Archive for January, 2011

Egyptian Turmoil

Monday, January 31st, 2011

Whilst most Western capitals have been for a very long time uneasy about the autocratic and repressive style of Mubarak’s government, they have done little to admonish a reliable ally and the only Arab country to have completed a peace treaty with Israel. There may now be a price to pay.

Change is coming to Egypt, possibly in the form of a coup in the short term, but in some extension of democracy later. There was a time when democracy was the handmaiden of American ambitions. No longer is this so. Democracy is still the engine of U.S. foreign policy, but not all democratic governments see it in a favourable light, or are willing to go the American way. Europe, the  dynamic economies of Asia, and South America too, are beginning to see a different way of doing things. They are also beginning to see a different hand of national interest. There are now two powers, each with both good and bad attributes as well as money. One of them has a good deal of money. Ready cash, at a time when the West has very little. I refer, of course to China.

The world dynamic has changed significantly. Moreover it has changed against America’s power, which has declined economically, though remains dominant militarily. The problem is that the shifting in the tectonic plates of the world is not military but economic. It is not based on inflaming a clash of interests, but on developing the common interest. Wars have got the protagonists little short of nowhere. Yet peace has taken many of the countries which have stuck to it to a considerable somewhere. America is several paces behind the point in world affairs which it occupied when George W. Bush came to power. China is many paces ahead. New governments look east for inspiration.

When Egypt emerges from its turmoil, and we must pray that is soon and without more bloodshed, its new government will be different in outlook, though not hostile. It will be Sunni. That will counter-balance Iran. It should keep the Americans from being difficult. Meanwhile Israel, obstinate, unyielding and provocative, needs to pay attention. It has few friends left in the world. It may soon have one fewer.


Saturday, January 29th, 2011

Commentators refer to greater confidence among delegates that things are on the mend. Maybe, but mended may not mean fixed.

George Soros’s think tank head hit the key point, when he said that the banks should not be allowed to fuel another economic boom and that we may have to accept a lower level and a more gradual growth of economic activity to avoid another crisis. George Osborne said in his speech he was looking for ‘sustainable growth’. He is right. He went on to call on the banks to lend more. Here he was wrong.

Growth based on borrowing leads to bust. The banks, used their own version of quantative  easing by creating worthless or inflated assets to trade in, or borrow against. This fueled asset inflation and created massive debt.  If banks keep lending against property assets, the price goes up, producing equity for more borrowing. The flood of borrowed money pushes prices up still further. It  is the same, in economic terms, as printing money. If we cannot see this, or will not, it because we are either daft or reckless. In the year 2000 the banks held deposits more or less equal to their lending. By the crash the banks had borrowed over twenty times the value of their deposits.

When the whistle blew, the system went into meltdown. This was because, when the call went out for real money as a measure of actual wealth, there was none. We cannot go there again.

Growth Stalls

Wednesday, January 26th, 2011

This news was bound to come and before we are out of the wood it will happen again. It plays well for Ed Balls in his new shadow economic role and will make for lively PMQs today. It also reveals an alarming lack of grasp among very senior people about the realities and fundamentals of the mess we are in.

Our economy was based on an utterly shattered model. It was inflamed with hyper wealth secured on hyper inflated assets stoked by the continuous creation of new money by a corrupt system. Because the securities, futures, bets and parcels of dodgy loans have no actual value whatever outside the game in which they play, the money they generate is a measure of nil or near nil. Those new to this explanation might want to refer to my book or to previous posts on this blog about money as a measure. Because the boundless trillions cascading electronically round the financial capitals of the world are a measure of nil, when the music stops, known as a credit crunch, all the institutions find they have run out of real money and are technically bust.

The reason for this is that the real money or its root, real wealth, never grew in the first place, but the debt obligations undertaken in the belief that it had, are not only real and expressed in real money, but have also to be repaid. Moreover the U.K had the biggest deficit expressed as the shortfall of government income to government expenditure of any of its competitors. This, in turn, means that the accumulated amount borrowed to bridge the gap is huge and growing. Growing every single day.

When the car crashes, it is no good to patch it here and there and send it on its way because it will break down and the journey, once again, will be interrupted. It has to undergo full and complete repair, after which it will motor on trouble free. It will motor under its own power without assistance, whereas the broken car, to move, has to be towed.

Therefore talk of two things is misleading and confused. Growth stimulation is one. This not necessary if the conditions for growth are established. It will be spontaneous and self sustaining. Reducing debt at government, corporate and personal levels is a must and nothing will help more than the reduction of the budget deficit.

Second is the talk of reducing the pace of deficit reduction. This cannot be done without increasing the level of government borrowing. To advocate that is madness. Already future generations have a millstone of debt to discharge for our folly. Collectively we owe the second highest total in the world  at four times the world average expressed as a percentage of GDP.

