Who Bankrupted the Country?

Richard Lawson has an excellent post using Office for National Statistics data to make it quite clear who is responsible for the national debt. As he says, since the Labour Party seem terrified of laying the lie that it was Labour rather than the bankers that made us bust, the Green Party will have to do it for them. Tweet

The Zen Road to Affluence?

Finding that there is more to economic life than growth is not news to many readers of this blog, but finding that this lesson is being promulgated by the Financial Times is a little bit more surprising. It immediately sends my mind racing in the direction of conspiracies to keep us bovine and submissive in the face of falling wage levels and growing inequality. But so long as our lower level of material wealth comes with greater well-being, more leisure, friendship and conviviality, why should we care?

David Pilling, the author of this article, is straying into dangerous territory for a pro-capitalist paper, by suggesting that politicians might not favour the accumulation of capital in their economies as a primary goal. This does not seem much of an intellectual step from the call for politicians to take control over finance, and reintroduce credit and exchange controls, as called for by most green economists. And that would certainly be the end of globalisation as we - and the corporate billionnaires - know it.

Japan appears to have reached a different sort of accommodation with capitalism, one which enables a high standard of living without growth, and with some independence. By selling its national debt to its own citizens, it is at least closing some sort of circle. Issuing money to run the economy itself would be preferable, and any system of national financing based on debt will always transfer money from poor to rich, but at least the demands of rapacious bond markets are not a threat, nor the political power that foreign governments can exercise through their sovereign wealth funds.

The article by my near namesake Professor Kato, as recommended by David Pilling, is also well worth a read. Again there is nothing new here: it is rather the source of the story and the outlet where it was published that suggest this debate is on the move.

Meanwhile, instead of working why not squander some time on pointless games? We had great fun with our revolutionary top trumps over the festive break, and now there is a game you can play while 'working at your computer'. Send it to all your friends: debtris brings a whole new meaning to education for the life of leisure.
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Debt is a Feminist Issue

The gendered nature of the globalised capitalist economy is evident at many different levels. Empirical studies of women at the top of financial corporations appear to be absent from the peer-review literature, but even The Economist has suggested that the causes of the 2008 crash were partly hormonal.

The figures for women’s share of the world"s resources, as collected by UNIFEM are a shocking catalogue of inequality. Perhaps the most striking statistic is that ’Women perform 66 percent of the world’s work, produce 50 percent of the food, but earn 10 percent of the income and own 1 percent of the property’. In many countries women face discrimination in terms of property ownership, as we did in this country until the passage of the Married Women’s Property Act in 1882.

The study of economics is also dominated by men.To quote from an academic study from York University, ’Women make up approximately 30% of the research/PhD students, 15% of the lecturers, 10% of the readers/senior lecturers and 5% of the professors. Males in standard full-time academic jobs are twice as likely to be at a senior level (above lecturer) than women (46% compared to 23%).’ In the 41 years that the Swedish Bank has been given a prize for economics, a woman has only won it once, and then she had to share it.

So the world economy is dominated by men, the corporations who control it are dominated by men, and those who study it and inform policy are also largely men. When these policies are implemented, at least in the UK, they are done so by a cabinet which includes only one woman, plus a token other without portfolio.

Since women have so little economic power, they can have had correspondingly little responsibility for the economic and financial crisis we are in. So how can it be just that they will bear the majority of the pain? We are not all in this together: women who care for children and other relatives are more likely to receive benefits that will now be cut. They will be left picking up the pieces for the broken society that results from the devastation of public services. They are disproportionately likely to work in the public sector and so more likely to lose their jobs.

In the 40 years since the implementation of the Equal Pay Act women have seen their influence and their control over property increase in the UK, but until we have equal access to economic power we will always be an easy target. Tweet

Time to Create the Renten-Euro?

Why do currencies fail? If you did not know any better you would assume it was because the people in the countries supporting them became lazy and demanded free plastic surgery at a moment's notice while spending all their days reclining in the sun enjoying a view over the Agean. Or some other scenario we can enviously imagine while stuck at our computers in the summer rain - us and the Germans we share our northern Atlantic climate with.

It was not so long ago that we were looking at this same scenario from the other end of the telescope. The narrow focus on the Second World War in UK history teaching means that many of us have a strong mental image of the collapse of a European currency, with the useful visual mnemonic of hungry shoppers trundling a wheelbarrow full of notes to the local bakery. The whispered suggestion that the Euro may have lost credibility to the extent that it be replaced by a new currency (as the Mark was replaced by the Rentenmark in 1923) makes clear the parallel with that period of German's history.

