Ok, I can’t say for sure that the economic recovery is underway but public confidence definitely seems to be improving. Just 2 months ago I was writing about fireworks being a good economic measure as people will be reluctant to spend money on something they are going to set fire to and watch shoot off into the sky when times are tough. Back in November I saw very few fireworks, but last night there were plenty to welcome the new year.

It seems people are desperate for the recession to end and go back to the old borrow and spend model we had pre-boom. Further evidence of this can be seen in the number of people that were queuing into all the major shopping centers today looking for bargains. Many say more people than ever are flocking to these shrines of consumerism to take advantage before VAT returns to 17.5% but my personal opinion is people are desperate to shop and the sales means they can do this guilt-free.

Which reminds me of a recent Simpsons episode titled “Bart to the Future” where Bart sees a vision of his future, with Lisa installed as President trying to rescue America from it’s debt hole. I’d like to imagine Gordon Brown and Alistair Darling have had a similar conversation this weekend:

Lisa: If I’m going to bail the country out, I’ll have to raise taxes, but in my speech I’d like to avoid calling it a, “painful emergency tax.”
Milhouse: What about, “colossal salary grab.”
Lisa: See, that has the same problem.  We need to soften the blow.
Milhouse: Well, if you just want to out-and-out lie … [Lisa doesn’t object] Okay, we could call it a, “temporary refund adjustment.”
Lisa: I love it.
Milhouse: Really?  What else do you love, Lisa?
Lisa: Fiscal solvency.
Milhouse: [disappointed] Oh.  Yeah, me too.

So what is going to be our temporary refund adjustment?

How about a 2.5% hike in the interest rate students pay on their loans…. it’s like a tax on graduates, but without having to use the word tax. In goverment speak it’s “a 2.5 per cent real rate of interest on student loans” and the University Minister David Lammy has been giving his backing to the idea this weekend so you have to presume this is being seriously considered.

The beauty of this tax idea is that with Labour’s goal of 50% of school leavers going on to University, and an employment rate of around 70% in the UK it will effectively mean that most people joining the workforce for the first time will be paying this new tax. But it gets better, Labour knows it will be hitting the rich hard in the coming years but this policy wont affect them as they don’t need to take out student loans, and it’s traditional low income supporters wont mind either as there are means tested grants instead of loans.

Clearly not everything was ok when I visited back in September but the failure of a government owned company, Dubai World, to meet a debt repayment will naturally lead to concerns about whether the remaining $59bn debt will be repaid. To put this in perspective it is the equivalent of the NHS in the UK not meeting a $3.5bn payment.

There is little definitive evidence yet of how much of the outstanding $59bn debt is owed to UK banks, but the big drops in their share prices suggest they are heavily exposed. Now I am not a genius and I am certainly not paid a million pound salary, but I was able to indentify the problems out there in just a few days so the banks really deserve what they have coming to them this time.

There is one bill above all the others in today’s Queen’s speech which will be making all the headlines tonight, and that prize goes to:

Fiscal Responsibility Bill

Provides a "firm and binding statutory basis" for the government’s promise to halve its budget deficit within four years. Gives Parliament power to approve medium-term fiscal plans. Promises that businesses and investors will have "certainty" about the government’s fiscal plans.

Firstly apologies to the BBC for lifting this straight from their website but we all have to get our news somewhere!

Now ignoring the fact that I would have thought the Chancellor and Prime Minister (who just happened to be the Chancellor for the previous 10 years) should have been doing everything they can to reduce the deficit anyway, or arguably have avoided it in the first place this might just be Labour’s ticket back to power in 4-5 years time.

Regardless of whether this has bill gets passed into law Brown has set his stall out for the next general election, which even he must know he is going to lose. So after they have packed their bags to return to those luxury second homes we have all paid for and David Cameron is in power, his first term will effectively be measured against this impossible goal (maybe it is possible, but we’d all be living off bread and water for that to happen).

So come the 2015 general election whoever is leading the Labour party (probably David Milliband) can attack the Conservatives for failing to halve the budget deficit and if the public buy this argument they’ll win the 2015 election by a landslide. 

Of course if the Conservatives win next year you can never write off them simply imploding in a series of internal battles over Europe. So maybe it is time we gave the Monster Raving Loony Party a try, at least their manifesto promise to withdraw MPs’ £118,000 expenses allowance, and for the money "in future be distributed to the poor and needy so that they can waste it instead" makes more sense than some of the nonsense the major parties are suggesting. And I am a big supporter of their idea to introduce a 99p coin to “save on change”

Now I wasn’t around back in 1605 when Guy Fawkes attempted to destroy the Houses of Parliament so I can’t comment on what happened that evening. But ever since that evening festivities have centred on the use of fireworks as we celebrate the downfall of the Gunpowder Plot.

