Tuesday, December 13, 2011

More of the Same?

I’ve been trying to get my head round this economic crisis we have.


If I go to the New Fairlop Oak and find myself financially embarrassed I might borrow £10 from my mate John to buy a round of drinks. This would leave me with a liability which I would have to meet from somewhere else, like the grand children’s pocket money. It would leave John with a verbal credit note from me. He could, of course, pass that credit onto someone else in exchange for cash or goods. This might involve a discount depending upon the risk of default. Meanwhile the £10 is in the till behind the bar. It hasn’t disappeared into thin air. It will be used to pay the staff and overheads and replenish the stock.

So, if all the rich countries on this lonely lump of rock we call home, 600 light years from anything remotely similar, are up to their necks in debt, to whom are those debts owed and where is the cash they have spent? It must be in a till behind a bar somewhere waiting to be used in the global economy? Right?

Answers in the comments please.

Now, has anything changed as a result of Mr Cameron’s handbag moment? Er, No! Did Mr Brown end Boom and Bust? Er, No! Are we putting the very people who caused the problem in charge of fixing it? Er, Yes! Would Mr Brown, Mr Miliband or Mr Clegg have done any different? Er. No! Is there a Rizla between the ConTories, the LabTories or the LibDemTories? Er, No!

Here’s a selection of commentary to confuse you even more:

Britain is ruled by the banks, for the banks – The Guardian

“Cameron is merely expressing more openly something Labour frontbenchers also believe: that the City is pretty much the last engine functioning in Britain's misfiring economy. Indeed, one of the Labour lines of attack against Cameron this weekend has been that he has left the City more open to regulation.”
Hmmm, But:

Bankers cost each one of us £8.40 for every £1 they produce, study shows – The Mirror

“A study by think-tank the New Economics Foundation found the average banker destroys £42million a year in value while creating just £5million.
Meanwhile hospital cleaners on £6.26 an hour are worth £10 for every £1 they cost because they prevent superbugs, saving the economy a fortune”
Austerity it is then, let’s sack the cleaners. This is what happened in Latvia:

Germany believes the only solution to the euro crisis is painful austerity measures – but if everyone's slashing and burning, who is buying? – The Guardian
“Despite the bailout, Latvia suffered the largest decline in economic output of anywhere in the world between 2007 and 2009 – a 24% drop in GDP. Unemployment quadrupled; and that doesn't include the estimated one in 10 of the workforce who left the country to look for a better life somewhere else.”
But then Terry Smith argues that “All Britain is isolated from is a looming eurozone disaster”.

Meanwhile Gary Monro points out that the “UK buys £66bn more in goods and services from the EU than it sells.” Maybe that’s why we are broke?

And so it came to pass as explained by Adam Ramsay:

“And so, having promised that they would deliver rapid economic success, they didn’t. Growth rates stalled. They did however, concentrate more and more wealth into their own hands. And with wages failing to rise with workers’ output they realised they had a problem: if people didn’t have enough money, how would they buy stuff from their companies? And so they needed to lend. We were all encouraged to believe that the houses owned by banks were really ours, and to borrow against this asset as its price rapidly grew as more and more sought to get in on the spiralling act.
Then, the bubble burst. We realised that the surplus that we could now afford was paid for with money lent to us by the very people who had in the first place taken it from us on the promise of making us rich.”
What now? Do we keep calm and carry on as if nothing has happened?

“With leaders providing no guide to the future, the public has decided to keep their heads down and plough their own furrows. The suffering of others, the hundreds of thousands whose hopes are falling faster than Icarus from the heavens, no longer concern them. Support for tax increases to improve public services is diving, according to the British Social Attitudes Survey. Half the public thinks that unemployment benefits are too high – presumably the half that has never been forced to live on them. Many more say that if children are poor that is because their parents do not want to work, not because they cannot find work.”
It was Mrs T who coined the phrase TINA – There Is No Alternative. And it seems the ConLabLib cartel wish to keep their closed shop closed. The Labour party in Brighton and Hove are joining forces with the Conservatives to stop a Green budget with a council tax increase of 3.5%. While their comrades up north are…. Increasing council tax by 3.5%.

But like the little boy who suggested deflating the tyres to extract the stuck lorry from the tunnel, the Green Party are lurking on the sidelines with an alternative. Will anybody notice?

