Morning Brief – Windfall or the Economics of the Madhouse

Windfall or the Economics of the Madhouse

To most of us including the Cambridge English Dictionary a windfall is an amount of money that you win or receive unexpectedly. The managers of Eurozone economics view a windfall as being money that they have saved due to lower global interest rates. Now this may seem like semantics but there is a world of difference between receiving money as a windfall and not spending money, and in this case the Eurozone are patting themselves on the back for some creative economics resulting in a “windfall” of EUR 140 Billion. It’s not just the Eurozone that shares this view, it is enthusiastically endorsed by ratings agency Standard and Poors-and we all remember, or do we, what happened the last time S&P and others endorsed the credit boom.

With Greece leading the pack with a debt to GDP ratio of 175% and only six of the smallest countries with ratios of less than 50%, the majority and incidentally the largest save Germany of Eurozone countries have indebtedness of between 50 and 100% of GDP with France, Spain and Italy at, or over 100%. No discussion about paying down some debt, but either productivity has to rise, or Europe as a whole in the future faces the same kind of austerity that Frankfurt and Brussels have forced Greece to endure in the past 7 years.

Smart Meters going the same way as HIPs?

News in, the deadline for every household being offered a smart meter to monitor energy consumption has been quietly (initially) extended for 4 years. Why? Poor rollouts, technology not working, impossible to switch suppliers…the list goes on. 20 years ago it was all about HIPs or Home Information Packs which were mandatory(briefly) for sellers of houses to provide to buyers showing them among other things how energy efficient properties were. Airbrushed out of history to save embarrassment just in case the obvious question is asked: Why, given that a survey is mandatory for any mortgage provider to grant a mortgage, would a HIP add any value whatsoever to those most vulnerable in the housing market? In the same way, would the ability to analyse consumption through a Smart Meter, add value to a household that watches TV, boils a kettle and turns the lights on?! Note that the language has changed markedly from the high pressure sales techniques we have all received from the energy companies: they are now saying that it is of course not compulsory to have a Smart Meter!

Energy Pricing

So leading on from the Smart Meter story, the question is what is happening with energy pricing? We all have a sense of pricing having risen, but from a myriad of complicated UK Government tables breaking it down by region, consumption and billing it is….very hard to say just how much it has gone up. Research on the web reflects a lack of up to date statistics and is confused by the energy companies telling us why prices have risen and not by how much (funny old world) In 2013 it was reported that domestic gas prices for example had increased by 300% over the previous 10 years versus a basket of household costs that had increased by just 30% in the same timeframe. It is not unrealistic given the year on year increases that can be identified(typically 10-12%) that this pattern has continued.

You may ask just how this impacts the currency markets! Much of our energy is imported therefore the price increases have been inflated by a sharp devaluation in GBP: weak GBP=higher energy prices.

Discussion and Analysis by Humphrey Percy, Chairman and Founder

Click Here to Subscribe to the SGM-FX Newsletter