The most unhelpful talk of punishment should bring this image to mind, because nobody suggests that the German hyper-inflation between the wars was the result of the burghers setting up their deck-chairs along the Rhine in the hope of catching a bit of sun. We all learned, and we should remember now, that the German economy was destroyed by the demand for an unrealistic level of reparations. Punishing Germany for its economic woes, as many are suggesting we should punich Greece now, destroyed its currency and allowed space for fascism to flourish.

The CIA have helpfully compiled a list of the countries of the world ranked according to the size of their debts as a proportion of the GDP. I have no idea how reliable this data is, but surely the more important point is that so many countries have these debts. This suggests that there is something structurally wrong with the system of national and global financing, rather than the demand of people the world over for a decent life, or their willingness to work a reasonable amount of hours to achieve that.

The system of creating money as debt should be our target: for creating instability, and for permitting the extraction of the value of work by those who do none. If we are seeking targets in deck-chairs, those who live from rental earnings of their financial investments would be a good place to start. Tweet

A Brief Word, Mr Cameron

The class war has been launched, and not by the Labour Party. Cameron's speech today sets the scene for a principled stand in favour of the interests of his owners rather than earners. This should be greeted with no surprise - why else was he elected in the bungled events of last month? Certainly not on the basis of his charisma or incisive intelligence. This speech will be followed up by attacks in the media on the plans for strike actionsby working people defending their living standards before these have even be discussed much less voted through.

The political implication is that the public sector has enjoyed massive investment during the Labour years and that it will now pay the price while the private sector and the interests of capital see their just returns. The problem is that this is an outrageous untruth. My argument rests on the two pictures that are included with this post. Between them they demonstrate how the need for the shocking levels of public borrowing arose and where that money was spent.


The first graph demonstrates perfectly how we got into this mess by tracing public-sector borrowing from February 2007 to December 2008. It shows the steep rise that followed the banking crisis when our money was extracted in various ways to prevent the collapse of global finance. We didn't cause this, we didn't benefit from it, and yet the graph shows clearly that we paid for it.

The second graph shows the same variable - public sector net borrowing - between February 2009 and April 2010. If you compare the graphs you can see that we are on a totally different axis here. Annual borrowing of £35bn. in Feburary 2007 had, by April 2010, been massively increased to £160bn. This is not the result of pointless spending on government bureaucracy, or the overpayment of nurses and teachers, its precise location in time makes clear its origin in the bank bailout.



Perhaps as some sort of weak demonstration of honesty to justify his claim to have introduced a new type of politics Cameron does, in a subtle way, identify where the money went:

'The global financial markets are no longer focussing simply on the financial position of the banks. They want to know that the governments that have supported the banks over the last eighteen months are taking the actions to bring their own finances under control.'

This implicit admission of the massive transfer of value from public to private, from us to them, and the corresponding transfer of their debts to our public balance-sheet is the real political issue here. It is vital that working people defend their interests, and most importantly do not follow the divide-and-rule strategy that the attacks on public-sector pay suggest will accompany the inevitable summer of discontent. Tweet

Lies, Damned Lies, and Economic Statistics

The Chancellors debate was even more disappointing that I had anticipated. Perhaps I should be thankful that we were in the middle of a digital switchover debacle so the wise words of Alistair and friends were lost in an analogue wilderness somewhere between the Wenvoe and Mendip transmitters.

There were several examples of mislabelling that George Orwell would have been proud of. First, the idea of a debate, which surely should involve some element of fundamental disagreement, honestly explored, and with progress towards a resolution? What we saw was rather a performance, each man presenting a show of confidence that his obvious nerves revealed as dishonest. Each offering defensive responses intended to maintain face. The underlying premise of the debate was that capitalism works, an assumption that flies in the face of the financial catastrophe of the past few years, not to mention the environmental crisis that has been accelerating throughout the past several decades. Without this question being put, the whole event was revealed as a charade.

Then there was the fact that it was called 'Ask the Chancellors'. This seems to chime with the widely held, although deeply misguided, notion that believers in the catechism of neoclassical economics have anything useful to tell us about sorting out the economic mess we're in. These are the guys who learned this orthodox faith at university: it is hardly likely that they are going to be the ones to trace the path towards a stable and sustainable future.

Meanwhile the masochist of the year competition continues. Our three would-be chancellors are now wishing to match their prowess against Madame La Guillotine herself: putative Iron Chancellors competing with the Iron Lady. This is an embarrassing public display of posturing that does nothing to address the question of how we protect the vulnerable in our society in a situation where the economic system we have signed up to has allowed the money they have earned and the value they have created to be stolen from them.

All three must have seen the figures that will confront the person who actually walks into 11 Downing Street on May 7th. The graph illustrates how The Economist sees the situation (it illustrates the ratio of debt to GDP for a number of countries). These data were derived from World Bank sources. They seem to bear little resemblance to what the UK is reporting to the EU and offer no justification for the singling out of Greece for a particular beating by the foreign exchange markets. Given that these figures do not include either our private debts or our off-balance-sheet debts, it is a miracle that the pound is still trading at all Tweet

Who is rating whom?

