Alan's Christmas Crackers, pulling the other one
You’ll be glad to know my colleagues asked me to be less serious this month seeing it’s the season to be merry. So I thought I’d take an alternative route to explain a few money issues that make our lives so complicated and miserable. Such as Taxes, Debt, Quantitative Easing (QE), Brexit, Economists and problems arising from increased Longevity. Half a dozen crackers as fitting this time of year.
First a wee quiz. Answers at the end. No cheating, or Santa won’t come.
1) A cheap accountant, an expensive accountant and Santa Claus are walking along Princes Street, Edinburgh and spot a £20 note lying on the pavement. Who picks it up?
2) How many economists does it take to change a light bulb?
3) Read LFL last month? Let’s check. So where do they assemble all the Mercs sold in Beijing?
4) Despite so-called problems in 2017, how many years ago is it since stockmarkets were so calm?
5) What financial qualifications do UK personal finance journalists require?
6) Who said he invented Tax Self-assessment when accused by HMRC over alleged tax evasion?
QUANTITATIVE EASING – An example from the real world
With the possible exception of Brexit nothing has caused more negative column inches and worry (since 2008) than the “excessive printing of paper currencies” by the world’s Central Banks. You may recall loads of predicted financial disasters made by the media, one of which was “hyperinflation”. None of the “bad stuff” happened. If you’ve ever wondered why, read on.
Willie lost his job in the recession in 2008. He was an avid bird- watcher and heard that a bird never seen before in Britain, the red-beaked lesser-spotted kite, was flying around Braemar. Desperate to photograph it, he convinced his friendly bank manager (ahem!) to lend him £100 for an overnight trip up north. He said he’d repay the loan immediately if it turned out to be a hoax.
On arriving there he found a hotel with a room rate £100 for cash. Said to the chap at reception that if the rare bird wasn’t around he would prefer to return home than stay so would need the cash back. Convinced the bird was still around, the hotel owner agreed to the terms. So as soon as Willie left, he nipped to the butcher’s to settle an outstanding £100 bill. The butcher then went to the local garage and paid off his outstanding £100 car-repair bill.
The garage owner remembered he was due Mary the local “lady of the night” £100 for some horizontal refreshment, so he nipped round and settled up. Mary in turn squared up with the hotel owner who provided a room for her brief encounters. Thus the £100 was safely with the hotel owner when Willie returned a couple of hours later asking for his cash back as there was no sign of the rare kite. That same afternoon Willie returned the cash to the bank. So a notional £100 paid off all that debt. Go ask an economist why that’s bad for us.
I am indebted to my old friend Ian Cowie now at the Sunday Times for this example of how HMRC’s “progressive” tax rates would fare in the real world.
Ten old pals go out for drinks every month and they settle their evening’s £100 bar bill along income-tax related lines. So the 4 earning the least pay nothing. The 5th pays £1, the 6th pays £3, the 7th pays £7, the 8th pays £12, the 9th pays £18, and the 10th man, the wealthiest by far pays £59.
One night however the barman gave them back a £20 loyalty bonus and the group divided the windfall on similar “progressive principles”. Now the 5th man, like the poorest 4, paid nothing. The 6th, only £2, the 7th, only £5, the 8th, only £9, the 9th, only £15, and the 10th man paid £49 not £59.
They compared their savings. “I only got £1 out of £20” said the 6th man, pointing to his rich pal. “But you got £10 back. It’s not fair”. The poorest four cried “We didn’t get anything back at all. Bloody rich get all the tax breaks”. And the 10th man was attacked for “his selfishness”.
Next month he didn’t turn up. The others had their “fun” without him. “Stuff him” they said. But when their bill arrived they didn’t have enough money between them to pay even half the bill. So next time you bump into an “inequality obsessed” expert, remind them of the real world.
BREXIT AND DEBT FEARS
Unless you don’t watch the telly or read the headlines any more you will be aware that “the UK’s a basket case with no hope and too much debt”.
Not according to official figures released by ONS - The Office of National Statistics. (Or should that be Notional Statistics?)…. Didn’t spot this in any headlines but they’ve announced that as at the end of 2016 “The total NET worth of the UK was £9.8 trillion, up £803 billion from the end of 2015”, and “the biggest rise on record”!
Odd. Because on the 18th August 2016 ONS announced “The total NET worth of the UK at the end of 2015 was £8.8 trillion”. Don’t know about you but £9.8 trillion minus £8.8 trillion is £1 trillion, not £803 billion. 3 questions….where’s the debt given these are NET figures? How come the UK’s a basket case thanks to Brexit fears? And where’s the missing £197 billion? It could pay 4 Brexit bills!
(And by the way ONS confirm UK debt at £1.72 trillion which is only 15% of GROSS total UK worth).
PROBLEMS OF INCREASING LONGEVITY
Jim Mellon’s excellent book “Juvenescence” highlights umpteen medical advances designed to help us live longer. If he’s right, there are serious financial implications for retirement planning. But here’s an example from the real world also to be considered.
A bunch of men friends decided when they got to 40 they’d have dinner to celebrate. They selected Armando’s because the waitresses were pretty and wore short skirts. Great night, so they decided to repeat the dinner every 10 years. At 50 they picked Armando’s again because it had a world class wine list and the best steaks. At 60 they picked Armando’s again because it was a non-smoking restaurant and had no canned music.
At 70, after a long debate, they decided on Armando’s again because it had wheelchair access and a lift to the dining room. And at 80 they decided they’d choose Armando’s because they’d never been there before. As my grannie would say “Auld age disnae come itself”
Quiz….1) the expensive accountant. The other 2 are figments of imagination. 2) None. They’re still arguing about why the first bulb failed 3) Alabama. 4) 90 years. 5) None! 6) Ken Dodd.
Have a great Christmas everybody.