By The Conservative-Lib Dem coalition is tottering towards the largest scaling back of government spending we’ve seen for decades in its first budget this week.
George Osborne has been clear that he wants to be bold rather than be cautious and the right-wing press is egging him on to take the crazed butcher approach to public spending and prove himself as a credible chancellor who wont flinch when the biggest political decisions of his life are staring him in the face.
Osborne’s actions will affect all of us; every single person in the UK will notice the impact of this budget because the cuts are of such scale and in such key areas such as the life changes of our young people. The promised £85 billion worth of "savings" will hit young people where it hurts. The most recent data from the ONS shows that there are currently over 900,000 young people under 25 who are unemployed and one of the first acts of the Conservative-Lib Dem coalition has been to cut the future jobs fund and Labour’s other support measures for unemployed young people who are seeking work.
With unemployment amongst under 25s at 19%, plus a jaw-dropping 23% increase in applications to universities this year compounded by a decision to half the number of new places available, it seems that Tory and Lib Dem ministers really haven’t done their sums. Or maybe they have. Perhaps they’re betting on Labour’s front bench failing to come up with a convincing answer to how they would handle the deficit?
We all felt that on the doorstep during the election campaign, amateur economics served us well when explaining that cuts now could cause a double-dip recession but I’m not sure Labour has thought through the full implications of its current argument.
Alistair Darling has confidently explained in recent weeks that faster and deeper cuts are not the solution to addressing the economic crisis fairly. Labour’s watchword has been fairness and the shadow treasury team are clear that they will apply a fairness test to this week’s budget, already arguing that the budget will fail the test. The candidates for the Labour leadership are also vocally attacking the budget pre-announcements.
But Labour’s message on tackling the deficit is not clear enough and it needs refining urgently before Tuesday. On the Andrew Marr show this week Alistair Darling was finding it difficult to answer the question, "what wouldn’t you cut?" Labour now needs to think clearly about what it proposes to do in order to calm the clear concerns amongst some sections of industry, the markets and the public about the size of the deficit. Some efforts are being made to tackle the miss-selling of the deficit by the Conservative-Lib Dem coalition and David Miliband has gone the furthest of all the leadership candidates to recognise the important moment that this budget poses for Labour and the need to show the party has learned the lessons from the recession.
But the new government will try and re-write history and create a lasting image of Labour as the party who lost control of public finances and put our economy at risk. We know from Labour’s past that this is an old trick of the right-wing press, and in some cases it was a valid argument. But not so in 2010. Labour shadow ministers need to defend the actions taken during the global economic crisis; recognise where any mistakes were made; and set out a credible and alternative plan to reduce the deficit which is clear to people who are worried about our national debt and their family’s futures.
We know that the Conservatives will use this opportunity to put their dogma into action. So Labour now needs to do its homework and confront them in a more constructive way, otherwise we risk allowing George Osborne to silently get away with butchering our valued public services.
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I'll make the same comment here that I made to Ellie Gerrard the other day, re "the deficit" :
I'm afraid that Labour did not play a very straight bat leading up to the election (indeed, since last summer) regarding public expenditure up to 2014/15 and, to some extent, treated the public with scant respect or regard.
For instance : it was in PBR 2009 that capital expenditure was going to take a "hit" and Labour could have admitted this - after all, it was on the public record for all to see - and said, "Well, we've spent zillions on new facilities and equipment in health and education and we can afford to take something of a breather on capex. However, our anticipated gross expenditure on capex still exceeds depreciation every year and so public assets are still being increased, year on year - but not at the rate that we have seen for the last few years." Perhaps, the electorate would have respected this line of reasoning but since it was never tried, we'll never know ....
Labour never tried to explain to the electorate the difference between departmental expenditure (DE) and annually managed expenditure (AME). DE provides the resources for day-to-day services whilst AME (something of a misnomer) applies to social security payments, tax credits, gross interest, locally financed expenditure (the four largest line items in AME) and a rag-bag of smaller items (the BBC, National Lottery, EU payments ....)
Labour's problem was that it did not attempt to forecast AME in Budget 2010 and so Labour could not forecast DE in 2014/15.
