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Toxic debt wasteland

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.

22 Responses to Toxic debt wasteland

  1. RichGB July 16, 2010 at 7:33 am #

    A very profound analysis Golem, worthy of inclusion in any quality newspaper.

    With so many part-time workers I suspect that cottage industries will make a comeback; perhaps emulating Iceland, where knitting jumpers has become popular once more; though, I realise this may be insulting for part-timer workers needing to support their families.
    What would be the cottage industries of the future? Data mining? Photography? Computer upgrading?

    Part time workers' cost of living must be reduced if we are to avoid tent towns in this country. Unfortunately, we are all stuck in the toxic debt wasteland and only the bankers have the Hazmat suits. How does one pilot a path out of the wasteland before succumbing to acrid fumes of toxic debt?

  2. oldgustaf July 16, 2010 at 11:18 am #

    Reading that has made me fell much better…

  3. jonathan July 16, 2010 at 11:31 am #

    Blimey, Golem! That's a very compelling read. As Rich (above) points out.

    You paint a dystopian future, but a tiny part of me thrills to the possibility of a real paradigm shift once this starts to become real for more and more of us. At worst it could herald some new Mad Max style anarchy, but at best couldn't there be a new beginning – a different politics, media, social cohesiveness? A rejection of consumerism. Out of the ashes and all that.

    And could this new society take the radical decision to declare ourselves bankrupt – wipe the debts and start again?

  4. JamieGriffiths July 16, 2010 at 12:09 pm #

    Well done Golem – some of your best work, I think (much prefer the new layout too, it's a lot easier on the eye).

    I find myself constantly drawing on your analogies when I argue these points to friends as I'm sure many of your other readers do and as such your writings are an invaluable resource.

    I find that most of my friends can't see beyond the current orthodoxies and the financial system that's got us where we are today. Where are you getting all this from?, they say; Who are you think you know better than the people who are in charge? Why is nobody saying this in the paper?

    I try pointing them in the direction of my sources but they shrug and go back to reading the Guardian and the Indy. These are switched on, knowledgeable people. They just can't see what's going on behind the scenes. Or rather, they don't want to see.

    Is this just a natural consequence of so many years of playing the role of consumer? Are we now so comfortable in this position, so complacent, so drugged by our former spending power that we won't even notice when the rug is pulled out from under us? When the spending cuts bite and the unemployment rate starts to soar will we get angry or (and I think you made a similar allusion recently re: the American psyche) will we feel that we've failed as a nation? Will we hang our heads in shame and take the lashings that the 'Golden' hand out as punishment for our inability to eek out that debt bubble just a little longer?

    I sincerely hope we still have the wherewithal to get angry.

    Work like yours shows that the light must be flickering somewhere, however dimly.

  5. Golem XIV - Thoughts July 16, 2010 at 4:13 pm #

    Thank you for your kind comments.

    The questions you ask and teh comment syou make are too big to dash off a glib answer. I think you know that. They are what we need to discuss, between us.

    What I do want to say is that I do feel we are standing on the cusp of a profound cultural alteration. A moment of decision and testing. Most people around us either don't konw, or sense it but don't want to admit it, even to themselves. But when they do and it is no longer deniable, they will turn to you. They will turn to those who have something new to say, who are not panicked.

    People are beginning to look for leadership. This will increase. It may fall to you to provide that leadership. You may not want to. You may not believe you can. But I think you have already marked yourselves out whether you intended to or not. Simply by opening your eyes.

    There are million around us who are sightless. A vast milling army of them. Frightened and truculent. You, at least, are looking ahead.

    There is no special place where leaders are born and bred. There is no group of heros going to come and save us. We must save ourselves. We must be those leaders.

    To those who ask, "Who do you think you are?" My answer is, "Who do you think I need to be?"

  6. IanG July 16, 2010 at 7:56 pm #

    Good commentary piece.

    Here are a few thoughts jotted as I read your piece.

    Report on top 1% of households having 58% of income I found in Martin Wolf's column in the FT.

    'Prof Rajan notes that “of every dollar of real income growth that was generated between 1976 and 2007, 58 cents went to the top 1 per cent of households”. This is surely stunning' This is about inequality in the US but we in the UK are not much different and embraced neoliberal economics with gusto.

    Concerning the stock market another quote from I forget where said this' What we learn from history is that people don't learn anything from history'. So this seems to say they really are stupid and cannot see what is coming. But maybe they are only interested in short term gains.

    Rich are fortifying themselves in gated communities ready for the riots. They may not be that stupid.

    Interesting about Spain, where will it all end when the councils default?

    Already in California they are technically broke, and are issuing promissory notes that some wag dubbed Arnies'.

    I asked this question about who will buy the goods and services a while back when jobs were being offshored and the redundant workers could not buy the products. The answer was that they invented cheap credit – low interest rates to compensate for the lack of a real rise in workers income.

