I apologise for not having written in so long. A member of my family has been and continues to be very unwell. I have to give my sons what spare time I have.
But I am now getting back to work.
Sometimes it can be hard to stick to a view that is unpopular or is considered suspect. The more the financial pundits proclaim that all is well, largely, as far as I can see, purely on the strength of the stock markets and almost nothing else – but the more those markets rise and the more insistent the chanting of the ‘bankers are our friends’ apologists – such as Mr Hestletine here for example – the harder it is to stand apart and hold your own counsel.
So I thought to take a look back a year. Here is what I wrote a year ago on 22nd December ’09. It appears on page 157 of the book (The Debt Generation). I think it captures where we still are and what the present government does not want any of us to consider.
22 Dec 09
As the vultures move in it looks more and more like the UK could suffer a ratings downgrade in the coming year. (EDIT – Completely wrong on that I’m glad to say)
Do you think the bond market is going to care? They just want their money and they don’t care what our government has to do to give it to them. Without significant growth the only way the British government will be able to pay its debts is if it amputates whole limbs of government spending. Cuts and more cuts will be made, but the banks and the markets will care nothing. For them, government cuts are sideshows to the main act: their profits and their bonuses.
And what will we do? Find some poor sod to point a finger at? It seems to me the measure of the bankers’ victory will not just be how much of our wealth they can take, but how easy it is for them to use the levers of political and media power to make sure that we now turn on each rather than on them.
The list of easy targets and handy whipping boys and girls is almost endless: public sector workers with big fat pensions, pen-pushing civil service bureaucrats, job-shy single mums, privileged middle-class students, obstructive trade unionists, benefit scroungers, job stealing immigrants. Do you recognise someone? Will we set to fighting each other for the scraps that are left on the floor? Will the bankers and financial aristocracy fade from our minds? No thought that we shouldn’t have bailed out these parasites? No thought that all of the political class, every man jack of them, has betrayed us?
We must realise and remember that the only reason our borrowing is suddenly out of control, and the only reason there won’t be enough money for schools and retirement, for heating for our parents and for university places for our children is because it has been taken from us by our political leaders and given to those whose wealth and power they bow down to.
And make no mistake, it isn’t over. The bankers have a taste for this effortless pillaging. Why should they stop when we are so craven before them?
I am still very much of the opinion that this is not a recovery in any sense that will count for the bulk of ordinary people. What exactly, I would like to know, is a ‘jobless recovery’? Is that like a party to which you are not invited? You just know someone is having a party and are supposed to feel content that ‘a party is being had’?
I stand by both assertions from last year: that we will be encouraged to turn on each other and forget who is really to blame, and that the financial bail outs are still not finished.
So long as the anti-cuts demonstrations remain just that – anti-cuts – they will, however, vociferous, fail. As long as each protest remains separate from the others, each an easily deflected complaint that this or that special case should be spared its cut, then we will watch as our nation is gutted. And the various protests will be turned against each other.
Don’t get me wrong, I am glad the book funding programme was spared. For it not to have been would have been simply too revealingly emblematic of the lofty disregard which our government has for the less fortunate of us. But it is not a victory. It is a sop.
We must ask, not if this or that can be spared, but why has all the money that could have paid for all the services that are being cut, been given to the banks to bail them out? Why can we allocate hundreds of billions to continue to buy up bonds from the banks that they could not otherwise sell, but nothing for heating and hospital beds for our parents nor teachers for our children?
That is the debate we have never been allowed. It is imperative we have it.
Hi Golem
Bruce Krasting cautions about reading too much in to the stock market levels – see HERE.
Perhaps an indication of things to come is the press censorship that is occurring in Hungary – see HERE.
One of the biggest scandals is the amount the banks and international card companies, Visa and MasterCard make from card usage. The interchange fee is essentially a floor that the banks and card schemes impose – one has to assume via collusion – which the retailer then passes on to the consumer. This can be as much as 1.5% of each transaction. Across Europe, the European Commission estimates this at €13bn euros. And no one seems really bothered about it.