This allowed all sorts of speculation about DE "cuts" and Labour was helpless to combat the speculation - although I do have some sympathy with the view that economic and financial conditions were still too volatile for plausible forecasts to be made, ie "it's too early to say."
As it happens, the Pre-Budget forecast (PBF) produced last week by the Office for Budget Responsibility (OBR) is a good working document and gives a base against which to measure Mr Osborne's "Emergency Budget" announcements on tomorrow.
Much is being made of (i) "gross debt interest payments of £70 billion" and (ii) "public service pensions increasing by 20 per cent a year."
In the case of (i), when measured against GDP, this is not an onerous level compared with levels seen in the last 30 years and (ii) the first wave of retirees, centred around the peak births year 1947, are now arriving and public sector pension payments, as a proportion of GDP, are forecast to be pretty stable thereafter.
However, the media and the government will play the "20 per cent card" for all it is worth (Mr Clegg is doing so already).
"The deficit" is dominating things, hysterically so, at present. Those who like to see more sober assessments should take a look at what Sir Samuel Brittain wrote in the FT last Friday.
I have to point out that before the election the CBI said that no political party came up with the full honest truth about the crisis. Indeed, it was the Tories who had been shall we say 'secretive' the most out of all the main parties.
Apart from that, good post though.
We shall have to wait until the "Emergency" budget tomorrow to see what the Conservatives do. Press reports are not encouraging - the fiscal hawks in the Conservative Party are sharpening their claws and they will be feasting on something more than "tasty morsels ...."
However, Labour - being in government - was in a better position than anyone to give a view on the AME/DE amounts and this they did not do, regrettably. The OBR has been able to estimate AME and DE within the overall framework, more or less, given in Budget 2010.
We can only wait and see.
Is there something inherent within a capitalistic framework that is harmful/toxic to society as a whole?
The answer is yes.
Our financial system is 'deficit-based' upon a value vacuum.
Banks lend money into existence by creating, out of thin air, interest-bearing loans and worse than this, they spend money into existence on asset purchases (eg gilts); wages; other costs; and dividends to shareholders.
This bank credit = conventional money is then reflected by the 'demand deposits' in the system which are made by the recipients of the spending or lending.
There is absolutely no reason at all why a government - whether it be a Treasury directly, or a Central Bank as its agent - should not spend money into existence.
In fact that is exactly what Quantitative Easing as currently practised actually is doing. The problem is that this QE money is not being spent in the real economy but rather on buying financial assets. So QE remains in the virtual FIRE (Finance, Insurance and Real Estate) economy rather than entering the real economy.
The Big Lie - which is a key assumption underpinning Economics and the entire narrative which has been drilled into us for years - is that private banks are necessary to create 'scarce' credit.
They are not.
Public credit can and should be created directly and spent on productive assets - such as affordable housing; renewable energy; a new generation of transport infrastructure - and above all on training a new generation of Britons capable of building these assets and operating them.
This public credit creation should be professionally managed by professional service providers with a stake in the outcome, and supervised accountably by a Monetary Authority.
Once the productive assets and citizens are in place, the productive assets may be refinanced by long term investment, and the citizens may be taxed, and in both cases the QE which funded the development may be retired and recycled.
A system based upon compounding debt and private property in commons such as land can only end in one way, and that is the unsustainable concentration of wealth we now have.
It really is Time For a Change.
In the same way as doctors' training and knowledge (an intangible thing which cannot be ascribed an objective monetary "value", except to say that it is undoubtedly "valuable" to be able to save a man's life) increases over decades of advancement so the service output of a doctor increases, so too do manufacturers create more complex items more cheaply through technological increases. Thus society benefits from this growth of "value", and services which feed in to these "primary" sources of value are able to increase the money they charge for their services. This includes banks as much as a sandwich shop across the road from a successful factory. Thus money and value are linked, but not so directly that you print money to create value (as Mr Mugabe...). In other words, banks are a mirror for the growth of value in society, not the creators of that wealth.