What exactly are the credit-rating agencies up to? I've been intrigued by the debates about who in the world economy is really behaving like a pig. Under the rules agreed at Maastricht, all the EU members have to produce a periodic report detailing how well they are meeting the criteria agreed there in terms of national economic probity. This relates primarily to how much you borrow relative to how much you earn as a nation, measured in terms of GDP. The latest reports for 2009-10 are available on the EU's website.

Reading through these is a lesson in the cultural variety of Europe and so finding the necessary figures is not as straightforward as we might hope. The figures reproduced here illustrate two distinct measures of the state of a country's finances: the amount each needs to borrow this year (the deficit) and the amount of historical borrowing (the national debt). Both are as a percentage of GDP - the accepted measure of how much life there is a nation's economy.

This is important, because it means that the absolute sums of money Greece needs to borrow are much smaller than those Germany is borrowing, but because the comparator is larger Germany's debt appears relatively small. This is valid, in the sense that Germany can pay for its debts because it exports more. But the size of borrowing by Europe's larger nations reduces the pool of available investors, and itself makes Greece's debt less attractive. As speculators work against Greek debt, Greece has to pay a higher rate of return, which pushes it further into debt.

The first figure illustrates how much the countries expect to borrow this year. It illustrates that, in a recession, countries borrow hugely to keep their economies from imploding. Capitalist economics and the debt-money system makes this inevitable. But the comparison makes clear that the UK is borrowing more than Greece, with Ireland only slightly behind. This has been illustrated graphically by researchers at the University of Sheffield. The reason that Greece is coming under the cosh is that its politicians are not convincing the credit raptors that they will succeed in cutting wages and services, whereas Ireland has.

If we turn to the second figure, which illustrates total national debt, then we see the problem for Greece, whose historic debt is 124% of its national output in any year. This is the result of a country with a small capacity for production attempting to give its people a European lifestyle. But wasn't that the promise the European Union offered?

And what about the UK, which comes out of the second figure looking surprisingly - dare I say suspciously - healthy? As Faisal Islam explained on Channel 4 News on budget day, the reason that more money was found and the UK's deficit had apparently shrunk was almost entirely the result of changing the projections about economic growth. Even with these unrealistically positive expectations, our national debt is still projected to rise to 77% of GDP by 2013. I dare say the politicians in Greece wish they could get away with this, but they can't. Because we have the pound and they have given up their own currency to become subject to the whim of Germany, the bulwark of the Eurozone.

It was the large and powerful economic nations of Europe who created the euro, and in spite of the mealey-mouthed justifications around sharing the wealth with the transition and Mediterranean countries, it was always going to work in their interests. Export markets increased and the transaction costs of sending goods overseas fell. The price that had to be paid was supporting the weaker economies of the EU; Germany and France are now reneging on their part of the deal.

This is a dangerous game. The Greeks have already responded to German self-interest by raising the spectre of the Second World War. So the monetary pact is increasing the very tensions in Europe that the EU was created to prevent. Tweet

Markets Beware Greeks Bearing Gilts

As Greece stumbles its way towards the humiliation of an IMF loan it is the way this latest economic tragedy is being reported that causes most concern. The hegemony of market domination is complete as journalists report on the need for the country to rapidly cut public spending with no voice given to those in the country who need public spending to continue.

The flight from Greek national debt is a demonstration of the growing power of the market makers, as they attempt to sideline and denigrate the more vulnerable of the European economies. Far from reducing their power, the financial crisis has emboldened the finance traders, since it proved that no government had the courage to make politics and public interest count for more than market profit. With a few exceptions, commentators who might defend the interests of the citizen against those of the speculators are excluded from the media so that the public debate is framed entirely in terms of what Greek politicians must do to please the markets. There is no sense of irony that, even in the home of democracy, the wishes of the people have become an irrelevance.

The speculative attacks on Greece and the lining up of the countries that are to follow - Portugal and Spain are in the firing line first, since Ireland kowtowed and put its credit-rating before the needs of its people - is reminiscent of the 1997 Asian financial crisis. The movements in value of national economies and their debt enables the gaining of arbitrage profit for the speculators, whose room for manoeuvre always expands during a crisis. Hence the credit-rating agencies and the media are working together to create opportunities for profit.