    On another topic, just to add to the general foreboding, I read that in bejing there are over 1200 cars coming onto the roads each and every day! Another stream of concerning news was the CO2 output of the world and how the vast majority comes from China and India – and these countries are growing at the phenomenal rate. The US figures at around 30% on these charts and the UK did not register. Germany was at 3% so anything we do to reduce carbon emission is pretty pointless in the wider scheme of things.

    Thank heavens for the web folks. Without this we would be blind.

    So, what happens next I wonder and can we do anything to prevent this?

  7. Lars Eirik July 16, 2010 at 8:12 pm #

    Just to let you know, I consider your work 2008-2010 to be the intellectual effort of our millennium. Can you go on at this pace? I especially appreciate how lately you have pointed fingers at members of the congregation and told them to take responsibility and have a message to those who will seek leaders in a situation where it will be evident that those in whom they trusted before has failed spectacularly

  8. Bravebart July 18, 2010 at 7:41 am #

    Golem,

    I've read most of your blogs and comments on the Guardian and the question I usually have at the end is "When will we see changes?".

    I know there have been the Lehman type moments but most other events seem minor or on the horizon. Since Lehman etc, I've been waiting for something else of similar scale or am I expecting too much as these events are almost limited to decade or longer frequency? I don't wish missery on people but I completely agree that life in this country will change significantly but I don't know when. Do you have any thoughts on timescales?

    I used to work will someone that was convinced that the UK would return to a 1930's type economy where we apparently used to spend over 20% of our salary on food alone. True or not, I just can't see how we can get back to a position of larger scale manufacturing the things that most of us use on a daily basis, the things we fill our homes with. Cameron said in a tv debate before the election that he intended to start getting 'things' made here again and not in China. You said 'From maker to consumer without realising', I completely agree and hadn't thought too much about how insignificant we could become on a global scale.

  9. frog2 July 19, 2010 at 8:38 am #

    Bonjour Golem !

    If you had to write a "tract" for distribution on market day,or to be left in the local public library, how would you translate the £Trillion ( actually made or potentially to be made ..)to the Banks into everyday language ? Obviously no cheques were written for such amounts (!), so what are you and the ONS ( and we ) getting at ?

    You yourself and we who read you here know what you mean, it means, but the essentials need to be reduced to, say, a side of A5 of inescapable simplicity ?

    ————————————-
    I'm refering to this para —

    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 govenment'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 Lloyds Group. While Public Service and State Pensions were both more than a trillion in debt. Money gone to bail out the banks now not available to mend the pensions.

    —————————-
    It's an exercise we can all do …

  10. frog2 July 19, 2010 at 8:41 am #

    We are still seeing comments around at CiF, and by politicians and others, that the government will make a 'profit' when eventually selling its bank shares !

  11. frog2 July 19, 2010 at 9:11 am #

    Save the banks, and the rich, OR save "society" , in french . youtube 18'.

  12. Rob July 19, 2010 at 9:51 am #

    Hi Golem,

    This is a great article and summarizes nicely what you have been saying now for more than two years.

    Cheers!

    Rob

  13. Golem XIV - Thoughts July 19, 2010 at 10:43 am #

    Frog2,

    A great discussion. Le Monde Diplomatique is a wonderful paper. For many years it was all I read.

    I agree with M. Lordon. Simply seizing the banks and making the bond holders take all the loss is both the opnly viable, legal, ethical and socially just way to exit this crisis.

    Lordon argues we can wait until we get the next systemic crisis and then simply take the banks ovefr on teh grounds that they are non-functioning and therefore worthless. I would argue that all we need to do is re-insitute mark to market on a Friday morning. ANd by Friday mid-morning we seize every bank at THAT valuation. Which by that time would be systemically zero. We can force the crisis and re-open on Monday with clean capital, new owners of the ATM – Visa would play ball or die before Monday rolled around – and the Bond holders would all be bankrupt by the end of teh following week.

    Obvioulsy I simplify. But I don't see any other solution that has any justice to it. All other solutions rob the poor for a generation or more for the sole and only benefit of the rich.

    Where some of the bonds are owned by sovereigns we can re-structure those debts. But with a large haircut and a generous time scale.

    Perhaps I should wrtite more about this? What do you think? I have hesitiated simply because none of us are in a position to do it and so it risks becoming a bit pie in the sky..

  14. frog2 July 19, 2010 at 11:51 am #

    Well, the detail needs more thinking through, but that appears to me to be the eventual alternative to a dystopia of razor wire and armed guards around gated communities.

    Of course the System may teeter on for some time( and it has been surprising us here for ages now ), but the continuing suspension of disbelief is taking more and more energy to maintain …

    I definitely wouldn't worry too much about producing a detailed 'plan'. The vast majority of the people know there is something wrong, somewhere, but this knowledge is on the rather superficial level of bankers' bonuses and spending cuts, and understanding goes no further than that.

    Going back to 1931 ,the collapse of Credit-Anstalt Vienna started off the Great Depression. Those in 'position'(not 'power') hope that they can get away with the actually insolvent banks intact and some Recession — hitting the poorest mostly — and that the situation will return to 'normal'.