At the end of the day, balance sheets have to balance, and money (or more precisely, the overall value of all the money in a system) cannot be magically changed. Create more £1 coins and the value of £ vs other currencies falls; increase the wealth of a country and the price of goods and services in that country increases in line with any growth in fiat money until equilibrium is restored.
That's a fairly woolly statement by your standards.
The fact is that banks create credit supported by a capital base the amount of which is specified by the Bank of International Settlements in Basel. This largely unsupported credit is >97% of the money in existence.
Do you agree that bank credit is the money we use? If not, then what is?
If Public Credit is inflationary, then why is much more expensive bank credit not even more inflationary?
In my view, which I set out in the first half of this presentation a bank's true economic function as a credit intermediary is to provide a framework of trust or implicit guarantee of the credit of borrowers. Banks back this implicit guarantee with a pool of proprietary capital.
But private banks got into the habit of outsourcing that guarantee to investors (via securitisation, CDS, credit insurance etc etc) and when all that went wrong and investors withdrew, they necessarily fell back on a guarantee backed by the government's balance sheet.
I have no difficulty with banking as a service. But banks as credit intermediaries are suffering from systemic - and IMHO terminal - starvation of capital. That being so, governments can and should provide the necessary credit as the public utility it so clearly is, managed by banking service providers with a stake in the outcome, of course, and accountably supervised.
Of course balance sheets have to balance - I am accountancy trained myself.
But public credit is in fact a credit instrument - not a debt instrument - and it is to all intents and purposes equivalent to redeemable, non interest-bearing shares in UK Plc. In balance sheet terms it is therefore better viewed as part of a National Equity, rather than as our surreal 'National Debt'.
This fundamental and largely ideological failure to understand the nature of money and credit - which is shared by monetarists and Keynesians alike - dooms their economic policies to failure.
The problem with Mugabe's policies, by the way, were almost entirely fiscal - a combination of destruction of Zimbabwe's productive capacity, and fiscal incontinence of money being spent on cosumption, not productive assets.
Firstly thank you for the complement that my usual standards are not (as) woolly :)
I'm familiar with Basel (and Basel 2, for that matter) from my previous life, and while it is true that the standard allows banks to lend (significantly) more than they hold in reserve at any one point in time, the point is that they cannot lend what they physically do not have: day to day lending is a combination of own capital and borrowings that the banks themselves have made. As I'm sure you know, the reason for the BIS rules were simple: to prevent any one bank borrowing (and then on-lending out) an unlimited amount of money, such that potential liabilities could never be physically repaid if (only) a small proportion of loans went bad.
That the money exists somewhere is my core point.
So do I agree bank credit is the money we all use? Well the answer is yes and no: I agree that many of us take bank loans, and small businesses borrow money to establish themselves and expand, but as you have pointed out before the banks are simply an intermediary: anyone who saves money is, eventually, the one lending out to those borrowers, with the bank acting as a broker and providing a "first line of defense" for losses (savers don't expect to lose money, after all).
I agree with your analysis of "outsourcing the risk" to other places like the ABS market and getting too comfortable with the idea that they were completely protected, and when the music stopped they found that only governments were able to act counter-cyclically enough to stop them going into technical bankruptcy.
The solution you outline, effectively that the country borrows on behalf of borrowers everywhere, obtaining better rates and hence value for those borrowers, does not work, I believe, for two reasons: i) the state does not have the experience or tools to administer such loans and ensure value for the taxpayer in obtaining repayment of those loans so would need to use an intermediary to do so, which leads to ii) that European legislation explicitly forbids state-bank support: look at the German Landesbank model and the transitional period (and pain) they went through as the state guarantee was removed and found that their whole model was built (poorly) around being able to fund themselves at vastly sub-market rates which meant that they had some of the worst repayment rates in the sector.
