My mother didn’t go to work today. She’s one of hundreds of thousands of local authority workers up and down the country who have stayed away today.
The funny thing is, she’s not even in the union. But when a strike happens, everyone stays out. As my colleague Glenn (himself a former council worker) points out: "The lowest-paid member of staff tends to be the guy who locks and unlocks the office. So if he strikes, you’ve kind of got no choice!"
I’ve been predicting industrial unrest for months now. As I see it, a union’s natural inclination is to demand higher pay if its members are feeling poorer. Right now, the official inflation rate is 3.8%. But if you look at the retail price index (RPI) — the measure commonly used in pay negotiations — it’s 4.6%.
So, people feel poorer, and Unison, the public sector union, has called a two-day strike.
Brendan Barber, secretary general of the TUC, supports the action.
"All they want," he says, "is a decent living wage. "Claims that decent wages will lead to spiralling inflation are wrong."
But the sad fact is that these claims are not wrong — and I’ll explain why.
One of the reasons inflation rates — including the higher RPI measure — appear suspiciously low is because they track a whole range of products that we buy.
Crucially, those purchases that are rising most quickly are the very ones we can’t do without — food and fuel. No wonder Unison members are feeling the pinch.
But here we come to the sad truth of the matter. Food and oil prices are set on the global market. Britain is, to use the economic term, a price taker. We can’t influence what we pay for these essentials. That we’re having to pay more for them is a symptom of the fact that we, as a nation are getting poorer.
We managed to mask this fact for a while by resorting to credit. But now the credit’s run out.
To put it in crude terms, we can no longer have as much ‘stuff’ as we used to have. Other people — Chinese, Russians, Indians — want it. And many of them have more money than we do.
Pushing up nominal wages here won’t make the country wealthier. It’ll just mean prices will have to adjust more — upwards — to reflect our straitened circumstances. Wage rises will cause a wage-price spiral.
Either that, or the recession will kick in hard, throw more people out of work, and dampen aggregate spending power that way. This is the sad truth — we’re poorer as a nation, and we have to accept it. What was once a ‘decent wage’ is now an unaffordable luxury.
So you can understand why Alistair Darling has reiterated his call for wage restraint. But it’ll fall on deaf ears. Pay in the private sector isn’t the government’s business — and private sector employers will do what’s best for themselves.
Of course, public sector pay is the government’s business. Or so you’d think. But here’s an odd thing. While the chancellor is urging restraint, a spokesman for Gordon Brown says that local authority pay — the subject of the current strike — is not set by the government.
That may be so. But it’s a curious point to make right now; effectively, the government has washed its hands of a problem it expects every other employer to tackle head on. We’ve not heard the last of all this. There’ll be other strikes — and other attempts by politicians to look tough while being anything but.
Indeed, the thing that will save us is the recession. It’s sad but true that those fearful for their jobs are less likely to strike.
It may be cold comfort, but when the downturn bites hard, at least your bin will be collected.
Name the successful investment
The markets took yet another smashing yesterday. Very depressing stuff.
So, to lighten the mood, here’s an interesting poser I was sent by my colleague Frank Hemsley.
Take a look at the Bloomberg chart below:
The red line is Citigroup’s share price. The green line is Intel, and the blue is Exxon Mobil.
But can you name the investment represented by the yellow line, which has been trouncing its US peers? I’ll give you the answer at the end of this edition.
The Fannie-Freddie bail-out is good news for commodities
Recently, America’s policy makers started talking tough on the dollar. They would support it, they said. US Treasury secretary Hank Paulson talks of a "strong dollar" policy.
"Aha!" some commodities bears have said. "The dollar’s slide will cease. The currency will climb back up, and commodity prices will fall."
But that was before the Fed stepped in to bail out mortgage giants Fannie Mae and Freddie Mac. The same Hank Paulson yesterday told Congress that the Treasury wants to increase the credit offered to the Mortgage Twins, as they’re known. Paulson also proposed granting the Treasury the ability to buy equity in the firms.
This is basically opening the gate to nationalisation. And, as Garry explains in Smart Commodities, the bail-out has made the outlook for the dollar even worse. And it was bad enough already.
Find out why Garry reckons the Fannie-Freddie drama provides yet more evidence of why you need commodities exposure in your portfolio.
And the winner is...
The successful investment was none other than UltraShort Financials ProShares. No, I hadn’t heard of it either. Here’s the fund profile from Bloomberg:
UltraShort Financials ProShares is an exchange-traded fund incorporated in the USA. The Fund seeks daily investment results that correspond to twice (200%) the inverse (opposite) of the daily performance of the Dow Jones U.S. Financials Index.
In other words, if the Dow Financials Index falls, this investment makes money. And since the start of May it’s taken off!
Says it all, really...
Until tomorrow
Ben Traynor
Today’s Daily Reckoning — The financial news has gotten hilarious
Oh dear reader! This morning, we are practically panting...
The world economy is slowing down. The global financial system is falling apart.
The whole situation is a mess...a disaster for investors...a catastrophe for homeowners...a Waterloo for the financial industry. But it is God’s gift to us.
What fun it is to read the paper! So much nonsense! So many clowns! Such drivel...such claptrap...everything is working out just as we expected.
We had to put down our copy of the Financial Times this morning. We were afraid of internal hemorrhage. Besides, our eyes were watering so much we could barely see...
You can read today’s Daily Reckoning in full HERE.
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