnNryg1rKPFNQ6w/s1600-h/sg2008022161074.gif"><img style="TEXT-ALIGN: center; MARGIN: 0px auto 10px; WIDTH: 320px; DISPLAY: block; HEIGHT: 229px; CURSOR: hand" id="BLOGGER_PHOTO_ID_5411333265790815410" border="0" alt="" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEggBTSH5Menf1BeaUzub0KOCX5TNntCs0hA-zBxQoNNK_0RGBnFkwff0jcCmgIgr5SqLhSmaA4mg1pSPrF7vgLzrYh7rurmhsYJMcVNOF5_ilCmin883yGP2nsbfwPwWnNryg1rKPFNQ6w/s320/sg2008022161074.gif" /></a><br /><div></div>simon gillishttp://www.blogger.com/profile/16044016585608130667noreply@blogger.com2tag:blogger.com,1999:blog-6579922648042811376.post-7342696436065602532009-12-04T02:50:00.000-08:002009-12-04T02:54:39.739-08:00Gold in Terms of the S+P<br /><br />The chart<a style="mso-footnote-id: ftn1" title="" href="http://www.blogger.com/post-create.g?blogID=6579922648042811376#_ftn1" name="_ftnref1">[1]</a> shows the value of Gold in terms of the S+P index (Gold / S+P) and the long term perspective shows clearly that Gold was at its most valuable(relative to the stock market) both in the deflationary 1930s and inflationary 1970s . Gold is not just a hedge against inflation; it’s a store of value in many difficult periods. Looking at Gold versus the dollar is only part of the story. If the dollar is weak then a strong Gold may simply represent that phenomenon and so comparing Gold to a basket of currencies is more illuminating. Gold relative to the S+P is a way of judging how well Gold compares to other paper assets (It would be better to look at Gold versus a world stock market index , denominated in a basket of currencies, and that may be studied later.)<br /><br />When Gold was at its strongest , it was roughly 4-6 xs greater than the S+P.<br /><br />1932 S+P 4.5 Gold 20.67<br />1938 S+P 8.5 Gold 35<br />1980 S+P 110 Gold 800<br /><br />When Gold was at its weakest, it was 1/3 or 1/6 of Gold<br /><br />1966 S+P 110 Gold 35<br />2000 S+P 1500 Gold 250<br /><br />We are at the half way point, roughly at 1:1 i.e. Gold 1200 S+P 1100<br /><br /> If you believe that the crisis has further to go, irrespective of it being a deflationary or inflationary environment, Gold does have the potential to climb considerably higher <strong><em>relative</em></strong> to stocks. Whether that means Gold at 3000 and Stocks at 700 or Gold at 700 and S+P at 175 I have no idea, but in historical terms Gold is merely at an average valuation.<br /><br />Deflationary Scenario<br /> <br />This is not so problematic. You simply hold gold and cash pay down debt and wait it out .Jonathan<a style="mso-footnote-id: ftn2" title="" href="http://www.blogger.com/post-create.g?blogID=6579922648042811376#_ftn2" name="_ftnref2">[2]</a> Wilmot has written an excellent piece arguing that the fears of a large monetary overhang are greatly exaggerated. It can take many years for this to play out but the motto is simply stay out of the market<br /><br />Inflationary Scenario<br /><br />In principal this is much tougher for several reasons. Everything is going up and Gold will outperform stocks but of course the gains will be subject to taxation. It will be hard to have an after- tax real gain. More importantly, if we were to move into hyper inflation then the exit strategy from holding gold is far more complicated. The hyper inflation in Germany ended in 1925 when Germany rejoined the Gold Standard with a new currency of 4.2 Reichsmarks to the dollar. It had left the Gold Standard in 1914 with the same exchange rate of 4.2 Deutschmarks. If you had held gold, you would have had huge profits in local currency <strong><em>but if you hadn’t</em></strong> <strong><em>exchanged the gold for hard assets before the new currency</em></strong>, all you would have been left with is a lump of gold. This is the key point. In the unlikely, but still frightening scenario, of wild money-printing , Gold only acts as a stepping-stone. At some point it will be necessary to sell the Gold and buy property or land, otherwise when a new currency is introduced all you will be left with is Gold valued at an exchange rate commensurate with several years earlier. In that environment, as in Germany 1925, there was a great shortage of the <strong><em>new</em></strong> currency and so Gold was not nearly as valuable as rent – producing assets. It was the industrialists and “insiders” who survived the inflation, because they owned land , property and factories and borrowed at artificially low interest rates from the central bank.<br /><br />Simon GILLIS 4 xii 2009<br /><br />Other references.<br /><br />T.J. Sargent, The end of four big inflations’, 1986<br />C.P.Kindleberger, A financial History of Western Europe 1993<br /><br /><a style="mso-footnote-id: ftn1" title="" href="http://www.blogger.com/post-create.g?blogID=6579922648042811376#_ftnref1" name="_ftn1">[1]</a> Bloomberg<br /><a style="mso-footnote-id: ftn2" title="" href="http://www.blogger.com/post-create.g?blogID=6579922648042811376#_ftnref2" name="_ftn2">[2]</a> CSFB Market Focus-Long Shadows ; The Sequel Nov 30, 2009simon gillishttp://www.blogger.com/profile/16044016585608130667noreply@blogger.com0