As to the last part re credit vs debt: it appears to me that you are using a form of words to create an impression which is not in line with the reality of the products in use: as an accountancy trained professional who makes intelligent and thoughtful comments I can only assume that this mismatch is deliberate, but cannot understand why you are doing this. Public credit comes in different forms, but I would assume gilts are the most common - this is debt; it must be repaid; it bears interest. QE-derived credit, used so much during this turbulent time, is also not without cost even though it is not debt per se: QE "creates" additional £ notes to purchase the gilts issued during a period when the private sector was (effectively) not buying - and, as I referred to in my previous post, that creation is not truly from nothing; it devalues the £ such that it is an instrument by which the government robs Peter to pay Paul, where Peter = all of us, and Paul = the government's debt issuance office...
You are confusing capital requirements (a solvency issue) with reserve requirements - a liquidity issue.
When banks create credit they are creating new money, because conventional money IS a bank credit/IOU.
A bank may do this in two ways.
It may create an interest-bearing loan, or it may simply credit the accounts of employees; suppliers; shareholders; or those who have sold assets to the bank.
This credit creation - in order for the system to be in balance - automatically creates a matching demand deposit, whether the credit is bank lending or spending.
This is how new money comes into existence.
You are correct that if the matching deposit is elsewhere in the system, then the bank creating the credit and matching deposit must replace it with another deposit, whether retail; wholesale (inter-bank) or from the lender of last resort.
But you are quite wrong in saying that the money exists somewhere.
It does not.
If all banks ever did was move money around as you say they do, then where does new money come from?
The solution you outline, effectively that the country borrows on behalf of borrowers everywhere, obtaining better rates and hence value for those borrowers, does not work,
That is NOT what I am suggesting.
I am simply suggesting that - suitably managed and supervised - the government credits the accounts of public and private enterprises who are creating productive assets.
ie that government QE spending is is actually spent on new productive assets, and thereby enters circulation and drives the economy.
What QE should not be used for is to finance existing assets - which inflates or supports the price - and is of course exactly what it IS being used for.
If distributed purely for consumption (Bernanke's helicopter drop) there is a danger of inflation - provided people don't repay debt with it or save it.
As I have said many times, I agree with you that the State should have no part in managing the process of credit creation. Service providers would do so instead, not as interemdeiaries but as service providers whose costs are covered, but whose profits would be performance related.
This public credit, like all credit, costs nothing to create, but both the receiver and the user of the credit would pay a management charge, and a provision (guarantee charge) into a default pool.
Credit is not debt, it is the complete opposite.
Henry Liu - who is a proponent of Modern Monetary Theory - explains the difference comprehensively
in this article
In the language of finance economics, credit and debt are opposites but not identical. In fact, credit and debt operate in reverse relations. Credit requires a positive net worth and debt does not. One can have good credit and no debt. High debt lowers credit rating. When one understands credit, one understands the main force behind the modern finance economy, which is driven by credit and stalled by debt.
"That the money exists somewhere is my core point"
But does it? This is where my feeble mind cannot comprehend how QE has not resulted in a total meltdown.
The government borrows by issuing government bonds. Under QE the Bank of England has been buying gilts. Where does the BoE get the money from? I guess it is more government borrowing, which is, ermm, more government bonds. If the BoE just "forgets" about the £200bn it has created for QE will anyone notice?
I'm trying to think of an analogy, but really struggling. The best I've come up with is of a bottle of wine, where the alcohol content represents the total value of £ in the world: in this world, imagine QE as adding water to bulk out the wine... in small quantities you probably wont notice the difference (although you will be a little poorer), but sooner or later it starts to all taste a little worse, and you notice how much poorer you get.
I find this whole concept of spinning money out of thin air quite perplexing
You are in good company.
Very few people understand how banking actually works, and probably if they did, there would be a revolution. No decent newspaper will print details of such financial pornography.
so perhaps we should stick to spending money that we actually have.
That is impossible, because the result is a barter economy which would immediately seize up. Most existing money is in fact 'tied up' in productive assets, especially property.
Credit - or 'time to pay' - is an absolute necessity for the circulation of goods and services and the creation of productive assets, whoever owns them.
The questions are; what should be the basis of that development credit; who should be the source; and what should be the cost?
Once a productive asset is complete, then it is the use value of the asset itself which may be the basis of credit.
No the causation of the problems of the banks was not in creating new money but in the highly complex way they created false economies by elling products at highly inflated prices that could not be sustained.