The case for a new international financial system, negotiated on a democratic basis, grows ever stronger. The original role of the IMF was to intervene in just this sort of situation, and in its early days its facilities were used mostly by the European economies who were taking the rocky road to reconstruction following the Second World War. The Greek crisis is a clear demonstration of the need for a democratic and accountable lender of last resort for the world economy to replace the disaster of a financial system dominated by private speculative interests. Tweet

New Labour; New Redistribution

In an era when investigative journalism is a nostalgic memory and even the best political parties worry more about how they can present a policy than whether it is right, how reassuring it is to find a report that is full of good hard numbers. Such is the recent report on assets and wealth from the Office for National Statistics.

This is a rare and welcome survey, since too much policy attention is focused on income - whether in terms of taxation or inequality - whereas assets are a much better indication of the social health of a society. The graph indicates how unequal the distribution of wealth is according to deciles of the population. So the first bar represents the poorest 10%, the next bar the next poorest 10% and so on, up to the 10% who hold the most assets. It includes physical wealth (like cars and washing machines) and property wealth, as well as potential wealth, like pension plans, and actual savings.

Asset inequality, as measured by the Gini coefficient (where 0 is perfect equality and 1 perfect inequality), varies between different kinds of property. The gap between the richest and poorest was least in terms of actual stuff (0.46) and greatest in terms of cash holdings (0.81), with pension savings (0.77) and property wealth (0.62) coming somewhere in between.

The greatest weakness of the report is that it is a snapshot and includes no trend data. So we cannot gain a sense of how asset wealth has been changing during the years of Thatcherite policy. This information is available for income inequality, and is illustrated in the second graph, again measured by the Gini coefficient.

The rise in inequality under the Tories can have come as no surprise, since part of the purpose of the Thatcherite ideology was to reintroduce the economic incentive that fearing for your well-being and fighting your way up the wealth ladder provides. There is not much point in competition if everybody comes out a loser. However, the recent rise in income inequality under Labour is much more depressing. Mandelson's crack that he was seriously relaxed about the super-rich has clearly found its way into policy.

These figures all pre-date the costs of the bank bailout, which, as I have blogged previously, represents a massive transfer of wealth from poor to rich. The debt that has been foisted on us will be repaid at the expense of those who earn, not those who own. Labour's particular new twist on redistribution will ensure that both income and asset inequality increases rapidly over the next decade Tweet

Time To Declare the Jubilee

As we stagger on through the summer with our ball-and-chain of impossible debt it appears that the accepted view amongst commentators is that we must knuckle down, swallow the unpalatable work-ethic pill, and 'create more wealth' to pay it all back. These people must think that we all suffer from the sort of scale-blindness that makes it impossible to grasp debts of this size, just as we can't really feel compassion when we hear about thousands of children dying in famines or millions being threatened by climate change.

Because if we can maintain some sense of perspective we rapidly grasp that the implications of the public-spending cuts caused by bailing out the banks on such a massive scale are devastating. Borrowing announced in the budget amounted to £175bn. in 2009/10 and a huge £701bn. over the next five years. If you add in our liabilities for bad debts we have ‘insured’ (since they are already bad debts it seems certain that we are going to have to pay these liabilities) then the total we are in hock for is more than twice the value of all the activity in our economy for a whole year. Just the interest on this borrowing is more than £40bn., about a third of total NHS spending in any one year. Following this year’s budget public spending will fall from 48% of national income to just 39% by 2017-18, with the health budget facing cuts of £10.5bn.

The question of the public finances is the major political issue for our generation. Smart government accountants can find ways to shift financial liabilities through time but we should not be distracted from the central political question: why should the poor pay for the mistakes of the rich?

There is nothing new about the accumulation of wealth in the hands of a minority: capitalism only increases the efficiency, speed and scope of accumulation. The ancient Hebrews had a way of dealing with this problem: a jubilee, where there was a forgiveness of sins, a wiping out of debts — and universal rejoicing. True to the biblical idiom it occurred every seven-times-seven years. So this can be our political demand: an international debt jubilee to relieve the working people from the slavery of repaying mountainous debts for which they are not responsible.

Not paying your debts can be a little embarrasing, but it is nothing compared to the consumption of energy and resources (and its impact on the planet), the sheer tedious drudgery, and the social conflict that seriously attempting to pay back debts on this scale will require. Tweet

One Day All Money Will be Created this Way

In an earlier post I questioned what might be the limitation on the policy agreement between the Bank of England and the UK Debt Management Agency that one can create money from thin air which is then used to buy UK national debt. For a while I have been calling for a transparent process to reduce the the level of this debt from the unpayable quantities announced in the Budget. I now realise that there is a very murky version of such a policy already in operation.

So what prevents the UK government from eliminating the whole of our national debt in this way, by creating money from thin air, or what Mary Mellor calls 'fresh air money'? The traditional response would have been 'Inflation' - because 'once the economy picks up again' there will be too much money in the system. The created money is buying debt that was generated to pay the debts of the banks. So the fact that the Bank of England is countenancing this suggests that nobody expects the 'assets' that we have bought from those banks to ever be worth anything. They are not a future inflation risk because they are as worthless as we always expected - debt and definitely not assets.

