From Financial Advice……

Tonight there are new claims that Gordon Brown is starting to show signs of panic after the announcement that the UK is officially in recession. The opposition parties appear to have sensed a draining of confidence from the UK Treasury and the Prime Minister after literally billions and billions of pounds appear to have been wasted on a number of rescue packages. The situation with the UK economy has taken a serious downward lurch over the last few days amid signs that the government is running out of ideas.

When I first came across this (via a link on a Belmont Club post) I thought it was overstating its case. I have long thought that the U.K was in big trouble. But I had not seen signs that Gordon Brown was panicking. But then I saw this from the Telegraph….

If you hadn’t seen, Mr Rogers has been urging investors to join in the pound’s slide and “sell any sterling you might have.”

“The City of London is finished,” according to the American now living in Singapore. He believes Britain’s former glories – its North Sea oil supply and the major financial centre in the City of London – have gone to pot and are no longer able to support sterling.

The comments have ruffled a few feathers, including it would seem, the Prime Minister’s. “If you think we are going to build our policy around the comments of a few speculators who want to make money out of Britain then you are very, very wrong indeed,” he told the Today Programme on BBC Radio 4 this morning.

Mr. Rogers is only a millionaire. For Gordan Brown to treat his comments seriously is a sign that he is indeed worried. In normal times Rogers would have been laughed off.

From the Times….

Across the whole of the UK, 49% of the economy will consist of state spending, while in Wales, the figure will be 71.6% – up from 59% in 2004-5. Nowhere in mainland Britain, however, comes close to Northern Ireland, where the state is responsible for 77.6% of spending, despite the supposed resurgence of the economy after the end of the Troubles.

Even in southern England, the government’s share of spending is growing relentlessly. In the southeast, it has gone up from 33% to 36% of the economy in four years.

The state now looms far larger in many parts of Britain than it did in former Soviet satellite states such as Hungary and Slovakia as they emerged from communism in the 1990s, when state spending accounted for about 60% of their economies.

Large-scale layoffs in the northeast will mean a rise in benefit payments. Newcastle-based Northern Rock was nationalised last year and has shed 1,500 jobs. Nissan announced three weeks ago that it was to cut its workforce in Sunderland by 1,200.

This explains a lot of the stories that come out of Great Britain. When the state has a Soviet size share of the GDP it will have Soviet type powers.

But such sniping aside, this shows how the economic health of Great Britain is dependent on the economic health of the government of Great Britain. Much of the money that sustained the government came from oil and gas revenues from the North Sea and the financial services industry in the city of London. Now that energy prices are falling around the world and the financial services industry is getting hammered, who is going to fund the government of Great Britain?

From a Freddie Mac 8-K Filing…..

Freddie Mac (formally known as the Federal Home Loan Mortgage Corporation) is in the process of preparing its financial statements for the fourth quarter of 2008 and the year ended December 31, 2008. Based on preliminary unaudited information concerning its results for these periods, management currently estimates that the Federal Housing Finance Agency, in its capacity as conservator of Freddie Mac (Conservator), will submit a request to the U.S. Department of the Treasury (Treasury) to draw an additional amount of approximately $30 billion to $35 billion under the $100 billion Senior Preferred Stock Purchase Agreement (Purchase Agreement) between Freddie Mac and Treasury. The actual amount of the draw may differ materially from this estimate as Freddie Mac goes through its internal and external process for preparing and finalizing its financial statements.

The Purchase Agreement requires Treasury, upon the request of the Conservator, to provide funds to the Company after any quarter in which the Company reports a negative net worth (that is, the Company’s total liabilities exceed its total assets, as reported in accordance with generally accepted accounting principles). The amount of the estimated additional draw described above reflects management’s current estimate of the impact of operating losses as well as other items that have a direct impact on the Company’s net worth in the fourth quarter. The Company previously drew $13.8 billion under the Purchase Agreement in November 2008, following its release of results for the third quarter of 2008. For further information, see “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Executive Summary — Conservatorship — Entry Into Conservatorship and Treasury Agreements — Overview of Treasury Agreements” and “— Legislative and Regulatory Matters — Conservatorship and Treasury Agreements — Agreement and Related Issuance of Senior Preferred Stock and Common Stock Warrant” in Freddie Mac’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2008, filed with the SEC on November 14, 2008.

They took $13.8 billion in the third quarter and they think they are going to need 30+ billion in the fourth quarter. That is a more then 100% increase. Even if the rate of increase slows down, I don’t think the original 100 billion is going to be enough.

(h/t Calculated Risk)

From Seeking Alpha….

Prices for food in U.S. grocery stores jumped 6.6% last year – the biggest spike since 1980 – underscoring yet again that inflation is a much bigger problem than government officials, or most economists, say it will be.

Of all food categories, prices for cereal and baked goods hit U.S. consumers the hardest, zooming 11.7% in 2008 over 2007. Prices for meats, poultry, fish and eggs gained 5.1%. Fruits and vegetable rose 3.4%, while dairy products advanced 2.7%.

It was the second straight year U.S. consumers were forced to pay a lot more for their groceries. In 2007, food prices at supermarkets rose 5.6%. Prices rose only 1.4% in 2006.

The article goes on to make the argument that inflation is still a problem and the government does not measure it properly.

From the Associated Press…..

Russian natural gas finally flowed into Europe once again Tuesday, after Moscow and Kiev pulled back from an energy war that drastically reduced supplies to many nations for two tough winter weeks.

But the resolution looked more like a cease-fire than a permanent peace, with no guarantee against renewed hostilities between Russia and Ukraine, two former Soviet neighbors with sharply contrasting views of the future.

From later on in the article…..

Ukraine is to receive gas at a 20 percent discount from this year’s average European price, which Russia says is $450 per 1,000 cubic meters. That price is likely to decrease as the effect of slumping oil prices kicks in, but it still means a hike from the $179.50 Ukraine paid last year.

Russia pays the same amount as last year to ship the gas through Ukraine’s pipelines. But in 2010, both countries are to pay market prices — Ukraine for the Russian gas it uses and Russia for the transit of gas to Europe.

Any price increases will further cripple Ukraine’s inefficient economy, already badly hurt by the global financial crisis. The office of Ukrainian President Viktor Yushchenko — Tymoshenko’s political rival — already has criticized the deal.

With the ink barely dry, Gazprom chief Alexei Miller suggested Ukraine might not be trusted to pay higher prices.

This is a complete defeat for Ukraine. But as the head of Gazprom cynically notes, it does not really matter. Ukraine is going to go broke in any case no matter what. It does not matter what they charge you when you know you can’t pay the bill.