Paying tribute to his departing CEO last week, BHP Billiton chairman Jac Nasser highlighted the “exceptionally difficult economic environment” in which they have worked since Marius Kloppers took the job in 2006. Well, up to a point. It can be difficult running a mining business when the price of almost everything you dig out goes roaring away, but it’s nothing like as hard as trying to keep the show going when demand is falling.

In the last decade, the mining industry has enjoyed a once-in-a-lifetime boom, as costs have been outrun by rising prices. It’s the division of the spoil which makes less happy reading. Those at the top of the companies have learned to pay themselves like bankers, with the same delusions about how their brilliance was creating value for shareholders.

Worse still, rather than waste the money on the shareholders, the big boys decided to get bigger, culminating in BHP’s own crack at Rio Tinto, a merger which would have created a behemoth capable of dictating iron ore prices to the world. In their attempts to win bragging rights in the Melbourne Mining Club, all the major mining groups made mistakes with their chequebooks.

Now, all have new CEOs, albeit for different reasons. They promise to concentrate on shareholder value, cutting costs and raising dividends. If this sounds like some sort of supra-corporate groupthink, it probably is. The mining industry is quite introverted and (at the top) not that big. Besides, they may not have much choice. The supercycle for commodities is looking more like an standard cycle by the day, while compliance and political costs go only one way. Andrew Mackenzie, Mr Kloppers’ successor, is likely to find the environment different, and a good deal more difficult.

Catalogue of errors

It’s almost 150 years since Pope Pius XI published his Syllabus of Errors, which listed and condemned them. Following the latest pope’s retirement, Andrew Smithers – who may be almost as old as Pope Benedict but is definitely not retiring – has produced his own version. Rather than the 80 in the 1864 original, Mr Smithers’ syllabus highlights just three fundemental errors: “that the current recession reflects weak cyclical demand rather than a structural problem, that the prolonged nature of the recession is due to deleveraging, and that deflation is undesirable.”

He adds: “current economic policies consist of trying to do the wrong thing and fortunately failing.” Errors? We got ’em. The structural problems in the west are almost embarrassingly obvious, where the greatest-ever fiscal and monetary stimulus has produced the weakest-ever recovery. There has been almost no net repayment of debt, and so no significant deleveraging – and if we think deflation is bad, the stagflation we have now is worse. A sliding pound will keep inflation rising, but it may do nothing for growth.

We have come to believe that economic growth comes up automatically with the rations, and that normal service will resume shortly, almost regardless of the circumstances. But when the energy regulator warns of big price rises, Scottish trawlermen have to take account of 1,000 pieces of legislation and Tim Morgan of Tullett Brebon demonstrates that the cost of essentials is consistently outpacing the rise in wages, any growth at all would be a pleasant surprise. Growth is all about making two blades grow where one grew before, but to produce it requires effort, an avoidance of egregious errors, and an understanding that we take it for granted at our peril.

There’s a War on

Just the other day, you would have had to pay £100 for War Loan, to return £3.50 a year in interest. Today, you’ll be glad you didn’t. The price of the old war horse has plunged by nearly 20 per cent since last August, a capital loss equivalent to five years’ (gross) interest. It’s a timely reminder of the real risk in what actuaries persist in calling “risk-free” assets as they force pension funds to buy them. All gilts are sharply down from those balmy, barmy, days when British government securities were viewed as “safe havens”. Foreign holders have lost even more, since sterling has also plunged. They are unlikely to come rushing back to lend to the UK in a hurry.

This is an updated version of my column in last Satruday’s FT. Apologies for the delay. I’m publishing it now for completeness, and in case anyone wants the links.

http://www.ft.com/cms/s/0/a4296656-7cd8-11e2-adb6-00144feabdc0.html#axzz2MBtuHalp

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