Such a policy of creating money to repay our own debt cannot possibly make the UK less solvent, since it is removing the quantity of debt and thus improving out balance-sheet. So why is Standard & Poors threating to downgrade our credit-worthiness as a nation from three stars to two? Leaving aside the question of how much weight we should attach to the views of these agencies that were quite happy with the banks' utterly worthless assets, why should they be making this announcement now?

It seems that there is a struggle going on at the heart of capitalism and this is a shot across the bows of governments that are reneging on the deal they made with corporate investors and the sovereign wealth funds controlled by national governments - the two groups who buy UK national debt.

How does it affect the corporate bond-holders if much of our national debt is simply eliminated by sleight-of-hand? One would have thought that it would have increased their ability to extract work from the labourers of Britain to pay the interest on their gilts, since they are now competing with fewer holders of gilts for their share of this value.

As for national governments holding sterling as reserves, they may become uneasy (queasy?) about the value of these assets, since the QE buy-back policy suggests an inability to support the levels of debt that have been taken on by the UK government. But again, the reality is that as the level of debt is managed down, the ability of UK plc to make good on what remains is increased.

The real issue is a political one. Money is being created from thin air to enable banks that extracted huge amounts of value during the asset bubble to carry on functioning - to maintain themselves as ongoing concerns that can thus continue to hold these 'assets'. What must really frighten the board of Global Capital Inc. is the thought that we, the revolting peasants of these islands, might demand that money is created in a similar way to pay for schools, hospitals and the others services that are so under-financed.

So the downgrading of national debt is a shot across the bows of a government that has increased investment in the public sector in recent years - the lastest move by the privateers to establish their power over our national economic life following a time when the government was forced to introduce a de facto socialist regime. It reinforces that massive transfer of value to the rich that the bank bailout represents, and reinforces the rules of the capitalist game that those who earn must work for their living, while those who own need not. Creating money directly is a head-on challenge to these rules and this is why it must be undermined. Tweet

Gilty Secrets of the Treasury

For those whose interest in what the hell the government is up to with our monetary policy continues, I offer the Debt and Reserves (as if!) Management Report 2009/10 from the government's Debt Management Agency. I bet that looked like a cushy number when the tender went out.

There are some great data and graphics indicating the horrendous debt situation we are in. The report also informs us that the some of the auctions of government debt have had ‘largeer than average tails’ as a result of ‘volatile gilt market conditions’. A helpful note informs us that ‘the tail is the yield at the lowest accepted price less the yield at the average accepted price’, in other words the debt is getting harder to shift. This is confirmed by the admission that there was an ‘uncovered’ auction on 25th March, i.e. some of the debt remained unsold. (This is illustrated in the second reproduced graphic.)

Here is how the report describes the introduction of quantitative easing:

On 19 January 2009, the Government established the Asset Purchase Facility (APF) to enable the Bank of England to ease credit conditions in corporate debt markets by making purchases of private sector assets. On 5 March 2009, the Monetary Policy Committee of the Bank of England (MPC) announced its decision to use the APF for monetary policy purposes by purchasing £75 billion of assets (the majority of which would be gilts) in the following three months financed by the provision of central bank reserves. The asset purchases are designed to influence the quantity of broad money as a supplement to setting the level of the Base Rate.

In February Mervyn King got the wind up about the buying back of our own debt and wrote to the Chancellor to require that ‘It should not alter its issuance strategy as a result of the transactions undertaken through the Asset Purchase Facility for monetary policy purposes.’ The Chancellor maintained that the objectives of monetary policy had remained the same, and that these remained ‘to minimise, over the long-term, the costs of meeting the Government’s financing needs, taking into account risk, whilst ensuring that debt management policy is consistent with the aims of monetary policy’.

I'm afraid I can only bear so much of this deliberately obfuscatory prose. It does nothing to change my view that we need to have an up-front and just negotiation about how the debt is removed from the economy, together with a revision to the money-creation system that makes a similar bust impossible in future.

Yesterday, the Treasury Select Committee criticised the Treasury for focusing the money created through the QE policy on managing the monetary aspect of the problem, rather than supporting the real economy, which was the justification for the policy and the reason the Bank of England agreed to it. So far of the money created £2.8bn. has been spent on corporate debts, compared with £51bn. used to buy up government debt. Tweet

Would you buy a used economy . . .?

I am faintly tempted to make some sort of connection between the budget and the scrappage scheme, which might get as far as a joke if it weren't such a desperately serious business. The blogosphere is full of confident experts selling their opinions but I feel fairly comfortable letting on that I don't really know what it feels like when your economy goes bust. Perhaps we should be looking across the Irish Sea to get a few hints.