    On France Inter this morning Frederic Lordon was explaining how the Stock Exchange had become more important than the Real Economy and real jobs for real people, with some ideas for rebalancing. At the moment Capital has instant liquidity but real business needs a vastly greater time-scale obviously. etc.

    Now I really must go and do a little paid work !

    PS Explanation on cost of bank bail-outs on half a side of A4 please 🙂

  15. Cygnus December 16, 2011 at 6:32 am #

    If you are right, and I think you are, then the movers and shakers amongst the financial elite are just behaving as all uncontrolled organisms do – they are moving to new financial ecosystems and abandoning the ones they have depleted and fouled. I suspect that these financial elites are also going to drain dry and abandon a lot of large corporations, including banks, as they go along. After all, what is to stop them from starting new ones later? In the meantime, countries like the UK and the US and Ireland, and all of Europe will be fallowed. It’s hard to live in a burnt-out shell of an economy, but that’s not their problem anymore, is it? And after they’ve burnt out India and China and all the new economies they’ve moved on to after, in a few decades they will come back to us, ready to start the cycle all over again. And the hellish thing is, we will let them.

    • Golem XIV December 16, 2011 at 6:55 pm #

      Hello Cygnus,

      We can stop them and a growing number of people are willing to try.

      People always say it can never happen because people are too apathetic. And many are. But landslides aren’t caused by titanic forces pushing or by a majority vote by every clod involved.

      Once a the hill side has become unstable (check), then sooner or later a few clods are dislodged (check) and they dislodge a few others (working on it) who dislodge yet others and before anyone knows it the rest of the clods find themselves on the move whether they voted for it or not.

      Don’t give up.

      • Cygnus December 16, 2011 at 8:14 pm #

        Thank you for your reply. I appreciate the encouragement. By the way, I’m not posting in a fit of despair, although I realize my post could be taken as such. Yes, I have given up on this corrupt system we live under being righted (I don’t think that would be a good idea even if we could do it, honestly) but I’ve not given up on individuals and families and communities living through the mess and doing the right thing in their own small ways.

        The reason I say we *will* let the banksters/financial elites and their pet politicians back into our economy to do their tricks again is that is the historical record thus far. As you well know (and have said) this is a cyclical thing. After a major crash, it takes a few decades or so to recover some level of excess productivity – at least, enough to attract the predators back into the flock with the prospect of another harvest. But because the people in charge at that time won’t have actually lived through the worst of what the predators did the last time they were romping around in sheep’s clothing, they will be susceptible to their blandishments and all the oh-so-tempting offers of “easy money.” And so the cycle will begin once more.

        To change this, we’d have to change human nature. Humans do not do well with long term thinking or with long term consequences. This is how we are wired as a species. And that’s why this is the umpteenth time we’ve let bankers, financial elites and their pet politicians lead us down this un-merry path. I wish it could be the last time this happens, but we’d need to find some way to bottle up all the pain we’re about to go through into some kind of time capsule so that future generations will be able to actually experience it and believe us when we say that this was a *really bad* way to run things! Otherwise we’ll all be the old fogies that just don’t understand that they are so very much smarter than we were back then, and so this kind of disaster can’t happen (yet) again…

        So that’s my outlook on this whole mess. But, I do get some small satisfaction in withdrawing my support from this corrupt system, one little bit at a time. 😉 I think the less you are dependent upon the current system when it goes under, the better you are likely to do with surviving to see the other side of it. Of course, you also will need a hefty portion of plain old good luck, because there is so much that is not under your own control.

        Really enjoying your book, btw. It’s already helped me to connect a few more dots. Thank you.

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Trackbacks/Pingbacks

  1. Plan B – How to loot nations and their banks legally | | Antony AntoniouAntony Antoniou - December 18, 2011

    […] Plan A therefore requires that governments convince their populace that private debts should be taken on to the public purse and that once taken on, the contracts signed by governments on behalf of the tax payers/citizens, are then sacrosanct and above any democratic change of mind. If governments can hold their peoples to this,then the banks are ‘saved’ with the added bonus that democracy and the ‘Rights’ it once guaranteed will all have been redefined as subordinate to finance and its contracts, and our citizenship will have become second to one’s contractual place in a web of private debts. Debts to the private lenders will become more important than taxes to the public exchequer. And as they do the State will wither away, leaving free-market believers and extreme libertarians exactly where they have always wanted to be – in charge – by dint of being rich. It is, in my view, a bleak future which I once described as A Toxic Debt Wasteland. […]

  2. Plan B | Bill Totten's Weblog - September 24, 2013

    […] {1} http://www.golemxiv.co.uk/2010/07/toxic-debt-wasteland/ […]

  3. Toxic Debt Wasteland | Bill Totten's Weblog - September 26, 2013

    […] http://www.golemxiv.co.uk/2010/07/toxic-debt-wasteland/ Like this:Like Loading… Categories: Uncategorized Comments (0) Trackbacks (0) Leave a comment Trackback […]

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