The Chancellor must hold his nerve. He has the support of the OECD. He has set out a good and bold plan. He has the confidence of the markets. He must follow up with a business and employment friendly budget. The enterprising British people, who shine in adversity, will buckle down and do the rest. That is how it is supposed to be. There is much learning to be done, not least by the City. It needs to rediscover that it is a cog in a much bigger wheel. It is not the wheel.

Banking Reform

Monday, January 24th, 2011

This Blog is now going to set out its stall to rebuild our financial system. No doubt the IBC will be more sophisticated, but I doubt it will be more fundamental.

The Banks must be broken into distinct and financially separate arms, for what was once banking, but what is High Street or consumer banking in modern terms, and speculation, gambling and betting, which is today’s curious misname for investment banking. There is a third element, which was once called merchant banking; maybe that too will need to stand alone.

The High Street Banks are now too big;  there are only five and this is too few for an SME economy (small to medium enterprise), which is what ours is. America is dominated by big corporations. GM, Microsoft, Apple, Boeing and so forth. Giant banks may be good for this, although they retain a web of local banks, even after the crash. We have no local banks, only giants. This will have to change.

Building societies have to be reborn as mutual savings societies, not quasi or actual banks. They are needed for their savings products, especially for the retired, and for their mortgage funds. Properly run, they are immensely strong financially. They have no place for shareholders. Remember the big names like  Halifax, Abbey, Alliance and Leicester all became shareholder owned banks and all went bust or had to be rescued on the brink. We need these mutual institutions back again. Their roots are in the community. This is important.

All the institutions concerned with financing the cogs of the economy and enabling the every day financial system to run, will have to be organised and managed to the highest standards of probity and prudence. There will have to be a safety net of last resort. Speculative banking on the other hand, the element which houses within the ranks of its payroll individuals of such genius that it has to pay them millions or they will run away to China, will stand upon their own feet and if things go wrong, down they will be allowed to go  hook, line and sinker. No help or bail out. Total loss for shareholders.

These and some other reforms which time and experience will reveal, will put our economy back on a track which can reliably carry the engine of national recovery. It is worth pointing out that this will not be on a bed of borrowing. We became addicted to borrowing for everything. That is the bad way and that era has passed. The lending figures confirm this. For once I agree with the banks. The politicians are wrong. Lending is down because the demand is not there. Faced with the risks and true costs of borrowing people and business would rather manage without. Far from being a sign of stagnation, it is the seed of a sound recovery. We must nurture it well.

Selling The Forests

Monday, January 24th, 2011

This is a bad idea. Small government does not mean the State has no role, nor that it should not have assets. The Thatcher revolution which brought about the privatisation of state enterprise was a very good idea, but like many good ideas, it lacked the judgement to know when to stop. Thus we ended up with Spanish airports and water, French power generation and so on. Some things work better, a good many do not.

There is no more fundamental national asset than the land we tread in common, nor more environmentally useful organisation than the Forestry Commission. Neither must be touched. We have many good things in our national fabric and we must leave well alone. The Archbishop of Canterbury leads the protest. His leadership is timely.

The Tory element of this Coalition needs to reign in on those who want reform for its own, or some ideological, reason. So much of our country is bust and dysfunctional, they have more than enough to get on with. Remember the global financial crash had its origins in Tory ideas. It would be bad politics to hand Labour an opportunity to attack on that front. Andy Coulson, Cameron’s erstwhile ear of the people, would agree.

Banks: Sense At Last

Sunday, January 23rd, 2011

It has taken a very long time and a very distinguished Commission to arrive at the same conclusion as a great many did months ago. I wrote about it in my book in 2009 and have been blogging about it ever since. Although we still have to wait until September for the official report, Sir John Vickers, Chairman of the ICB, made it as clear as a bell yesterday, in which direction his and his colleagues’  thoughts, were going.  The present arrangements for banks are, according to the Governor of the Bank of England, the worst of all available options. They are also utterly destructive of a sound and socially enlightened economy.

Up to the crash, the banks gambled vast sums of electronic money on wild bets, unsecured by any asset capable of realising the cash pledged because no such cash existed, while at the same time lending without regard to prudence, sums which customers could not afford to repay, thus hyper inflating the value of property to enable them to lend more and more. All of this was done not with hard cash, but on money the banks had themselves borrowed beyond all levels that any previous generation of financial mangers would have thought other than stark, staring, mad. Add to this they parcelled up mortgages on these hyper inflated properties owned by customers without hope of repaying, and sold these fraudulent and worthless securities to any patsy willing, which included each other.