As usual the main budget stories have been apolitical and have avoided the most important issue, but tucked away inside the Guardian we find an article that tells us what the financial markets made of it. They weren't impressed. The result was an increase in the cost of insuring UK debt, which is now considered riskier than that of Spain and almost twice as risky as that of Unilever or France.

On the one hand you might be tempted to laugh this off, given that the risk is measured in terms of the very credit-default swaps that got the global economy into this mess and by the people who considered Lehman Brothers in good health the weekend before it went bust. On the other, as in all matters of economic confidence, it is a self-fulfilling prophecy, since as our IOUs become riskier they become more expensive to sell. So we have to work harder to pay off the debt that was taken on in our name, and a default is more likely.

Meanwhile, reading between the news, we find that the 'quantitative easing' programme, where the government invents money and uses it to buy the national debt, is expanding to twice the originally planned level. So it is only the sleight-of-hand process of removing some of the unwanted debt that is keeping the price as high as it is. The interesting question for puzzled economy-watchers is how long this bizarre stealing from Peter to pay Paul can carry on? And who will take the decision to call a halt to the game? Answers on a postcard, or in a comment. Tweet

Busted Budget

This has been an extraordinary budget season. Our economic destiny for the next 50 years is being changed and, because of the way the red, yellow and blue parties have adopted mix-and-match policies in recent years, there is no real political debate. I was sorely disappointed by the Green Party's response, which focused on the £5bn. of investment in the economy and ignored the £175bn. of borrowing (itself a significant underestimate) which will really determine the future of the economy and of our society and environment.

There are three reasons why we must reject this level of government borrowing, and in fact the whole system of money creation based on debt. The first is that it is socially unjust: it operates as a means of transferring wealth from working people who pay taxes to those who live from investment earnings. In order to buy government bonds you need to have spare money to invest, but the interest that they return will be paid by those who earn their money through work.

The role of public debt in enabling a transfer of wealth from poor to rich is sufficiently routine after 300 years to raise no qualms, but the less advantaged in our society will surely notice the pressure of the debt that Labour has taken on over the past year through increases in taxation and reductions in public services, which will combine with the rises in unemployment brought by the Recession. We already hear rumblings from union leaders. Dave Prentis’s ‘carats for the rich; the stick for the poor’ speech is only the beginning of a return to the conflictual politics that massive borrowing makes inevitable. Unless the policy is changed we face a period of social unrest and community breakdown that will make the 1970s look like Blue Peter, and perhaps an even more right-wing political backlash.

The third reason to oppose a debt-based economic policy is that it creates an in-built pressure on the planet and its resources. When the government creates money through issuing bonds it creates a parallel future demand for goods and services—goods and services which can only be produced using energy and resources. So the system of paying for future consumption by public debt, just like the system of creating money as private debt, is the central cause of exponential economic growth and the environmental destruction it brings with it. Building up an ecological debt that is far more serious than a mere balance-sheet.

So what is to be done about this fine mess that capitalist economics has gotten us into? If we begin from the understanding that the debt is unpayable, then our only alternative is to bring the debtor and creditor nations together for a negotiated round of debt forgiveness, a global jubilee. Without such a deal the decade ahead looks grim as we face internal unrest over the struggle for diminishing output and trade wars and possibly worse abroad. Rather than reliving the sad history of the 1930s Depression and the Second World War, we could just fast forward to Bretton Woods and negotiate a stable and balanced financial architecture based on the abandonment of the reserve currency system and a trade system that treats all the world’s nations fairly. Tweet

Starting to Feel Queasey

There is considerable discussion in green circles these days about whether we should support the nationalisation of the banks. We need to be clear about what this means. First, we need to distinguish between ownership and control. At present, the government is taking on ownership of the banks but, because of its ideological revulsion from any sort of economic management, it is not controlling them.

This is an irresponsible and dangerous policy. Brown and Darling appear to have naively believed that, once substantially publicly owned, banks would automatically start acting in the public interest, abandoning a lifetime of self-interested profiteering. They still appear reluctant to appoint citizen directors, or other public-minded experts, to the banks' boards. A green proposal for control of the banks would surely also include their breaking into smaller, regional and local banks with requirements to serve businesses in their local communities with lending facilities.

The more serious question is whether we can afford to support the banks. Where is the money coming from to balance the bad assets of the bankrupt banks? Initially, we were borrowing it from our children. Now we are creating it in return for our financial credibility in the world - hence the precipitate decline in the pound. The end of this road comes when private-sector investors refuse to accept government 'paper', effectively ceasing to believe that the assets and workers of UK plc can make good on the IOUs.

