No surprises ...

The idea of printing money to buy high interest gilts (a type of government bond) at the top of the market was the monetarists "solution" to our economic crisis. It even has a catchy name - quantitative easing - which makes it sound like they know what they're talking about. To anyone with an iota of sense, it's financial lunacy.

The first thing you've got to stop doing when you're in a hole is to stop digging. Alas dug we have and our much admired army of great economists and bankers have got us into further trouble. Whilst the ideas of recapitalisation through a forced nationalisation seems a good move (assuming we don't sell off cheaper later) and the need for direct investment in industry (a Keynesian style approach) is sound, much of the rest that is promoted as "a solution" has been woeful.

Interest rates have remained far too low, the currency has been depressed and inflation is increasing. As of Feb'09 it grew to 3.2%, well above the governments own target. There is even the chatter in some political classes that inflation is a good thing and that quantitative easing is working.

This action is all a result of the desperate search for easy options rather than dealing with the problem at hand. We should have nationalised the building industry, redistributed wealth through tax, increased the supply of social housing and prepared for the storm. Instead, we've let those who've most profited from their recklessness of the hook and raided the piggy banks of the prudent. Inflation will rise more, the economy will weaken but cheap foreign capital will help boost share and house prices.

You might be broke, lack housing and have no job prospects but look the FTSE will be rising ... so it must be good? Alas, not for the ordinary people and especially not if you are a saver. For these people, I reserve my deepest sympathy. You might have scrimped and saved your whole life but whatever you leave in the bank is likely to become worthless over the next decade. Your savings will in effect have been spent by other people.

Thanks for the bolly, thanks for bailing us out and thanks for the bonuses etc.

[Update 6th March 2013 - Notes on the current drama]

We are still continuing with our dogma of increased QE despite no visible sign of the economy improving and plenty of counter examples. The FTSE and house prices are doing well, inflation on core imports is rising and the economy continues to weaken. It's pretty glum and we're only getting into deeper trouble with increasing social divides.

There has been some good moves by the Cabinet Office regarding IT and we have a glimmer of a tech boom. At least some people seem to be on the ball and fortunately the insanity of Labour has been replaced by a Coalition.  Alas, some elements of this coalition have shown they can be equally insane.

Whilst austerity has been needed, the treasury is now suggesting a float of RBS (part nationalised), reduction of the higher tax rate and has done little in the way of major direct investment. There also seems to be a growing tendency to believe in the mythical concept of "trickle down effect". In a sign of the madness to come the BoE has even been talking about negative interest rates. 

The recession has extended far beyond what was necessary and in the next economic wave, we seem ill prepared. Banks have returned to their excessive bonus culture with claims of a necessity due to a global competitive market for talent. However, no actual data has yet been demonstrated that such a market exists and recently the global competitive market for executive talent has been shown to be the sham we all knew.

Of course, beyond all the Libor manipulation and other practices, we seem to be building up for the next CDO debacle - this time probably on student debt which has been turned into collateral.

On an international scene, China continues to grow from strength to strength showing the importance of using the market economic as a tool rather than a reason for society.

In the US, there has been a disturbing rise in false debates e.g.  Hayek vs Keynes which hides the issue that Friedman and the Monetarist approach would be supported by neither. Alas, Friedman's dogma rules despite no demonstrable benefit and no supporting data.

We've also seen some minor upheaval in the UK / US with a focus on changing the current social environment though the Occupy movement. This has been largely dismissed in the US despite its importance.  We continue to head towards the Rubicon.

XaaS and Innovation

Ignoring the epidemic of confusion that is the web, "Innovation is the first attempt to put an idea into practice" - Jan Fagerberg.

I mention it purely because of the number of times I see that word misused.

This is particularly true in the XaaS (X as a service - whether software, hardware, framework or whatever) field where every rehash of the concepts of commoditisation, commodification, utility services, second sourcing and "computing in the cloud" is described as a some sort of breakthrough.

The reality is that most XaaS concepts went beyond the innovative stage a long time ago and are now on the well trodden path to becoming mainstream.

This doesn't mean innovation doesn't continue to happen in this field, it does, certainly sustaining innovation whether incremental or radical. However for a consumer of these services, any cost advantages gained are rapidly disappearing as your competitors are already starting to use them. Soon you'll just need to use them in order to remain cost competitive. These services will become little more than a cost of doing business.

Unfortunately, in order to have competitive price pressure for the service we need the ability for customers to easily switch between services. Furthermore without that ability to switch providers, we will continue to throw down a gauntlet at the deity of disaster. Learning those second sourcing lessons again is going to become someone's very painful experience of the next year.

So on one hand we are going to have adopt such services (for reasons of cost competitiveness) but we are going to be putting ourselves into a weaker position (due to a lack of portability between providers)

What we really need is some form of organisation to represent the XaaS buyers interest, to put pressure on the providers to have true portability for services. This means multiple providers, ease of transfer between providers, assurance that the primitives remain constant and quality of service reporting.

It's all stuff we planned with Zimki (R.I.P.) a few years ago, however, it is still valid today.

The potential with XaaS is very wide. Not just in terms of replacement of existing industries but also the new opportunities which can be built upon XaaS and the secondary markets in XaaS.

Beyond utility revenue sales, there are a number of secondary markets which include :-

• Service revenue: sales of technical support to customers own XaaS installation (assume XaaS product is provided open source)
• Generic utility billing service: providing billing mechanisms for other XaaS products.
• Market reporting: provision of Quality of Service vs Price reports for different XaaS providers.
• Marketing Service: provision of a market portal for a XaaS industry with switching service to increase portability between providers and click through revenues to providers or sale of application
• Brokerage:
• The other obvious stuff: XaaS conferences, XaaS training, XaaS consultancy

However, the most interesting opportunity is in the XaaS Exchange. With portability between providers, switching between providers and a large number of consumers of XaaS then you have a constant balancing act between supply and demand. This provides all sorts of opportunities for an exchange and the purchasing and sale of future computer resources.

Fancy that ....

When I was young (about fifteen), I started working on this somewhat lunatic idea that an entire model of the universe that we exist within can be derived from the number zero. I carried on this work whilst I was at Cambridge and subsequently afterwards.

The origins of my delusion (which still occupies my time occasionally today) derives from my natural mathematical bent, a youthful interest in Tao and a disturbing belief that " space, energy and matter are simply different interpretations of the same thing and time is merely linked to the variations in that interpretation" - don't ask.

I came up with a number of different conclusions from my "model" for example "empty space is teaming with activity", "Everything is nothing" and forget about finding any absolute truths unless you want everything to be imaginary.

Anyway it's a silly hobby but I enjoy it.

The thing about ideas, even silly ones, is that if you have enough then eventually some of then turn out "right" by pure chance. So I was amazed when I read the articles by Lawrence Kraus recently that the "dominant energy-stuff in our universe ... is associated with empty space!"

Who'd have believed it? Well I would for starters.