Having drained the pockets of ordinary people who wanted only to house their families in decency, they suddenly discoverd they had run out even their own funny money because the countries of the middle and far east, having scooped up between them 90% of the total foreign currency reserves of the world, decided to break for tea. The resulting global crash, a phenomenon brought about entirely because bankers, who had been behaving like drunks in a casino, had destroyed the economic model upon which all the economies of the West to some extend depended, but in no country more so, than in no more boom and bust New Labour Britain. Then to add insult to injury, they ran to the very people they had been milking for years, the taxpayers, and demanded rescue from terrified politicians who mortgaged generations to come in order to prop up a system which would have been the envy of Al Capone.

Well, all this is coming to an end. The voices of sanity grow louder. Mathematicians have arrived. The people have discovered what has been done to them.  Ministers now fear the wrath of the people more than the threats from the bankers. Only the Tory party hesitates, not least because its most avowed members are the bankers. Thus the Lib Dems now approach their hour of glory. If in the autumn Osborne and Cameron hesitate to act upon the recommendations of th IBC against their own and dear, the Lib Dems will bring down the coalition. When the inevitable election comes the Tories will be wiped out on a 1997 scale and beyond. So the Tories will have a choice between suicide and capture. Such will be the pressure from the public, they will choose capture. Capture by the Lib Dems, without whom, if the AV voting system is adopted, they will never again be able to form a government. The prize of demanding reform of the banks for the Lib Dems will be as big electorally as their outright and principled opposition to the Iraq war. Indeed, Chilcot reporting later in the year will bring that to the fore, so both will be in play.

No wonder Nick Clegg was full of himself on the Andrew Marr show this morning.

Irish Government in Meltdown

Saturday, January 22nd, 2011

The Irish government is collapsing before our eyes, like some fictional administration in a rather weak soap.

The Irish people deserve better than this. Their country is at the point of financial dysfunction, their banks are bust and they are in debt up to their necks.  But they are patriotic and determined, they are absorbing cuts in their standard of living and hardships in everyday life, thought long gone in the past. They have faith in their country and they have faith in each other. They are putting their best foot forward, are determined to bounce back and in the end will prevail.

But first they need a government. They must be given the opportunity to elect one. Without further delay.

Tony Blair

Saturday, January 22nd, 2011

What a performance! He will become one of the most discredited politicians of history and for good reason.

It is all very sad. He had such promise and there were such high points, the Good Friday Agreement being perhaps the highest. He then became addicted to war, entirely without any strategic grasp, as an instrument of foreign policy; the means to achieve the end he favoured, driven by a messianic delusion that it, therefore he, was right. This is the the mantra of fundamentalists down through the pages of history. It is just as destructive proclaimed by a Christian as by a Muslim. Both are at variance with the core teaching of their faith.

Now he wants to attack Iran, unless Iran does as we say. Many were the honest people in this country and the world at large, who were outraged at his proclamation yesterday at the Chilcot Inquiry. He shows himself to be not just a knave, but a fool as well. We do not have to recite the untold consequences of such a monstrous plan, nor speculate upon the years, even decades, of upheaval, bloodshed and insecurity which would follow.

If Ed Milliband wants to move on from New Labour to put Labour on a recovery path, he might be wise to cut adrift altogether from Tony Blair. Most of his party already have.

Phone Hacking

Saturday, January 22nd, 2011

This story has now really taken off, yet I think it is of much greater interest to the media than to ordinary people. Evidently the police saw an enormous can of worms, involving various levels of spying on celebrities to pick up gossip to sell more newspapers, and thought they had better things to do with taxpayers’ money.

I am inclined to agree. I think we expect the police to act as a regulatory authority, which is not their function. There are too many new crimes and too many regulations with a criminal sanction. The police are there to protect us from harm and abuse, and when that fails, to catch the guilty. We should let them get on with that. The price of celebrity, for which the rewards in some cases are mind boggling to ordinary mortals, is to lead a life where all is revealed to the public eye through the media. That is what celebrity is.

These celebrities will have their tiffs and trysts, which keep their lawyers in third homes, expensive schools and so forth, but the rest of us can get on with our day. We do not want our police diverting resources from catching terrorists to chasing after voice mail hackers. Who cares what messages are left for these people anyway.

Alan Johnson

Friday, January 21st, 2011

Leaks and rumours abound. A policeman has been put under investigation. This is clearly a very difficult time for the former shadow chancellor. It also explains his apparent difficulties in that role. There will be some distressing times ahead for him, but he will have a good deal of public sympathy, especially among the grass roots of the Labour party. Unlike the rest of its leaders, who mostly have no experience of life beyond university, party headquarters and parliament, he had a very tough start in life and worked his way up from a postie. Multitudes respect that. This blog certainly does.

We live in a culture where political returns are a novelty, whereas in the past they were the norm. Churchill is the best example of resignations and falls from grace, but he, Baldwin and Wilson are among party leaders who were prime minister more than once and not consecutively. All will hope that Alan Johnson will be back. His best days may be yet to come.