It appears that we are reaching that situation. The value of long-term gilts (money borrowed from investors now that we promise to pay in 30 years' time) is falling. The quantitative easing we have heard so much about is being used only as a bootstrap technique to conceal this unpopularity of government debt. So the Bank of England is providing itself from nowhere with the ability to buy our own national debt.

No country can absorb the sorts of debts that have been produced by reckless bank lending. The policy of quantatitive easing to finance the unfinanceable lacks all credibility and begins to suggest a situation where, by taking on bankrupt businesses, we may be moving towards banktupting our own nation. Tweet

No, no, no

Margaret Thatcher was not a politician whose reputation was built on her facility to produce a well-turned phrase. She was famous for employing armies of speech writers and taking elocution lessons. Recent politicial shenanigans have forced me to borrow one of her least eloquent quotations and, indeed, have filled me with the sort of rage that must have propelled the intransigent termagant through 20 years of destructive policy-making.

How can it be that we have seemingly taken on the chin decades of servitude to pay for the banking bailout? I have lost count of the dizzying sums involved (if anybody knows where these are handily calculated please drop me a line) but when I last looked it was already enough to keep my putative grandchildren on the capitalist treadmill long into their dotage.

The people we are dealing with here are wideboys and sharks. They are the kind of people who, when given and inch, will take a mile. So we should not be surprised that having pulled this scam so spectacularly in the autumn they are now coming back for another go in the new year.

When it comes to the executives and shareholders of Barclays and RBS, and those who trade in their shares, we are talking about people who are in the habit of living off the work of others. In a recession, of course, when the economy is shrinking and money is tight, they cannot extract value using the traditional methods. They need to bully and defraud the government and taxpayers.

The tactic appears to be for stock-traders to target particular financial institutions and drive down their share price. Those controlling large numbers of shares, working with short sellers, can provoke massive downward movements in company values. The media creates a shock-horror story headlining the 'inevitability' of more public money; the politicians dutifully oblige.

The phrase 'public money' feels safe, almost positive, and is a cover for the fact that money is now being extorted from us and our descendants to be sent directly to bank directors and shareholders. This was originally billed as an unpalatable emergency measure - it now appears to have become routine. The phrase 'impotent rage' seems to sum up how I feel. Any suggestions as to means for making this rage potent would be welcome. Tweet

Ooh, give me some more pain, darling

I enjoy discussing a conspiracy theory over a pint as much as the next person and, given the shallow and irrelevant nature of most media chat on issues of importance, one can only gain a sense of what is really afoot from trying to read the clues. I would condemn this as undemocratic and unaccountable government in normal times, but just now I am seriously hoping that what we see is not going to be what we actually get.

Apart from the concern about paying the money back, it seems a strategy that is highly likely to fail in its own terms. How many of us feel inclined towards a pre-Christmas splurge this year? Isn't it much more likely that we'll save the money? Rather than encouraging consumption, investment in a low-carbon economy a la Green New Deal would be a strategy worth getting into debt for.

The only justification for racking up spending at the rate we are expecting this afternoon is to keep an unsalvageable system on track for long enough to put something better in its place. The media tidbits about higher income taxes in the future are window, meant to conceal and to impress those amongst the electorate who have longed to see new Labour give some indication that it still represents the have-nots more than the haves. The level of revenue it is likely to accrue for future spending is a pathetic £2bn. and can make no difference to the big picture.

As I blogged previously, what happened in Washington ten days ago was equally meaningless. In this case window-dressing to impress the punters that the big players were talking to each other, and were agreeing, and that they could really make a difference. Hence the Nuremberg-style backdrop: negotiation to impress rather than to make any serious plans.

But I really hope serious plans are being made somewhere. Given the dire situation we are in even a completely undemocratic and secretive policy-making process would be better than the economic freefall and possible social breakdown that is threatening. Gordon Brown might be the person to lead this debate - a politician with a good grasp of economics is valuable in such a crisis. If we see other governments following a similar finger-in-the-dyke strategy to our own Darling's after today then I think we can assume that this is the case. We can hope that a longer-term plan is being assembled and we can do our best to democratise that process by debating our own plans for a steady-state and sustainable economy in pubs, on buses and in any media to which we have access. Tweet

Gordon is Not a Moron

On Monday Alastair Darling will announce his plans for borrowing. He will be quite explicit in his hypocrisy. All the ideological ranting we have listened to for the past 40 years about how spending would destroy the economy has suddenly been abandoned. Was it wrong for all those years? Or is our economy so close to collapse that all the rules we have lived by can be gleefully abandoned?

The scale of borrowing is set to exceed $100bn., which is three times more than the government predicted. What are we to make of this? How can we possibly take any more of those projections - neat lines of exactly 45 degrees on x-y axes - seriously ever again? It is quite clear that the government economists are not in control and don't know what they are doing.