I laughed today when Francis Maude came out with his latest wheeze; that consumers should be encouraged to make a contribution out of card payments to charity. Like we aren't already contributing enough to that very worthy charity – the financial services industry.
It's more than 1.5%.
We sell stuff online. A small business. About 10k transactions pa.
We pay 2.74 % of every credit card sale to the card processors; or a fixed fee of about 27p for debit cards. That's quite a good deal actually after playing off a couple of them against each other.
It is a HUGE tax on all economic activity. I laugh bitterly whenever I see adverts saying 'pay with plastic, it's so convenient . . .
Ha bloody ha. The fee is 1/36 of the total sale. What they mean is:
'pay with plastic & we get to nick the entire income of every 36th person in the country'
*ankers.
Hi Golem, have noticed a hiatus in your posting for a while – v. sorry to hear about family illness, have been there, it's not easy, remember to take care of yourself too, especially if you need to be there for your kids. Hope things soon take a turn for the better. Mr S.
Hi Golem – I have been reading your comments for a while now and would like to congratulate you on the way you articulate complex issues in a way I can understand them. I try to engage my friends in conversation with some of your ideas but it is sometimes difficult when you are a layman like me. Lots of my friends use that other great tranquilliser of the masses, facebook. Wouldn't it be an idea to widen the debate onto the most popular social network by having a facebook button? I am only saying this because you seem to be the only one that is saying what your saying, in a way that ordinary people will understand. Most of the people that read your blog seem to me ones who have opened their eyes some time ago. Shouldn't we start opening everyone else's eyes?
Steve
zardoz3006,
nice to meet you. Welcome to our little cabal. There is a facebook element but it is on the debt generation web site. Sometimes what I write gets copied over there on to facebook. They also sometimes copy a link on to twitter.
I am concerned to reach people exactly as you say. Any ideas you have or suggestions for how we might do it better are all gratefully received. If you wish you can email me privately on the email you can find under my profile.
MrShigemitsu,
Thank you! Take care yourself and have a great New Year.
Thank you for your blog, which is on my daily reading list Golem. Best wishes to you and your family for 2011. I hope that this is the year that the media finally starts to pay attention to the real story and not to the one the powers -that-be would like us to believe.
May your book help achieve that.
Golem — I hope you're family regains good health all around & enjoys it for the foreseeable future. And many thanks for continuing to bang the drum.
This next year we'll begin to see the effects of austerity policies really start to kick in. But the effects aren't going to be any kind of surprise to those advocating them. They may act surprised, but behind closed doors they'll be rubbing their hands with glee. That's because these policies are designed to further depress consumer demand, demand which is badly needed to stimulate the production of goods & services.
This further decline in demand will create larger budget deficits, which will be used to justify further cuts. It's a virtuous circle so far as they're concerned. And as you say, the different types of cuts are used to play one special interest off another, to divide & conquer. How long this strategy succeeds depends on how long people passively acquiesce.
The larger deficits we're going to see this year will illustrate the fact that budget deficits (or surpluses) are endogenous to govt fiscal policy. Trying to balance the budget by cutting, instead of by spending & boosting demand, will only create larger deficits.
A balanced budget is a result of proper fiscal policy (right now that means deficit spending to create jobs,) an effect of low unemployment & a healthy demand for goods & services (increased tax revenue.) The effect of budget cuts, which are supposedly necessary to balance the budget, will instead be further deficits.
They know this, while pretending they don't. Those standing on the sideline cheerleading either have a stake in the system, or are cheering on their own demise.
The most often quoted reason for this economic recession being different from all others (in modern times) is the involvement of the shadow banking system. However, there is another difference that is less obvious.
Previous market crashes / recessions have badly affected the wealth of the top 1% of earners, whilst in the current crisis the aberration is that the top percentile have lost relatively little, and some have actually got richer!