Very different to the QE used to "bail" them.
The reason I am talking about strategic QE is that we lack any internal investment in this country, the sheer lack of investment is amazing. If you look at countries such as China, South Korea (I was there last year when they left recession, the first of the G20) and saw how much they were pushing ahead in new technologies etc, we need to do the same or we will fall behind and become obsolete in the world.
We need to secure our strengths and build for the future by diversifying our economy.
Correct.
The problem is not the creation of credit itself - that is an absolute necessity. The problem is the uses to which this credit has been put.
Banks created credit which had the effect of inflating the price of existingassets in the FIRE (Finance, Insurance and Real Estate) sector, rather than being used for the creation of new productive assets in the public and private sectors.
Once productive assets have been created then long term investment in them does not IMHO require bank credit = interest-bearing loans.
They may in fact be refinanced by 'unitising' the production or rental value of the assets and then finding investors (eg pension funds, sovereign wealth funds, even property occupiers) in such units.
Depends how much water you use.
The whole process has to be directed as Chris says at specific generative economic entities. It is not some kind of blanket dilution it is directed cash injections at areas that can grow, sustain themselves and add to the economy.
The kind of Zimbabwe scale "hit" which was historically disastrous was a terrific an overeaction after an austerity program is not being advocated, the proposition is direction at specialist areas.
To limit the impact on currency and of cause that demon inflation tough regulations and monitoring would have to be prepared beforehand.
New means and methods would have to be devised to ensure we can recognise what components of our economy have the most potential.
So we are adding water to your wine via a syringe so as to not affect the flavour and then letting it settle.
It was indeed Jobless Dave, and I have just responded at length and for the second time today this bloody system has gobbled up my ID as it seems inclined to do.
If the BoE just "forgets" about the £200bn it has created for QE will anyone notice?
No.
Not any more than they notice when the Bank of England burns a skip load of grubby used fivers at Debden.
That the money exists somewhere is my core point
It does NOT exist elsewhere. If it did then the implication is that all banks are doing is harmlessly moving money around. Which is what they want us to think, and indeed is what 99.9999% actually do think. I was a director of an exchange, and that's what I thought, so Dave can be forgiven for thinking the same.
But the reality is that banks create credit almost entirely out of thin air.
If what Dave asserts were the case then where does new money come from?
There simply would not be any.
However, given the time I need to keep this short and sweet.
My argument in a nutshell is this: if "...banks create credit almost entirely out of thin air", then how on earth did they run out? Why did they need to government to step in?
I am not saying £ are not created, because they clearly are, but this is done by (on behalf of) governments, not banks. Yes RBS has printed bank notes in Scotland, but they don't control the presses, and nor do they benefit from turning them on or off (can you imagine the effect if they were?).
Finally, we did not become richer by printing £, we became richer by being more productive (e.g. computers/email in office vs phones/fax of 20 years ago), producing higher quality products (e.g. cars/machines now smaller, faster, safer than 20 years ago): the creation of more £ actually makes us poorer (savings become less valuable, though interest rates reduce this impact) and has to be carefully controlled against productivity growth to maintain a balanced economy.
My argument in a nutshell is this: if "...banks create credit almost entirely out of thin air", then how on earth did they run out?
They ran out of capital - which was eaten away by defaults - which restricted the credit they can create.
In fact, most bank balance sheets are complete fantasy. The non-performance of loans has - particularly in the US - been hidden by lax accounting standards, and they therefore have not taken the 'hit' to their capital which writing off the loans would incur.
But the absence of debt service by borrowers has starved the banks of liquidity, and this haemorrhage of credit is where the government stepped in with almost infinite liquidity.
But there is a deeper issue here, and that is that the position of wealth inequality - where 90% of the population is now in debt to the other 10% who also own most of the assets - means that even if credit could be created, there are not many creditworthy people to whom to lend.
This situation can only get worse with the proposed cuts we are going to get tomorrow to productive public and private sector activity. I very much doubt that the cuts will fall either on the overpaid/underproductive management/ professionals/consultants or on the even more overpaid and very often 'socially useless' financiers.
