Jeremy’s Letters to the FT

November 29 2016

Sir, Ruth Lea’s trenchant criticism of economic forecasters misses one key element (“Forecasters have been much too pessimistic about Brexit”, November 28). Prior to the referendum, these forecasts assumed that David Cameron was speaking the truth when he said that Article 50 would be triggered immediately. This certainly would have been a huge shock and immediate source of uncertainty to the UK economy — when Mr Cameron resigned and let Theresa May determine when to pull the trigger, the immediate shock was forestalled. The fault of the forecasters lay in believing a politician.

Jeremy Beckwith

Sutton, Surrey, UK


February 8 2015

Sir, Martin Wolf writes, in “Prepare for the next recession” (February 5), that it would be good to organise the deleveraging of economies, and argues that helicopter money would be effective if it went directly into people’s bank accounts.

One way of achieving this is to give every adult in the country a special bank account that is credited with a meaningful sum but which could only be used for the repayment of existing debt from a bona fide lender.

For debtors there would be an immediate deleveraging benefit and greater peace of mind. For those who do not have debts, the money could be left in the account and invested in national infrastructure projects or building new homes, with the clear expectation that it would generate an investment return in the long term. This would then be acting to boost investment spending rather than consumer spending, and provide a boost to the savings of those without debt, again helping to deleverage the economy. Such a policy really would be a “People’s QE” rather than QE for the 1 per cent.

Jeremy Beckwith

Director of Manager Research,

Morningstar UK,

London EC1, UK


January 6 2015

Sir, So the latest idea that the US financial Masters of the Universe have dreamt up is a vehicle offering permanent capital for them to invest (and earn lucrative fees from). In England, we call these vehicles investment trusts and have used them for about 150 years.

Jeremy Beckwith

Director of Manager Research,

Morningstar UK,

London EC1, UK


November 15 2012

Sir, Chris Giles (“BoE  fears zombies haunt the road to recovery”, November 14) highlights the  issues arising in the UK economy from too few corporate liquidations. For an  economy to be delivering strong growth over the long term, it is vital that  economic resources are transferred smoothly and dynamically from inefficient  users (failing or unsuccessful companies) to efficient users (successful  companies).

Research from Creditreform this year, on corporate insolvencies across Europe  in 2011, showed the lowest rates of insolvency per 10,000 businesses were to be  found in Greece (five), Spain (18) and Italy (26), and the highest rates in  Luxembourg (316), Denmark (182) and Austria (152). The differences in these  numbers are as stark as the differences in their national economic growth rates  in recent years. The UK (81) and Germany (84) were also above the European  average of 68.

This implies that the zombie households, companies and banks of the  peripheral economies are likely to be a far greater problem than those of the  UK, and that any hopes for newly dynamic, peripheral economies to rise from the  ashes of the current policies of austerity are woefully misplaced.

Jeremy Beckwith, Chief Investment Officer, London Wall Partners,  London, UK

September 18 2012
Sir, Professor Lawrence Summers sets out a fairly standard Keynesian analysis  and policy prescription for the British economy (“Britain  risks a lost decade unless it changes course”, Comment, September 17).  However, his starting point that Britain’s problem is a lack of effective demand  and therefore the public sector must create that demand misses two key factors.

The first is that the reason for the lack of effective demand is the private  sector’s desire to deleverage and the second is that his approach would merely  substitute public sector debt for private sector debt as has been the case in  Japan over the past 20 years.

The growth rate of the overall economy is greatly inhibited at high levels of  public debt to gross domestic product.

Dealing with a debt overhang usually requires the borrowers to curtail  spending or the lenders to realise losses, both of which contribute to a lack of  effective demand.

A more thoughtful policy approach comes from Professor Steve Keen with the  idea of a “modern debt jubilee”.

Instead of the money created from quantitative easing going into the banking  system and the financial markets but doing little for the real economy, this  money is given to everyone in the country and must be used to repay debt.

In this way the private sector deleveraging is accelerated and effective  demand will return to the economy sooner without further increasing public  sector indebtedness and its deleterious effects on growth.

As Japan has found to its cost, it is the overhang of debt that is  constraining demand, and debt-funded public sector spending has not dealt with  that problem.

Dealing with the debt problem is the only way to enable sustainable effective  demand to return.

Jeremy Beckwith, Sutton, Surrey, UK

May 28 2012

Sir, I concur with Martin Wolf’s sentiments that he has sympathy for the Germans (“A fragile Europe must change fast”, May 23). From the outset they have clearly understood and articulated that, for a monetary union to succeed, it would require economic convergence towards their economy in the near term and greater moves toward political union in the longer term. Sadly, most of the rest of the eurozone saw only the advantages of immediate lower interest rates and not the less attractive features of the union.

Germany now has to choose between its key postwar economic policy objective of a sound money, low inflation economy and its key foreign policy objective of being a good European and driving Europe towards an ever-closer union. Until now it has been able to achieve both, but there now remain no viable paths to continuing that success.

