Friday, December 19, 2008

Conspiracy and the Collapse of the UK Economy - and why the US will be next

Note: This post takes a slightly winding road to a rather disturbing conclusion. The winding nature of the discussion does have a purpose, so bear with it....

I thought I would start today's post with something a little lighter than usual, before moving into darker matters. I found the following quote pertaining to the request for a bailout for the UK car industry:
Unite joint general secretary Derek Simpson said that intervention must come within the next week. "What is being asked for from the Government is not a handout, not a gift, it is access to strategic funding for a sector that is key to our economy's global stature and one that will play a lead role in its emergence from this recession."
So there you have it. It is not a houndout or a gift, but 'strategic funding'.

Meanwhile, in the US, the bailout of the motor industry has started for real. As I have mentioned in this blog previously, the US 'big three' were in trouble long before the economic crisis arrived, and there is no reason to believe that the fundamental problems of the US car industry can be rectified in the few months of operations covered by the bailout. In other words the bailout is very much akin to burning of money, as it is certain that the auto companies will need more help in March, or will fall into bankruptcy. It is interesting to note that Cerberus, the owner of Chrysler, is unwilling to put further capital into their sickly child....

I wrote about the symbolism of the US car industry a couple of months ago. In particular Ford (the least unhealthy of the big three) is symbolic of the US as an economic power. I mentioned at that time that there was a view that the company was 'too big to fail', and related this to the attitude of the US as a whole. Just as the car companies are too big to fail, there has been an attitude that the same is true of the US as a whole. However, the car companies are failing because, just like the US economy as a whole, they are bloated with fat. We are living in times when assumptions are going to be tested, and the assumption that the US will always be an economic power is an assumption that looks very shaky. As yet, there is still an ingrained belief that the US can not fail...

I have read an interesting article in the Times, regarding the weasel worded quantitative easing in the US (printing money for those who have not had the expression explained).
Quantitative easing is, in essence, what you do as a central bank when you have run out of things to do to avert catastrophe. It is that moment in the horror movie when you are backed up into the kitchen by the intruder and you start pulling out the kitchen sink as your last weapon.
The columnist is quite right that it is a measure of the desperation of governments to reverse the slide. The columnist discusses the dangers of deflation, and places printing of money in this context. However, at least he is aware of the risks:
The biggest risk is in storing up trouble for the future. When inflation gets going, the central bank will have to be very quick to reverse course: mop up all that excess money and push interest rates much higher. That won't be a pleasant policy for an economy just starting to recover. But it's a problem that the Fed would love to have right now. Not that those central bankers would put it quite that colourfully.
At the moment, the US is getting away with this policy, as there is still a prevailing view that the US is too big to fail, that the $US is 'the' reserve currency, that so much trade is conducted in $US and so forth. I have long argued that the fate of the US economy is symbolically tied to the fate of the UK economy. The UK is a major Western economy, and the failure of the UK economy will be a major step in raising the question of the viability of the US economy. At its most basic, if the UK can fail, then why not the US? I will therefore discuss the failure of the UK economy, which is even now collapsing, but with the government trying to hide the reality of that collapse.

The UK is now at the stage where the markets are now seriously confronting the fact that it is a basket case. I had the following to say, back in November of 2007:
All the while this is happening the government will fall into crisis. With a falling pound, an economy collapsing around them, and an already overstretched borrowing position, they will be faced with ever more expensive borrowing, meaning higher interest rates, or massive cuts in public expenditure. There will be no room to manoeuvre. The only solution will be to cut back on expenditure. Continuing to borrow will be too expensive, and would destroy the value of the pound, as well as creating an even deeper crisis of credibility that the UK government can manage the economy.
There is no cut back in expenditure, borrowing is out of control, and the currency is responding exactly as I predicted it would. We have this article on the relentless collapse of the £GB:
The devaluation is only matched by the moment in 1931 when, under Ramsay MacDonald, the UK was forced to abandon the gold standard, plunging by more than 24pc against the dollar. The parallel is significant, since many economists have attributed the gold standard exit as one of the main reasons the UK enjoyed a relatively mild depression in the 1930s, while the US suffered mass unemployment and saw its economy shrink by a third.
It is an interesting comparison. However, today is not the 1930s. The UK was not saddled with the bloated infrastructure, bloated government, and still had a massive manufacturing sector. I can not emphasise enough - it is not the 1930s. It is a new century, and the UK has a very different economy from that time. It no longer has the huge manufacturing base to allow for an export led recovery. The devaluation of the £GB will not create an overnight competitive edge for the UK economy, as manufacturing will take a long time to respond to the new competitiveness. There is simply not enough of a manufacturing base to make up for the collapsing service economy (including the collapse of financial services). The same can be said of the US, where the state of the car industry is symbolic of a widespread decline in manufacturing in favour of the 'service economy'.