Wealth inequality is usually seen to be a moral issue, but some economists are arguing that it is actually harmful to an economy. Edward Wolff states:
There is now a lot of evidence, based on cross-national comparisons of inequality and economic growth, that more unequal societies actually have lower rates of economic growth. The divisiveness that comes out of large disparities in income and wealth, is actually reflected in poorer economic performance of a country.
Furthermore, he argues that large concentrations of poor families receive the worst education, and this directly impacts on the nation's economic growth. The full text can be found HERE.
Is it possible that the economic crisis is being prolonged by wealth inequality? Do our economic masters have to take the nasty medicine for all of us to recover? The odious potion must taste like Lehmans thrice over.
HERE is a very intriguing chart that shows a strong correlation between financial crises and wealth inequality. Paul Krugman talks about this in his presentation – HERE and for a wonderfully comprehensive 10-part series on inequality see HERE.
David, I'd like to wish you health, peace and happiness in the New Year. I hope that you spend as much time as you need to with your family.
Just a note – I'm not sure if you're aware of the NAMA Wine Lake blog over here in Ireland? Very well researched and well worth a look:
http://namawinelake.wordpress.com/
Best regards,
Cass
It's all government speak. Now it's the jobless recovery. Tomorrow it will be the moneyless paycheck.
L.C. Evans, author of Jobless Recovery
G, hope they get better soon.
A year ago you could have walked past me banging that drum and I would have just stared at you like you were crazy. I assume that's what people do to me now.
My favourite of 2010: Autumn Thoughts.
Thanks for stating the obvious dude.
Hi Golem.
I hope your family remains well and you kids get your time. I just read this and though you might find it interesting.
http://foreclosurefraudnews.com/handful-merrill-lynch-bankers-helped-blow-firm/#more-669
regards
Bruce
Hi Golem,
Great post. I just wanted to say I am sorry your family member is ill and I hope they get well soon.
I am in bed myself with a cold, so not reading much but I always check your blog – it's the best there is.
Dope Addict – I think you are spot on but why do they want to crash everything? Thats what I can't get my head round.
RichGB – I have been banging on for a couple of years about inequality and its ill effects over on Cif – to great derision. For example before most of the great depressions and crashes (and wars actually) inequality has been rampant. It was in the lead up to 29 – it also was before the first world war and before the depressions in the late 1800's.
To me it seems so startlingly obvious that if all the wealth is concentrated in the hands of a few it will be disastrous for an economy. They won't be able to spend it all and the rest of the population suffer either stagnating, or lowered, levels of wealth. This would equal lowered demand surely – and trigger an economic crisis. Or debt would be used to make up the shortfall for the masses and keep demand going – leading to an economic crisis.
The fact that most economists discount things like inequality staggers me.
But then I am not an economist so maybe my brain cannot grasp their strange and wonderful thought processes? I have often been told that rampant inequality being present doesn't equal causation – to me however to ignore the pattern is the height of folly.
(I hope this cold addled post makes some sense).
Ps – Rich – I meant to say thanks for the links. Really interesting stuff – especially that last one linking to the series.
Happy new year Golem-David! Here's wishing well to your relative who's suffering.
I've been reading your blog for some time, thanks very much for your efforts. Like Zardoz3006, I have been on a learning curve and you have helped tremendously.
Seeing as I'm here… thanks RichGB for your limitless font of links and pointers. And Princesschipchops: squeeze a whole lemon and put into a mug, add teaspoon of dark sugar, fill with hot water, add optional dash of cognac. Drink this with your feet on a hot water bottle. Works for me anyway… Never let up on repeating on CiF the truth of the feudalistic robbery we are all enduring, keep at it!
Regards to all from Cork
Davide
Hi David
I have been following the too big to fail / will they won't they leave debate across several blogs over the last 3months, and have the following question / suggestion?
Why does'nt the UK Gov'nt:
1. Reduce regulation on the investment banks making sure they pay an appropriate amount of tax. If they fail then treat them like the local shop keeper.
2. Regulate the commercial banks that only get involved in commercial banking in a favourable way, these are the banks we need.
3. Any organisation that wants to do both should be heavily regulated / taxed until they either decide to move elsewhere or split to one or the other above.