Once the French parliamentary elections are out of the way, the next key eurozone election is in Germany in September 2013 – that will be the occasion for Germany to decide which of its two policy objectives it wishes to keep, and which to discard.

Jeremy Beckwith, Sutton, Surrey, UK

December 19, 2011
Sir, John Szemerey (“True Conservatives are writhing in their graves”, Letters  December 15) asserts that had Britain joined the euro, then the euro crisis  would not have occurred. Whilst conscious of dealing in untestable assertions, a  much more plausible scenario would be that the current crisis would be  considerably worse both for Britain and the other eurozone nations.

Just consider – as a member of the euro, UK interest rates would have been  set on average 2 per cent lower over the period 2000-07. The house price boom,  the extent of mortgage borrowing and the lending by banks to fund speculative  development schemes would have been even greater than it was, perhaps more like  the Irish residential boom. The economic boom would have been even bigger and  Gordon Brown would have trumpeted even louder his claims of prudent fiscal  management whilst boosting state spending even faster than he did. The bust  would have been even greater, a bigger fall in house prices, even larger bad  debts in the banking system and an even larger, structural budget deficit to  deal with.

Without a doubt, Britain would today be viewed as a “peripheral” forced into  austerity and a vicious cycle of weak growth, large deficits and greater  austerity. If the British public and politicians had not had the good sense to  steer well clear of the structurally flawed “currency in search of a  government”, they would by now be screaming for us to get out and go back to  sterling.

Jeremy Beckwith, Sutton, Surrey, UK

March 11, 2011
Sir, Martin Wolf (“Why the eurozone will survive”, March 9) is, I fear, far too complacent about the degree of economic misery that the peripheral eurozone  economies will in practice be able to face before they accept the risk of being outcasts in Europe by leaving the eurozone.

The 24-31 per cent lack of competitiveness of these economies relative to  Germany that he cites would require an impossibly long road back to  competitiveness, given Germany’s record recently in improving productivity.

Previous sovereign debt crises, where the International Monetary Fund has  been called in, have always combined two key policies to restore fiscal sanity – first fiscal austerity, and second devaluation. The devaluation is vital as a  pro-growth tool to give hope to the local population that things will get  better. Devaluation produces an instant rebalancing of competitiveness so that  private sector growth can to a degree offset public sector austerity.

The periphery countries, however, without devaluation, are forced to endure  both public and private sector austerity simultaneously for a long period of  time and this must lead to a downward economic spiral and depression – to get  elected politicians will have to promise jobs and jobs can only come quickly  from a lower exchange rate.

The cost of remaining in the euro will prove politically to be demonstrably  higher than the benefits from leaving it.

Jeremy Beckwith,Chief Investment Officer,Kleinwort Benson,London EC2, UK

December 02, 2010
Sir, Martin Wolf correctly identifies the euro as being in a joint credit and  competitiveness crisis (“Why the Irish crisis is a huge test for the eurozone,” Comment, December 1), but neglects to consider the implications of the  competitiveness crisis. A credit crisis can be resolved through debt  restructuring without necessarily imperilling the euro, but a competitiveness  crisis is not so easily dealt with.

Since the inception of the euro, German average unit labour costs have grown  by about 25 per cent less than in the Mediterranean countries, resulting in  massive trade imbalances between Germany and these economies. To restore the  balance requires either very rapid German wage gains (not really a speciality of  German business in recent decades) or sharp wage and employment cuts in the  other economies, or of course a change in the exchange rate. Merely resolving  the credit crisis but leaving the competitiveness crisis intact will merely  prolong the misery in the Mediterranean countries as workers remain unemployed,  and lead to further credit crises.

The choices for the politicians are clear but all are unpalatable (aside  perhaps from full political and fiscal union) – inflation in Germany, depression  in the periphery or the end of the euro.

Jeremy Beckwith,Chief Investment Officer,Kleinwort Benson,London EC2, UK

January 29, 2010
Sir, I was most encouraged to see that cricket trivia has now become an  acceptable subject in your Letters column (January 28). However, this was offset  by the disappointment of the realisation that Raj Dorai’s suggestion of Test match history is sadly  unfounded. In April 1983 in the fourth Test of the West Indies v India series, a  no-ball from Syed Kirmani meant that the West Indies scored 1 for 0 in their 2nd  innings and won the match by 10 wickets.

I have no doubt that, like me, many of your readership are delighted by this new trend in the Letters column.

Jeremy Beckwith, Chief Investment Officer, Kleinwort Benson, London EC2, UK

December 18, 2009
Sir, It was a delight to read such a thoughtful letter from an undergraduate at  my alma mater (December 17). However, I do not think it is fair for John Jose to lay the blame for lack of creativity at Paul  Samuelson’s door.

His textbook was an excellent exposition of neoclassical economic  theory, which in general works very well today, particularly with regard to the  theory of price formation. It took Keynes’ brilliantly creative mind to show  that this theory did necessarily lead to macro-economic equilibrium, but sadly  this injection of creativity into economics was lost by the post-Keynesian  economists who, suffering from “physics envy”, then used econometrics in an  attempt to demonstrate a scientific approach to the management of the  economy.