From the same article:

Although some are warning of a full-blown sterling crisis, the Bank believes that the fall in the pound, provided it does not accelerate, could benefit the economy by pushing up exports and boosting UK revenues in the coming years.

It may also prevent rates from having to fall to zero, since a weaker currency tends to generate inflation. Importantly, investors are not shunning UK government bonds, indicating that they have not yet lost faith in the authorities' ability to deal with the economic crisis.

It is in the last paragraph that my concerns are rooted. The big question for the last point in the quote is who exactly is buying the UK government bonds? Is it the UK banks, attempting to shore up their balance sheets? If so the government is lending money into the same banks, who are then lending it back to them. It is for this reason, I suspect, that the Bank of England is planning to print money, and the same reason why they changed the law in the banking in an Act of this year as follows:
235 Weekly return
Section 6 of the Bank Charter Act 1844 (Bank to produce weekly account) shall
cease to have effect.
The act can be found here, and the relevant section is on page 115. Here are the words from the original act of 1844 that has been repealed (to be found on the first page of the pdf copy on the BoE website):
6 Weekly account in form in schedule (A.) to be rendered by the Bank of England
… An account of the amount of Bank of England notes issued by the Issue Department of the Bank of England, and of gold coin and of gold and silver bullion respectively, and of securities in the said issue department, and also an account of the capital stock, and the deposits, and of the money and securities belonging to the said governor and company in the banking department of the Bank of England, on some day in every week to be fixed by the [Commissioners for Her Majesty’s Revenue and Customs], shall be transmitted by the said governor and company weekly to the said commissioners, in the form prescribed in the schedule hereto annexed marked (A.), and shall be published by the said commissioners, in the next succeeding London Gazette in which the same may be conveniently inserted.
Essentially, it now possible for the Bank of England to print money and not tell anyone about it. I was originally made aware of this on the Guido Fawkes blog here. I have previously quoted several reports that there have been problems for the government in raising finance. I will once again quote one of the articles I used before:
The UK and Italy struggled to sell bonds on Thursday in a fresh sign of the difficulties governments are facing because of the debt needed for economic stimulus packages and bank recapitalisations.

The two bond auctions saw both governments forced to pay higher yields to attract investors and Italy scaled back the amount on offer.

Analysts say it is an “ominous” warning that debt raising is likely to become even tougher in the coming months if problems are emerging so soon after government announcements to increase issuance. A record of more than €1,000bn ($1,290bn) of debt is expected to be issued in Europe next year
Back in November of 2007, when I wrote 'A Funny View of Wealth', my argument was that the UK's economic growth for the last ten years was built on a bubble of debt. This has now been partially accepted by mainstream economists and the media. However, they have never really fully accepted the implications - possibly until now. My belief, and it is no more than a belief, is that the government, and the Bank of England have finally realised the scale of the difficulty. The wall of cheap credit that flooded into the UK market is gone, and nothing much is left of the UK economy without that financing. I have estimated previously that the UK GDP has been overstated by about 30 % (I am being conservative in this estimate), due to the multiplier effect of all the borrowed money flooding into the economy. The economy is now contracting back to the level of non-debt inflated output.