I agree we did not get richer by printing £, but would point out that printing £ - whoever does it, and however it is done - is an absolute necessity for recovery.
I do not believe that recovery is possible until wealth inequality is addressed, and here I recommend a debt/equity swap, as do Willem Buiter and Nassim Taleb, among others.
I'm not sure I agree with the US accounting standards comment: admittedly I am not that familiar with US GAAP, but my understanding was that generally it is much more prescriptive than UK GAAP (which allows vague and woolly "provisions" to be bandied around), and IFRS brought our accounting principles closer to US, but I may be wrong.
I do however agree that the inequality of wealth is a deeper issue, and one which needs to be adressed, but I still question the mechanism you propose through which debt is converted to equity.
Consider the following thought experiment: if I am a saver, and have (by proxy of a bank) therefore lent to say 5 people, each of whom converts their debt into equity, then either:
i) the bank's balance sheet changes from 5x creditors vs 1x debtor to 5x shareholders vs 1x debtor. Balancing the balance sheet therefore depends on the movement of the share-price. This is very very bad, as my ability to lend (as a bank) is therefore dependant on people's perception of my ability to get repaid, and that is a bubble waiting to explode.
ii) If we bypass the bank and consider only the cash, then I (the original saver) move from being a creditor to the bank to a shareholder in these 5 ex-debtors - a significant deterioration in my position vis a vis my repayment position in law: in other words I have been subordinated for no change in fundamental risk (that is, of the debtors defaulting). Therefore why would I agree to this change? Unless you get buy-in from the saver(s) to be converted in this manner, you will not get traction, and unless the saver(s) see an improvement in their position (or at least do not see a detrimental effect) then how can we expect them to agree?
Re the US there is a general acceptance that 'extend and pretend' is the norm.
Re your thought experiment, my point is that it's not really the people you are lending to, it is the property they occupy which is the basis of the credit.
In the US - where in many States lenders have no recourse to the borrower - this is often explicitly the case.
My proposal is that distressed borrowers and their lenders may agree that the property be transferred to a custodian.
An 'affordable' rental is then agreed, and index-linked, possibly to local rental values; possibly RPI linked..
A 'Pool' of affordable rentals (with custodians signed up to the pool agreement) is thereby created and while a proportion is allocated to maintenance and depreciation, a balance available to investors is divided into proportional Units, say billionths.
These Units are then allocated between the bank and the existing owner (insofar as he has equity).
The Bank then disposes of these Units to long term risk averse investors and has a much better outcome than any solution involving debt financing.
The higher the return that investors demand, the lower is the price of the Units, and therefore the more likely it is that the Occupiers themselves - rather than other investors - will be able to buy them.
The outcome is essentially a REIT with the interesting quality that Units are redeemable in the underlying rental value. Revolutionary IMHO.
There is no default risk in relation to the Capital, because Units are quasi Equity, not debt. The risk of non-payment is in respect of the 'Capital Rental', and even here, almost by definition, the fact that it was 'affordable' to begin with means it is more likely to be paid.
Conventionally there is a vicious circle. The riskier the borrower, the higher the interest demanded, and therefore the less affordable it becomes, and the more likely it is to default....and the riskier it becomes...
In this quasi-equity 'unitisation' model, it's the other way around.
Affordability = Certainty, which justifies a (more affordable) lower rate. There is a limit here, in that a zero rent is absolutely affordable, but you will get my point, I think.
You will also find that in extremis, housing benefit would meet a higher proportion of a truly 'affordable' rental than it would a sub-prime mortgage payment.
There are other interesting possibilities. For instance, even an occupier who cannot afford more than the Capital Rental, may nevertheless accumulate "sweat equity" by doing maintenance himself (with suitable quality control, of course.
Default is only possible if the occupier has no equity AND does not pay the Capital Rental, because if he has equity he can pay his rental by selling Units.
See pages 8 and 9 here re Co-ownership
I'm working on a proposal for a couple of prototype 'Equity Exchanges' aiming at bringing investors together with such investments. If you might be interested in helping drop me an email.