It is econometrics and its emphasis on numbers and measurement that has  sucked the creativity out of the minds of economists. Interestingly, economists  have no need for such low self-esteem since Keynes believed that he had  articulated a “General Theory” back in the 1930s, while today, physics is still  unable to produce such a general theory that encompasses both the macro and the  micro elements of their subject.

Jeremy Beckwith, Chief Investment Officer, Kleinwort  Benson, London EC2, UK

September 07, 2009

Sir, I doubt if there has been a more telling disparity in perspective and  thinking between Europe and the US than that displayed in your pages by the  article from Timothy Geithner (“Stability depends on more capital”) and the letter signed  by eight eurozone finance ministers (September 4).

Both offer a similar analysis of the key issues leading to the banking  crisis, but while Mr Geithner proposes solutions that go to the very core of the  issue and the banking industry, namely the lack of capital and consequent  startling levels of gearing in the global banking system, the finance ministers  have gone to some effort to co-ordinate a letter to your august newspaper  devoted to calling for changes to how a few hundred people within the industry  get paid.

To my mind the key lesson from the crisis is that there do exist a number of  large banks that are too big to fail and thus have an implicit government  guarantee, but that currently these banks get this guarantee for free. A cost,  in the form of much higher capital requirements, that eliminates the incentive  to be too big to fail, is by far the simplest response to this lesson.

Jeremy Beckwith, Chief Investment Officer, Kleinwort  Benson, London EC2, UK

October 08, 2008
Sir, I find myself astonished that, in the coverage of the actions that European governments are taking in seeking to  protect their bank depositors (aka voters), so little commentary has been  devoted to the impact of the single currency.

Both the US and the UK are fully able to make such guarantees, if they choose  to do so, since these guarantees are in local currency, the supply of which they  have full control over – if necessary, these guarantees can be honoured by  printing money.

However, countries in the eurozone have no such control over the supply of  euros, and for Ireland in particular to give itself a contingent liability of  between 200 and 300 per cent of gross domestic product is madness. If they were  called upon to honour their guarantee, they would undoubtedly be unable to  provide enough euros to repay all depositors and creditors.

Jeremy Beckwith, Chief Investment Officer, Kleinwort  Benson, London EC2, UK

May 19, 2008
Sir, Have you recruited a headline writer from the tabloids? The “No rate cuts before 2010” headline (May 15) was a dreadful  miscalculation. Even if inflation does remain above the target 2 per cent level  until early 2010, this in no way precludes the MPC from cutting interest rates  before then if it believes inflation is likely to undershoot the 2 per cent on a  rolling two-year forward view.

Jeremy Beckwith, CIO, Kleinwort Benson, London EC2V 7PG


June 13, 2006
Sir, Maggie Urry, in her analysis of the value of Wayne Rooney’s recovery,  betrays surprising gaps in both her knowledge of the efficient markets  hypothesis and of English football (“Roo-ing the day”, June 9).

Citing the improvement from 11.6 per cent to 11.9 per cent in Betfair’s price  for England to win the World Cup, she concludes that Rooney is therefore worth  just 0.3 per cent to England’s chances.

However, in an efficient market, which this is likely to be, at any time  prices reflect both what is currently known and what market participants expect.  Thus a meaningful probability that Wayne Rooney would be fit was already  factored into the price – the latest piece of news increases that probability,  but it is still not yet a certainty.

The correct calculation for the value of Saint Wayne is the difference in  price between England’s chances were he to be certain to play in all matches and  their chances if he were certain not to play in all matches. This is clearly  immense because without him, the latter number is infinitesimal.

Jeremy Beckwith,Chief Investment Officer,Kleinwort Benson.London EC2V 7PG


September 26, 2007 – Financial Times : View of the Day

Jeremy Beckwith, Kleinwort Benson

The recent crisis in markets has led to a structural break in volatility that  mirrors what occurred in the mid-1990s, according to Jeremy Beckwith, chief  investment officer at Kleinwort Benson.

“At that time there was a steady bull market in equities driven by robust  economic expansion,” he says.The Vix, an index that gauges market volatility, traded in a 10-20 range. But then, a credit event in Russia brought huge uncertainty to all markets.”From 1998 to 2002, the Vix traded in a 20-40 range. “The break in volatility  preceded the bull market peak by two years.”The period since 2000 has again seen steady economic expansion, but on a much  more global scale, with emerging economies growing strongly.The lack of economic volatility has been reflected in a low level of market  volatility. In the past four years, the Vix has again traded between 10 and  20.

“This summer’s credit event occurred in the US, but the lessons are similar,” he says. “Economic weakness prompted by the subprime crisis will lead to higher  market volatility over the next few years.This structural break in volatility does not mark the end of the bull  market, rather the emergence of the next bubble.The ‘bubble sectors’ of this decade, such as Chinese and commodity stocks,  have confirmed themselves by their market behaviour over the last five weeks.”