I happen to live in a 7th floor flat so normally I have great views of the almost constant fireworks in the week leading up to and after the 5th November. But this year there were very few fireworks, clearly a sign of the harder times.

So maybe it’s time we forgot all the current economic measures such as inflation, unemployment, GDP, balance of payments etc and used the number of fireworks launched on the 5th November as a true measure of the state of the economy. After all, what better measure than the amount of money people are willing to set fire to!

Now it’s Gordon Brown’s turn, knowing that he is rapidly reaching the limit of what people will lend the country and with expenses still significantly bigger than income he needs to sell off whatever he can to remain solvent. But having already sold off the UK gold reserves well below the current market value he is now looking to sell off the Tote, Student Loan Book & Dartford crossing.

Surely the irony of repackaging student debt and selling it on is not lost on him!

It’s this practice of trading loans that got us into this mess, well that and the borrow to spend mentality that Brown has been pushing as the answer to our economic woes for the last year.

To make matters even worse there isn’t a lot of demand for loan books right now as most of the banks that were keen buyers of the stuff went under during the ‘banking crisis’ so that basically just leaves the state owned banks as a potential buyers. Which is effectively just moving money from left pocket to right pocket, also known as another election gimmick that might just win a few votes.

“A couple with two children paying a typical private rent of £120 per week would gain only £23 if their earnings rose from £100 to £400 per week (as a result of reduced benefits and tax credits and higher tax and national insurance).”

John Hills – ‘Ends and means: the future roles of social housing in England’ (February 2007)

But I will be watching tonight thanks to a well known betting site that is allowing its customers to watch for free if they have a funded account and as far as I can see there is nothing in it’s terms and conditions to prevent you from depositing money before the match then withdrawing it straight after the game, although obviously they hope you will place a bet on the match.

So I haven’t really saved myself any money as I wouldn’t have paid anyway, but I will at least get to watch the match!

Come on England!

My first impressions upon arriving in Dubai were ‘yikes this is hot’ and that was merely just exiting the airport late at night.

Anyone that has been to Dubai will not have missed the large number of building sites scattered all across the city, with cranes as common a feature of the skyline as the skyscrapers that the city is famous for. Everywhere you look there are massive projects taking place, from the impressive Burj Dubai which is now the tallest building in the world to the recently opened Metro which they proudly declare as the longest driverless train route anywhere on earth.

But after a few days it became clear all was not well in this city as the majority of building sites remained dormant. In fact the only ones showing signs of activity were the government funded projects, clearly another symptom of the current lack of credit available in the markets. Talking with locals I discovered that even the Burj Dubai, the latest icon in the skyline, remained an empty shell of a building as they were not currently fitting out the inside of the building.

Dubai grew very rapidly, in fact you only have to go back 20-30 years before they discovered oil in the UAE and it was a little known town. Like so many booms it became a victim of speculators rushing in with a flood of outside capital being pumped in to the economy. The oil wealth largely remained in the hands of a few powerful and now very wealthy families, who constantly try to out do each other with bigger, better and more expensive developments.

Property prices exploded so quickly that it was impossible not to make huge profits when developing, to such an extent that nobody actually had to occupy the property once it was built. These empty skyscrapers could be used as security to borrow more capital to develop something even bigger and the cycle went on and on for years. This illusion could continue for as long as the money kept pouring in driving property prices ever higher. But the global ‘credit crunch’ burst this bubble and stopped development almost over night, leaving half finished skyscrapers as a constant reminder that the good times are on hold.

I am sure demand for commercial and residential property will continue to grow in Dubai, especially as the government presses ahead with vital infrastructure projects and its appeal to companies as a tax haven remains. But it will be years before more property is actually needed, and thus demand can catch up with supply. So those unfinished buildings may remain in that state for some time yet.

I’m writing this on the plane having just left Dubai and it is clear looking out from the plane window that there is no shortage of land ready to develop in the future; in fact there are huge sections of roads surrounding empty plots ready for future expansion. These sandy wastelands today will no doubt be Dubai’s suburbs in 20 years time. But with so much available space, supply will probably outstrip demand for at least the next generation and any future boom in property prices will inevitably be just another bubble.

My intention is not to criticise Dubai, nor kick the city whilst it is down. I actually think what they have achieved in such a short space of time is highly impressive and that in the long-term the city will be a great success. But it’s another reminder that prices that rise dramatically because of demand exceeding supply in the short-term are unsustainable where supply is not constrained by some limiting factor.