Is there a simple reason that I have not seen this suggested anywhere?
Where did you get your Japanese debt information from? I can't see from any other source that they're going to have to pay 60% of GDP next year.
Hi PrincessChipChops
I'm glad you found the links useful. Sometimes I feel like the rowdy student in Professor Malone's lecture room, but he appears to enjoy the turns and twists of the Great Conversation.
Well folks, HERE is one of those news items of the OMG variety. Yes, even dead people can sign affidavits. Can anybody laugh and curse at the same time? The two seem to cancel each other out, resulting in a silent "I don't believe it" rictus.
"For the defence we wish to call Ms DuBois to the stand."
P,
What are you referring to? Which piece?
Hi P
There are useful predictions for Japan in THIS report. In particular, see Chart 3.1 and 8.
HERE is a report on the bonds held as of September 2010.
The balance of payments can be seen HERE on Page-75, where the deficit is currently running at 54.9 trillion yens. According to the chart on Page-90 a total of 105.7 trillion yen falls due in 2011, which is 22% of GDP. Adding next year's deficit takes the total to 33% of GDP. This is bad, but not as bad as 60%.
Happy New Year All.
Thanks David for your patient repeating of the basic facts over and over again all year, until it sinks in that actually the emperor really has no new clothes.
It must be frustrating for you after all this time! But keep at it. You do get through to people in the end.
princesschipchops said…
Dope Addict – I think you are spot on but why do they want to crash everything? Thats what I can't get my head round.
My belief, so far as why they want to crash everything (depress demand, deficit increases, use that as excuse for further cuts,) is that the ultimate objective here is accumulation of power, not wealth. You can take all the wealth you want if you have all the power.
So the point to crashing the economy, an event they feel has been forced upon them by the falling rate of profit, is to force municipalities the world over to sell their assets (privatize) so they can be rented back to us at usurious rates, depress the housing market so they can buy up properties at knockdown prices & rent them back to us at usurious rates, etc.
The end result being that everything we earn is paid back to them in rent. Thus we're rendered powerless & the various nation-states are free to pursue their greedy lust for war & further accumulation, wherever in the world they can find something that hasn't been privatized & rented back to the locals.
For me it's about power, not wealth. Accumulation of wealth is an avenue to power, not the ultimate goal in itself.
Followed a blog post on OpenCongress to here. Excited to see a relatively regularly maintained site on this topic. More excited to learn that it is by the same person who made "Dangerous Knowledge". Excellent video!
Looking forward to reading more posts here.
Hi DopeAddict
The top percentile already have the power and some have already been elected in to the government. Over 250 members of congress are millionaires – see HERE.
The people who run the country are largely from the same clique that runs Wall Street: see HERE and HERE.
They already have the power, so I don't see how crashing the economy gives them any advantage, unless there is a very long-term objective to make US workers more competitive. Nah! That's pure conjecture, and they would need to confiscate civilian-owned guns.
… and finally: feast your eyes on Max Keiser going totally apeshit – HERE.
They already have the power, so I don't see how crashing the economy gives them any advantage
I have no rejoinder supported by hard evidence. All I can say is that, from their point of view, you can never have enough power.
Plus the professor teaching the class "Marxist Economics" when I was in grad school was always banging on about the issue being about power, not money/accumulation, and I became convinced. It's just not really something that can be proved.
P,
Perhpas you are refering to figures compiled by Soc Gen. They indicate that servicing its debt will cost Japan 60% of its TAX REVENUE . See here
LeDingue – I tried your recipe last night – had to cut the lemon down slightly but it was great with the sugar and splash of brandy!
RichGB – Ha ha Max Keiser – I love him when he goes off on one.
DopeAddict – I do think they are robbing us all blind to prop up their own wealth. I am just not sure they are plotting it – rather than reacting in panic and blind greed to circumstances.
But that could just be because the idea of them purposefully impoverishing millions is just too frightening.
Best to you and your family for 2011. And thanks for this blog .