Any system of conversion to a new paradigm must look after where the existing cash goes: granny must still be able to withdraw her savings even after the "credit" generated from those savings has been converted from one whizzy financial product (e.g. a CMBS-backed loan in the current systems) to another (quasi-equity pool).
The point about credit risk vs high interest is entirely valid, and, put another way, reflects the old adage that "money makes money".
I make a distinction between credit based upon productive assets, and credit based upon people's capacity to work ('Labour' - where I distinguish in turn between Energy = manpower and Knowledge in terms of use value).
The former - direct 'Peer to Peer' Investment - will be a 21st century update for deposits.
The latter - direct 'Peer to Peer' credit - need not require anything more than credit clearing within a suitable trust framework. No deposits are necessary.
The aim of Peer to Peer Investment is to replace debt asset classes, which are fragmented in terms of date, counterparty, and rate of interest, with a simple pooled continuum of rentals/use value.
These undated quasi-equity 'Units' are fundamentally based upon the use value of land/location, and not upon the individual.
In relation to 'grannies' we may provide on the one hand:
(a)an equity release product which wipes the floor with either reversions and 'roll up' mortgages; and on the other hand
(b) a reasonable, index-linked, rock solid investment in the property rentals from (a) which wipes the floor with retail deposit rates.
Simple.
And you can probably imagine who I intend to approach with that proposition.
The answer lies with the real agenda of our dear MP's. They were and still are in favour of the finance sector and dismissive of sectors that are of equal size and value, such as say the creative industries.
Jobs for the boys and all that...what!
I've only time for brief comments now- but what stands out for me is the need for "productive assets" to grow the economy.
Our manufacturing industry was decimated from the 80's; ideology was based on short termism and making quick bucks, which soon fell apart. Worship of the markets above all else came crashing down- literally..
I totally agree with you- time for a seizmic change; but may have to hit rock bottom first before politicans wake up to the fact we need a wide infrastructure and society, not just propping up banks, and to Hell with everyone else.
I wish wise minds like yours were involved in process Chris!
The hyperbole of Osborne "taking the crazed butcher approach to public spending" does nothing to address what Labour would do. The standout figure in this article? After 13 years in power, Labour leave office with "unemployment amongst under 25s at 19%". That is shocking considering that so much money has been spent. Where did all the money go?
I would add that Labour left office having made spending commitments that they did not have funds to implement and with national debt at unsustainable levels. In light of that, painting Osborne as a crazed butcher is a bit rich. The upcoming spending cuts are required to fix the damage done by the wild spending of the last administration.
Yes, people are going to be hurt. Yes, the poor will be hurt most. Yes, Labour failed to reduce inequality which you are all about to start howling about. But, before you start your howling, ask yourself how the previous government could spend so much money and yet still leave huge swathes of society in poverty.
But, before you start your howling, ask yourself how the previous government could spend so much money and yet still leave huge swathes of society in poverty.
Simple. They followed the Washington Consensus, and allowed virtually all of the value to be hoovered out of the productive public and private sectors by:
(a) largely unproductive (or grotesquely overpaid - it's the same thing) managers, consultants and professionals;
(b) mainly 'socially useless' financing costs, particularly the outrageous returns on equity bearing little relationship to risk, and compound interest, often at arbitrary rates bearing little relationship to risk.
It's not really a political issue is it?
Over the past few weeks, I have heard the Shadow Treasury Team talk about growth and economic infrastructure that creates wealth in the economy. I believe that it's something Darling touched upon on Sunday, but it hasn't been emphasised enough in my opinion. Surely it makes sense that with cuts, priority should be granted to infrastructure and projects that create wealth. To just cut spending without regard for the long effect on the future *social* health of the nation is something that i'd like to see pointed out by the Labour Team.
"That must be a competant Labour party" It has possibly upto 5 years to rebuild depending on how long the coalition lasts.
Labour does not have five years. Even if the coalition can last for that time (and it does not look like it will) Labour has to have a suitable amount of time to be seen as a credible next government.
