I have been sitting here listening and thinking, feeling vaguely guilty that I haven’t written anything. I have been watching what seemed a perplexingly contradictory series of events and facts. And it has led me to consider this – too often, when we think and even more so when we speak, we do so in familiar phrases. Phrases, which if we aren’t careful, can shape what we think without us being aware it is happening. If we don’t think about the phrases we use, they can limit how we understand and explain to ourselves what is going on.
In our present economic situation much of our thinking is framed and constrained by the interlocking concepts of recession and recovery. Like a swing or a spring they are inverses of each other. The spring pulled down by a weight of debt and bad news, is recession. As things ‘spring back’ we leave recession behind and feel the upward acceleration of recovery.
But in a non linear world, just as with a real spring, you can pull a system too far and it doesn’t simply spring back. It has a new shape, a new configuration. Things don’t have to go back to how they were. Things don’t have to ‘recover’ their former state. Things in a non-linear world, when pulled too far from their former equilibrium, don’t come back. They run away. To another, often very different equilibrium. The finger of fate simply moves on. And nothing, but nothing, can bring it back to erase what has been written.
This is the thought that took shape these last days as I sat and watched and listened…..
Earlier this week the financial press was all of a twitter about earnings and the rally in stocks. Would the US earnings’ reports keep the rally going? And the answer was ‘yes’ – at first. Alcoa reported a slim earnings report but the market loved it and the rally went on. Then Intel reported a big surge in sales of its chips and therefore in its profits, and the market lunged higher.
What I wanted to know, however, was who are they going to sell the end products to? Who is going to buy all the aluminium and all the electronic devices with chips in them? But the rally seemed unconcerned. Why weren’t they bothered by my question?
Then came news about UK unemployment. Now it was only the UK, but the picture the data paints is very similar to the situation in the US. Unemployment in the UK stands at 7.9%. This is the more inclusive, less politically fiddled number published by the ILO (International Labour Organization). But what caught my eye was not the unemployment but the part time work. Of those in work 27%, about 7.82 million, have only part time work. Of those, about 1.07 million (based on extrapolating from significant samples) would rather have full time work. A different survey out this week seems to tell us a bit more about these people. It found that 1 in 5 people now say they are having to use debt to make ends meet. What do you bet many of these people are the part time workers?
Put these together and it means that on top of the unemployed there are another million people who need and want a full time job to pay their bills but the job market doesn’t have such a job for them.
Can the stock market really think these people are going to be buying all Alcoa’s aluminium or all Intel’s chips?
In the US the picture is similar. Household income has been declining slowly but steadily. And so has the average number of hours worked. This week the US reported that 367 948 people stopped claiming unemployment benefits. This third of a million people didn’t get jobs. Their number doesn’t appear in the jobs added column. These are almost all people who have fallen off the end of extended benefits and are now not eligible for ANY benefits. They have simply stopped being – officially at least. How many of them will now become the residents of the many tent towns cropping up across the states?
I kept asking myself why the markets seemed not to care about this? Not why they weren’t ‘caring people’, but in strictly market terms of worrying who was going to buy the products of the companies whose stocks they were eagerly buying. Someone has to buy. Its no good Alcoa mining aluminium or Intel making chips, if at the other end of the chain of commerce, there are not enough consumers.
So I watched and listened some more. A report from the UK’s ONS (Office of National Statistics) said rather baldly that they calculated the UK public debt was 4.84 Trillion pounds rather than the government’s official figure of a mere 903 billion. 4 trillion more in debt than we thought. Of this, the largest single debt was 1 to 1.5 Trillion pounds gone to bail out RBS and Lloyd’s Group. The same report said that Public Service and State Pensions were both more than a trillion in debt. But with the money gone to bail out the banks there was now no more money available to mend the pensions.
Again, apart from a few slightly stunned reports there was no reaction. The pound didn’t slip. Gilts didn’t fall over. Not much happened. And yet those figures tell us quite clearly, that the amount of our future labour and tax which will have to go to pay these debts, is quite impossible to reconcile with a picture of the UK ‘recovering’ to anything like the days when everyone felt things could only get better. The figures are much more in line with the report which said UK house prices would not recover for a decade.
But there is something about these vast but abstract debt numbers and long time frames which makes the whole picture hard to fix in the mind. As if they are huge but insubstantial, made of smoke that dissipates before you can really grasp them.
In Spain 5% of councils (400 of the 8000) have already just STOPPED paying their electricity, water and telephone bills. A full third of them think they will stop payments by the end of the year. The reason is simple. 20% unemployment means the councils have lost up to 30% of their tax revenue. Are these people going to be the essential consumer driving the recovery? Or should we rather expect, as in the UK and US, that there are going to be many, many more unemployed as councils can’t pay their people?