As a result, we are now in a position where the government finances are sinking faster than the already pessimistic predictions of the government. From the Telegraph:

Official figures show that the budget deficit climbed to £16 billion in November, the largest since records began in 1993. In the same month last year borrowing was £10.7 billion.

Over the first eight months of the current financial year, the Government borrowed £56.1, nearly twice the £29.2 borrowed in the same period last year.

The public finances are worsening sharply as companies lay off staff and unemployment rises. Gordon Brown's moves to bring forward some public spending projects amid the recession has also put the budget under more pressure.

Government receipts fell by £2 billion in November from the previous year, to £35 billion. Income tax receipts were down by £1.4 billion.

Meanwhile, spending was £47.6 billion, up by £2.9 billion from last year. Benefits payments rose by £1 billion as more people lost their jobs and started claiming welfare.

In the Pre-Budget Report last month, the Treasury set out plans to borrow £78 billion this year. Over the next five years, borrowing will rise by £500 billion and the Government's stock of debt will exceed £1 trillion.

And now, my prediction from 'A Funny View of Wealth':
The second implication of a recession, or depression, in the UK economy is that government spending will almost certainly rise in relation to government income, as tax receipts will inevitably fall [italics added]. In this case the proportion of borrowing going towards spending will rise to pay for unemployment benefits, managing increased crime and all of the other associated ills of a poorly performing economy - unless the government chooses to cut spending overall.
In other words, as expected, government revenues are collapsing, whilst costs are sky-rocketing. When I wrote these words, I had no idea that the government would also dig themselves ever deeper into a financial hole with the string of bailouts. As such, the situation is far worse than I ever envisioned....

Here we come to the crux of the issue. Even as I am writing this article, the UK government is sinking into bankruptcy. I am not a conspiracy theorist, in that I do not believe there is any grand plan to create a new world order. However, I do believe that individuals and governments do occasionally conspire to deceive the public.

I actually believe that, at this moment in time, there is a conspiracy. That conspiracy is not the result of a great master plan, but is the result of the ongoing incompetence of government, and is a desperate attempt to hide that same incompetence. Over the last ten years, the UK economy has effectively been supported by borrowing, and without that borrowing it is collapsing. The government does not want to admit to the public just how bad the situation actually is and, as a result, they have come to the point at which they are resorting to ever more desperate measures.

I believe that what we are witnessing is an appalling conspiracy. I believe that the government is planning to use printed money to finance the banking system, and as a quid pro quo, the banking system will finance the government borrowing with the printed money. The repeal of the provision of the 1844 Act is an attempt to cover up the actions of the government. If I am right, we do indeed have a conspiracy.

The most tragic part of all of this is that the conspiracy, the idea of printing money, will just make the final catastrophe even greater. It is a an economic Ponzi scheme. It will finally end in tragedy, and makes the government no less criminal than the now infamous Madoff fraud. Printing money to lend to banks to then lend to the government is completely unsustainable, and will lead to hyper-inflation. In the case of the US they are still getting away with money printing, because the $US has not weakened significantly, meaning that they are not yet importing inflation. In the case of the UK, the £GB is collapsing, and inflation will therefore be imported. There will be a lag in the importing of inflation as there is a time lag as contracts are renewed, and as previous contracts run their course. However, we have already seen the inflationary effects in the increase in the price of food, which is a far more responsive sector than, for example, imported electronic products from Asia.

Now, to return to the Ponzi scheme. Part of me hopes that I am wrong, but there is just too much coincidence and, when combined with the inevitable weakness of individuals trying to hide their failures/incompetence, we do have the makings of a potential conspiracy. The situation can be summarised as follows:
  • The government has taken stakes in many banks, allowing them a direct line into the operations of the banks
  • The banks are increasingly reliant on government finance for survival
  • The £GB is already collapsing
  • Government finances are in tatters, and the government is finding it increasingly difficult to raise finance
  • The BoE has admitted consideration of printing money, and then there is the repeal of the 1844 Act
No smoke filled rooms to plan world domination, just a desperate scrabble by the government to dig itself out of a hole. This is the stuff of real conspiracy. Attempts to hide incompetence, ineptitude, and downright foolishness. Unlike the US, the UK does not have the luxury of confidence in the currency, and this is why they need to hide their activity.