Cameron became leader of the Tories in 2006, three and a half years before the 2010 election. The first year of that he was a disaster in the polls but it was Brown's bottling of the 2007 election that gave him his impetuous. The year before the 2010 election Cameron was coasting - sure he lost votes and probably also his hoped for landslide, but for that year Brown was seen as the last Labour PM and Cameron the next Tory PM.
The next election must come at least a year or 18 months after the new Labour leader is elected (say Sept 2011 or May 2012). By that time we will have condemned the most vulnerable in our society to two years of this vicious government. That is a best case scenario, for the vulnerable to suffer five years of a double dip depression and year-on-year cuts to the welfare state, will be terrible.
One thing that did occur to me was, that during the 80's, when we were in economic "boom" times- our whole social fabric was decimated. So there was no argument then about "neccessity" for pain. It was wilfully inflicted.
It appeared to be driven by ideology, and a worshipping of "big business" and the markets as god like. Other stuff, (like our society) had to fall by the wayside!
I also remember visiting New York in the 80's- and what was so striking was the visibility of extreme wealth literally alongside gaping poverty; the worst I'd ever seen in a lifetime.
I saw it on my doorstep in South London too; it was like a carriacature from a novel.
Is there something inherent within a capitalistic framework that
is harmful/toxic to society as a whole?
If there is, then we appear to have been heading in the wrong direction for the past 30 years; and may explain the depth of social problems we have. We need a system that is far more ethical and robust. Emotional intelligence also springs to mind...
One phrase that stood out; DC was quoted as saying,:
"We will roll back the welfare state and enlist volunteers."(I think Observer.)
No one denies the need for great efficiency savings across all sectors and in all walks of life, following the global banking collapse.
But who will be hit the hardest, and what priorities will there be?
How much of it will be driven by a dogmatic adherence to ideology that we saw so vividly in the 1980's?
I hope we don't have to hit rock bottom before governments wake up to the needs of the 21st century, both economically AND socially.
Cameron faces a record deficit, the pensions crisis, unemployment and a country struggling to define its economy outside of financial services.
Some are simillar and agreed we have serious issues, but I sense you are trying to associate Coalition action to the loathing that Thatcher attracted. That will not get Labour re elected. Labour needs to prove to the country it understands the issues better than the competition (ConDem) and prove it has the answers. It is that connection that will make the difference. The country is Labour minded but will only vote for a Labour party that is competant.
I think AD was extremely competent; that was also validated by the recent OBR analysis.
I think on the economy- it is a question of choices and ideology.
Even Obama was on board today warning of possible dire consequences if wrong action taken.
I think it will be a real test of competence after tomorrow.
The country was not in good health. Its pointless me repeating information. You will believe it if you look up your own information. Its easy to find annualised information on personal and government debt + PFI on google. Whilst you are there perhaps you want to look up the numbers for the decline in manufacturing industry by year from 1979 to date. I think you will find that interesting.
"I think AD was extremely competent; that was also validated by the recent OBR analysis." Was he? In what way?
What awesome wisdom from Obama the Oracle. In Loftyworld there are always dire consequences if the wrong action is taken on the economy. This is the same man who is ruining British pensions with over zealous action on BP.
"I think it will be a real test of competence after tomorrow."
It will, I believe we have a very serious debt problem. We would have had to cut also and all the bluster doesn't change anything. The issue at hand is the actual policy which we will know more about tomorrow. Meanwhile in voter land people know we have a problem.
We are all entitled to our opinions- all equally valid..
My information was based on a financial article I read recently in the Independent, as I read from time to time.
I also take note of Peter Barnard, who has expertise in this area.
As regards your earlier points- I lived through the 80's and remember first hand the deep inequalities caused directly by policy; my comments on manufacturing come from my Dad and his colleagues, who were tool makers and engineers for decades.
(As is my partner, and in the energy industry.)
Personally, I think it's important when Obama makes a statement; I think what he's getting at is:
"Don't undo all the good work that's been done to stave off the worst effects of a global banking crisis."
Have a good evening I'm off to bed.
I don't mind your opinion at all- it's just how you come across- very abrupt.
Blogging can be a bit of a minefield, so misunderstandings possible.