So what are the economic rules for? One begins to suspect they may be made up to find excuses for not doing what the people in the democracy demand. Want a new hospital funded from government spending? Sorry, we can't possibly borrow more than 40% of GDP. Could we have more investment in the railways so that people have a serious alternative to driving? Can't do that because we can only borrow to invest.

It all turned out to be nonsense. Because when it looks like a situation might arise where really radical economic change is called for, any amount of money can be borrowed to ensure this doesn't happen.

When this level of borrowing was first mooted I remember waxing biblical and wailing about the debt hanging around our descendants necks unto the tenth generation. I thought I was being rhetorical, but the size of debt we're talking about raises questions of intergenerational equity in financial, not just planetary, terms.

What is our chuckling ex-chancellor thinking about all of this? I have a sneaking suspicion that he may have been expecting it just like I was. Is it just possible that he is deliberately provoking this massive indebtedness to force us towards the grand jubilee, the wiping out of all national debts, and the road to the New Jerusalem? Tweet

One law for the rich

There is so much to learn from the present tumult on world financial markets - make sure that you are saying clearly what you know and think on the bus and in the local shop. This is a great opportunity for radicalisation that should not be missed. It must be increasingly obvious to those who do not usually share our scepticism about the way our economy is organised that, far from being a uniquely powerful and 'efficient' system, capitalism is in fact an impressively attired version of various low-level financial scams.

A question that is being asked increasingly is: where can the governments get the money from to 'inject' into the financial markets? There are two possible answers to this question. The first is that they put it onto the national debt, leaving it to be paid back by ourselves and our children through losing a share of the value we create via taxation.

The other is that they simply make it up. This is fraud on an epic scale - but if it is in the national interest why should we worry? I think the answer is that we will still have to pay. Just like the national debt, it is a way of forcing the poor to subsidise the rich. The debt created while the banks were booming may not be real money but it was still used to buy real stuff. So by creating non-existent money and swapping it for worthless assets the government is colluding in this fraudulent creation of value by the rich.

Another question I would like to add is: do we need stock markets? What function do they actually serve? Is the buying and selling of bits of companies of any real value? It is now generally known that stocks and shares are actually just alternative vehicles for gambling to horses or dogs. How about serious financial regulation that required investors to stay with the company they had chosen for a minimum time period of, say, a year. That might lead to stock markets that supported rather than undermined the real economy.

As Evan Davies rightly stated on Today this morning, capitalism is a roller-coaster, but one that, rather than choosing to ride, we are born onto. For those who are beginning to grow a little sick and tired might I suggest moving your assets and consumption into the alternative, mutual parts of the economy? Tweet

Time to do the Maths

The last estimate for the amount of public money going to Northern Rock was £50bn. For that price we've bought ourselves a bankrupt bank. It isn't clear how many of the other banks are also teetering on the brink but the government is sufficiently concerned to oblige us to buy their worthless assets (euphemistically known as 'mortgage-backed securities') to the the tune of another £100bn. or so.

These numbers are nice and round. If we round the population of the UK to 50 million we can see fairly easily that we have recently spent around £3000 per head on bankrupt banks. This does not feel like a very good long-term investment that is going to serve the public interest.

Let's compare it with the post offices. Here we paid Adam Crozier £1.3m last year and bonuses to board members came to £4.5m. in total. This is a reward for closing 20 per cent of our post offices this year - 2,500 are due to close by the end of 2008. One of those is my local post office in Uplands. It is a profitable business but post office managers have closure targets to meet in order to receive their bonuses this year so it is on the list.

The cost of keeping my post office open is a mere £24,000, so if I could find eight other people and ask them whether they would rather give their £3,000 to keep the post office open or keep some degenerate banks afloat I could raise the cash in half and hour or so. Of course, although we apparently live in a democracy, we don't have that choice. Instead, we are probably going to have to put our hands in our pockets as a community here in Stroud to subsidise our post office.

At least our postmaster is resisting the hefty bribes on offer for redundancy packages. Many others, especially the old and tired, are taking the money and creeping off to retirement. As with the pit closures, they are being offered a good deal now and told they will get nothing in the future if they refuse it. Our money is being used to bribe people out of their livelihoods.

This week we saw Housing Minister Caroline Flint having to remind herself that she should put the interests of the British people first. Just like the rebranding of the Post Office as 'the people's post office' this sort of doublethink is only necessary becase it is no longer the truth. What is happening with the Post Office is symbolic of what is happening to our democracy - we are allowing it to be stolen from us by profit-driven corporate executives. And the solution is the same too: use it or lose it. If you vote for one of the parties that have prostituted themselves to corporate interests (or don't vote at all) you only have yourself to blame. Tweet