In every country, the US included, local governments and States are broke and going to lay off teachers and bin men and anyone else they possibly can.
This is what I have had in mind, – and then I watched the stock market rally and I asked myself, is this rally really ‘our’ recovery’? In the framework of ‘recession/recovery’ does the market rise mean the ‘recovery’ of OUR economy from its recession? Does it mean WE are going to be pulled to the surface from the depths? Or did they only talk of ‘a’ recovery, and it was just our habit to assume it would be ours?
Does the evidence really point to the recovery including you? It seems to me it doesn’t. It seems to me that if there are any signs of recovery it is not in YOUR wages, or YOUR job prospects. The Bankers got bonuses while you will get the sack. Is there not a hint in there?
And then ask yourself this, if YOUR job prospects and YOUR wages don’t ‘recover’, then what exactly is your role, in this ‘recovery’? What importance or place will you have in the plan?
Everyone must have a part to play. Ours used to be clear. We were the consumers. The market had found people to make the stuff cheaper than we were willing to. But that was OK. Because we had a different job. We consumed. The miners dug stuff up. The poor Chinese and Indians worked long hours for a quarter of a minimum US wage to turn the raw stuff into all the things it was our ‘job’ to consume.
The illness in the arrangement however, was that we weren’t earning what we were spending. In fact we couldn’t, because for a decade, our wages, real wages, didn’t actually grow. Our consumption did though. And so long as it did all seemed to be fine. The miners mined, the makers made, the workers worked and we, the consumers, did our part and gorged ourselves as fast as we could to use it all up, throw it away and reach for more. We thought we were still workers. But we had subtly changed job, from Maker to Consumer without realising.
And the magic, working all the time unseen, making this all possible, was debt. We spent debt. Our banks conjured it out of property price inflation, and leveraged every dollar and pound into 40 or 50 or 80 more pounds. Which they lent to us, so we could do our job – to consume – without question or care or thought. For a decade we spent and consumed and threw away, doing our bit for the system of debt and defecation. Turning our values and our selves to waste.
And then it stopped, didn’t it.
The spring was stretched out of shape. And for two years we have tried to push it back to the way to was. But it won’t go.
Oh I’m not saying a system of debts can’t be brought to life again. But not our system. Not our debts.
I think the bail outs are not about ‘recovery’. They are about quarantine. They are about dumping that debt in a pit, in some place the wealthy won’t live in, or even visit. ‘Our’ governments are buying debts like any ignorant and corrupt banana republic buys up drums of toxic waste. We are going to be the debt dumping ground. The toxic debt wasteland. where the debts of the rich are left behind, to blight the lives of people the rich will never care to acknowledge. And once this is done, the Recovery will lift the ‘Golden’ up to the sunlight, but not us.
The recovery will be an airlift from a guarded airstrip where we will not be allowed. They will fly away. and we will watch them go.
How could this happen we might cry out? Surely we are still needed?
I wonder if we are any more?
There are only 70 million people in the UK. 250 million in the US. 330 million in Europe. But there are 1.3 billion in China. Another billion in India. What the market wants, the ONLY thing the market wants, is a place to get a return on their investment. Why invest in places saddled with huge debts, where a decade of toil is going to do nothing more than pay off debts and leave very little to spare for consuming? Is that a place to build a recovery?
Or would it be far better to put the money to work in a place where growth is going to be ‘healthy’ – A place not poisoned with debts? A place where wages are low but increasing, rather than in our countries, where wages are high and going to decrease?
If I were a financial princeling I would want a place to dump my toxic waste. A place where, somehow, others could be forced to clean it up for me. If I could dump my debt there, not have to deal with it, or pay for it, or worry about it, just bury it in unmarked pits and get my lawyers to claim it was never mine in the first place, then I would be free to move on.
Then, what I would want is a new place to do my business. A new place to live, with people who thought I was their new friend. Once my debts were dumped and buried all I would need to re-create my old system, would be new consumers. New people to sell to. A new place without debts.
That’s what I might do if I were such a princeling of the golden class.
We are fooling ourselves. We think because we live in a democracy that this means everything must be done with us in mind. We overlook the fact that we also live in an economy , a ‘free-market’. That market is not democratic. It has no allegiance to democracy or to us. In the market, nothing has to be with us in mind. Nothing at all.
We are out of work. Out of a job. Perhaps for good. Perhaps the system has found or is finding, people who can do it better and for less. Those people are going to do the job of consuming. Not us. We don’t have the income any more.
Our new role, is to be the people who pay off, and clean up the toxic waste the old factory left behind when it went bust.