Monday, 30 September 2013

UKUSA Appendix K

The UKUSA treaty (pronounced You-koo-sa in intelligence circles) is the treaty set up after WWII to control the sharing of signals intelligence (SIGINT) between the USA and UK governments. Back then SIGINT was all about listening in on other governments' radio broadcasts, generally in the VHF (Very High Frequency) and UHF (Ultra High Frequency) wave bands, and using giant electromechanical "computers" to decrypt them.

The USA and the UK set up various listening stations around the world and put in place an infrastructure governed by a treaty, originally called BRUSA and then later UKUSA on how to share the effort of listening and decryption, and how to share the results.

There were in fact two versions of the treaty, a 1945 version and a major revision in 1948. Although they were very secret for many decades, the text of these agreements have now largely been made public and are available on both UK and US government websites, with a few bits still secret and blanked out.

The documents have a quaint old fashioned feel to them. In the 1945 version the UK is still referred to as the "British Empire". By 1948 this has been changed to a more politically correct "British Commonwealth". The minutes of meetings discuss such things as whether Washington is allowed to talk to the Canadians without checking with the British first. The position of the "London SIGINT board" is firm: all communication with the Canadians must come through London first - Canada belongs to us, don'tyaknow?

In fact Canada, Australia and New Zealand subsequently joined the treaty in their own right a few years later.

Although the text of these treaties are mainly public domain now, there are just a few bits which are blanked out. Some of these are obviously names, probably names of people who are still alive. Other parts are bit more mysterious. For example take Appendix K. It is completely new in the 1948 version and has no 1945 progenitor (unlike the other appendixes, and it must be said that most of the treaty is actually in its appendixes.) And every single word of the 30 pages of appendix K including its title is blanked out!

Which raises the question: what can have happened between 1945 and 1948 which necessitated a big new appendix, and is so sensitive that now 65 years later not a single word can be made public?

Help-to-buy 2

HTB2 is the bastard son of Help-To-Buy 1 and has just been brought forward by three months so that the Tories can get some cheap cheers at their party conference in Manchester.

HTB 1 and 2 were announced by Chancellor George Osborne in his budget back in March this year. HTB1 started immediately and was fairly uncontroversial. It provided a partial mortgage guarantee for buyers of newly built houses. It is economically neutral because the houses are built to satisfy the demand. Demand increases but so does supply - the net effect is no price inflation. HTB2 was announced at the same time but deferred until 2014. It provides the same mortgage guarantees, but to buyers of existing houses and thus is highly inflationary and likely to cause a house price bubble, followed by a bust.

So the timing of the introduction of HTB2 was always going to be tricky.

HTB is scheduled to last 3 years, ie, until 2016. The next general election, you will recall, is locked in for May 2015. This means we are on the second last Tory conference before the election. Clearly they have made the fine judgment call that if they start HTB2 now that will give it long enough to bring the market to a boil in time for the election but not so long that it has boiled over.

House prices are STILL not counted in the measure of inflation that the government targets (CPI) so HTB2 won't be hitting economic indicators in a bad way. And a simmering housing market generates a lot of positives - home owners feel richer; recent home buyers feel good about themselves and go out and spend on kitchens and carpets and the like; and "property professions" make fat fees.

Of course it is a short-term policy with a high price tag. What home buyers actually need is cheaper houses, not a helping hand to load up with even more debt. HTB will provide 15% equity in a house purchase. How much better would it be if the government just engineered a 15% reduction in house prices? This they could do by simply raising interest rates back to something approaching normal and removing the thumbscrews which are preventing the banks from taking action on delinquent home loans.

But if they took the non-debt route to recovery there would be a period of dismay in the housing market and all the businesses that piggyback onto it. It wouldn't last very long and the lower general level of housing costs would be beneficial forever more: people paying less for accommodation could work for less money and would spend more on other things. Business with cheaper labour would compete more effectively in the world and a bigger market share would come to the UK. The benefits of going down the non-debt route are permanent. Ever more borrowing is a temporary high.

Tuesday, 10 September 2013

The Wonga recovery

Yesterday Chancellor George Osborne went to a building site and delivered his recovery speech. He has probably been working on it for months now and could contain himself no-longer. "Crisis over! I've fixed the economy!" he didn't quite crow yesterday.

By George, he's done it!

Two thoughts immediately occur. First, is it true? And second, if it is true isn't 20 months before the next general election too soon to start blowing your own trumpet. Surely the good news needs to be hoarded until closer to the time. Let's face it, if we're on the way up then the news will only get better for the waiting. At the very least he could have waited a couple of months and done it during the Autumn Statement to a packed House of Commons.

And is it true? Well, GDP has gone up by £9 billion in the last quarter, and they only sprayed £35 billion of borrowed money into the economy over the same time period. And employment is up, if you count the five and a half million people on zero-hour contracts as "employed". And house prices are rising - in London at any rate.

Of course, if we really are in recovery then it's time to unwind the £350bn of quantitative easing and raise the base rate from its lowest ever value of 0.5% - isn't it George?

But, no, I don't think he's going to be doing that anytime soon.

Knight to C4

Don't play chess with the Kremlin - they'll sucker punch you every time.

Yesterday John Kerry, US Secretary of State, answered a journalist's question along the lines of what would it take for America not to attack Syria with an offhand remark that Syria would have to hand over all its chemical weapons within a week, and then added, of course Syria won't be doing that.

Bad move!

Russia jumped on the opening and said they would be happy to broker that deal. The Syrian foreign minister piped up that Syria liked the deal as well and before the White House even heard the toilet flushing, their plans to bomb the Syrians back to the Stone Age were being washed down the tubes - well, were somewhat postponed anyway.

Nice move by the Russians. Tactically superior to the previous, "you attack Syria and we'll attack Saudi," which the Americans were not believing.

So now everyone can take a breather while some sort of handover plan is worked out: who will take custody of the weapons; who will inspect to ensure all the weapons are handed over; where will the weapons be taken, or can they be destroyed in-situ; who will inspect the destruction? There is a lot of detail to be worked out - and war machines are notoriously expensive to keep cocked at def con zero. Before long the boss has to say, "stand down guys, it's not going to be any day soon."

And it has to be said that the Syrian rebels are conspicuously failing to play the Great Game competently.  First it was a rebel leader eating a fallen regime soldier's heart in a YouTube video, and now they have gone and attacked a Christian village, killed a bunch of people and told the rest to convert to Islam or get beheaded. Way to go guys - that's really not going to sway the Yanks to your side!

Most Americans are already pretty unconcerned about who runs Syria. Getting them riled enough to want to intervene is a challenge. It's really only the Israeli and Saudi lobbies that are making the running here. They want the regime gone. Israel because the regime is pro-Iran and Hezbollah, and Saudi because the regime is Shia-aligned and they are Sunni (you will recall that Al Quaeda is Sunni - Bin Liner was a Saudi born and bred.)

The Russians support the regime because it gives them a navy port in the Mediterranean (they also  have Sevastopol but the Ukrainians are getting antsy about them using that) and if the regime fell and was replaced with a bunch of Sunnis it would swing yet another Gulf country into the American camp.

So, American military action has been stalled for now, a few days have been bought, but the game goes on - it's not mate yet.