Here is Molly Scott-Cato explaining that she agrees with Mr Cameron’s decision just like she lined up with the Conservatives 10 years ago to oppose joining the Euro, but for very different reasons:

"This morning I believe we have seen these predictions come to pass. This is why I believe that David Cameron was right not to join the treaty although, just like the Tories on the anti-Euro committee a decade ago, we could not be further apart in terms of the economic route Britain should follow. Cameron's interest is almost entirely to protect the City and to avoid its spivs and speculators from being forced to consider the social consequences of their actions. However, some in his party are articulating concerns about democracy that I still believe have merit."
And here’s the Green Plan:

"The alternative is twofold. First, banks must pay for themselves. The level of capital reserve must be raised and new ratios of fractional reserve banking need to introduced and enshrined in legislation. In this way, unsustainable sovereign debt will be paid for by the banking creditors who decided to make a profit by taking the risk; not the societies who stand to suffer.
This will mean that the financial sector will need to reduce its asset base which will hit lending to the real economy. To offset this, a massive Green Investment Bank (GIB) must be created to lend to sustainable businesses and industries, where the financial sector fails to do so.
Such a GIB could be funded by the same capital that is being discussed for the €2trillion bailout fund and the recapitalisation of European banks. In addition, the GIB could be funded by a higher banking levy and a financial transaction tax. The difference would be that tax payer's money would not be going into the financial black hole of hedge fund balance sheets. Instead, the money will be used to create real - tax payer owned - assets, in affordable homes, renewable energy and sustainable industry.
The Green Party calls on European governments to dismiss the needs of private financial institutions, provide millions of jobs and give tax payers control over their own economy. You might call it a democratic solution to the Euro-zone crisis."
If you want a vibrant economy you have to have a framework that keeps everybody in the game!

7 comments:

  1. If only it were that simple. The truth is a vibrant economy works on the never-never. That's why businesses are currently moaning that banks aren't lending them any money to buy stock or plant or to expand. It's why we're stagnating and workers are being laid off.

    A shop orders goods, but won't have enough to pay for them until it sells them. The manufacturer who made the goods took out a loan to buy the raw materials. And so on on and so forth. It goes swimmingly until the debts in the chain get too large and somebody wants their money back. Then crash! The chain of debt breaks. And we're all surprised.

    That's business.

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  2. Precisely. The Banks are not lending because it is more profitable to gamble in the global Casino..

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  3. Having always argued that economic growth is the problem rather than the solution, now that growth has stopped - essentially because we spent ten years mortgaging the future aided by lots of financial jiggery-pokery - the Green Party has switched horses and puts forward a plan for borrowing-funded growth. Err, right.

    Isn't the current bout of austerity, with people cutting back on foreign travel, using their cars less, and avoiding unnecessary consumerism, essentially the type of world the Greens have always argued for? I bet a spin off from austerity world will be a drop in CO2 emissions.

    Ian

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  4. You really should read Niall Ferguson's 'The Ascent of Money'. Financial greed and incompetence is as old as mankind, sadly.

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  5. Wrong, Ian.
    The Greens have always argued against unsustainable economic growth fuelled by limited resources and at the expense of the environment.
    There is also the problem of the way "growth" is measured. GDP includes BOTH productive activity which increases a Nation's wealth AND unproductive activity [costs of failure] which merely create liabilities and debt.
    Would you care to estimate how much of our GDP falls into each category and how much of the latter is down to Government projects like the NHS super computer?
    The ConLabLib Tories seem to think that ANY financial transaction is good for the economy whereas Greens are a litlle more discerning ...

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  6. Judith,
    Isn't it amazing how a book can be summarised into one sentence!?!

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  7. I'm very interested in the unfolding story of the civil servant who has been head of HMRC (you remember, Dave Hartnett, who didn't feel it necessary to apologise to all the taxpayers who were wrongly rated by HMRC the other year).

    This sturdy servant of the people (or should that be 'spiv') was, by all accounts, being royally entertained by the likes of Vodaphone and Goldman Sachs, and then doing them helpful deals so that they paid £millions less in business taxes. He is now going to retire, at the age of 61, to only slightly raised eyebrows by Those In Power, and will still of course be enjoying his £70k pa pension.

    Oddly, Mark Serwotka has remained utterly silent on the subject of civil servants swindling the public purse - and getting away with it.

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