And the consequence, like all Ponzi schemes, will be a collapse, and then the dominoes will start to topple. The US will be next. The bubble of the value of the $US is set for collapse, and only a false confidence in the $US will continue to support it. When the UK Ponzi scheme collapses, it will take the US with it. As I stated, when the UK is seen to be built on foundations of sand, the same question will be asked of the US.... there are too many commonalities between the problems for each of the economies, and commonalities of the 'fixes' being implemented. The countries are mirrors of each other.

After all - the US is already running the printing presses. They have outsourced swathes of their manufacturing. They have built a 'service economy' funded by debt. They are, and have, run comparable trade deficits. The government has bailed out the financial institutions, and has the same influence on banks. US bonds are selling despite negative yields. Government debt is spiralling. Unemployment is going up, as are government costs. Revenues are going down. I could go on....

Note: I sincerely hope that I am wrong in all of this. I have always been very gloomy about the prospects for both the UK and US economies (though initially I was more optimistic for the US - I shared the same false confidence that many hold). However, the magnitude of the foolishness I am contemplating in this post is of a scale I find hard to accept. There is a part of me that is suggesting that what I am writing must be mistaken. However, each time I have the thought, it is crowded out by what I can see before me. As I said, I hope that I am wrong....

Note 2: I will try to respond to some of the comments made on my last post, and also on the taxation post, later today or tomorrow.

Note 3: I have had the first comment on the post (see below) from 'anonymous' and it was such an excellent and well written comment that I thought I would respond immediately. Anonymous asks:
It's madness to think that once the ship, SS Gt. Britain (which is terminally holed below the waterline) has been righted, that everyone can climb back on board and resume partying.

So what has got to be different? What new direction is capitalism to take? Have they a plan B?
The answer, in short, is that there is no grand plan, no vision, just events and reaction to events, and a collective burying of heads in the sand. It is why I suspect that they are engaging in the deception, and it is why I am so concerned. There is no plan A worth speaking of, just scrabbling in the dirt, hoping (with a sense of despair) that it will all come right. There never was a clear plan, no thought to the long term, nothing but hopeless dreaming.

Plan B, - without a plan A, I think not.

For the question of the new form of capitalism, I think I have answered this throughout the blog. Life is going to get tougher, as we live in a period of hyper-competition. As for the form of Western capitalism, I am not sure. Either we can dream alongside our leaders, in which case we are finished, and condemn ourselves to decline. Or we can accept the nature of the world that, day by day, is revealling itself to us. That means we accept that we have to change, and those changes will be hard to live with. That is why I also publish ideas on how we can move forward....

Thank you for an interesting comment, Anonymous.


  1. Thanks for another valiant effort to untangle the means from the ends, or was it ends from the means? - As Blair once said.

    As ever, when looking down on the situation, I still see no clear picture, only chaos and confusion with no coherent goal in sight.

    Brown emerges triumphant (just like Bush) from behind the curtain to present himself as Caesar to the assembled press corps. (madness)

    He is on a role, he is the anointed one to lead the nation out of this wilderness. In fact, through his wisdom and genius, we will emerge a stronger, braver nation, to quide the world to the sunlit uplands.

    How can you counter that?

    Meanwhile, back at reality, where is all this leading? What are they trying to do? Where is their light at the end of the tunnel? What is their big picture? When the dust has settled what will have changed?

    It's madness to think that once the ship, SS Gt. Britain (which is terminally holed below the)waterline) has been righted, that everyone can climb back on board and resume partying.

    So what has got to be different? What new direction is capitalism to take? Have they a plan B?

    I dunno, you tell me.

  2. Thank you for yet another well-argued post. I only wish I could disagree with you but the facts are becoming clearer and clearer by the day now.

    I think the UK government will find that the repeal of the 1844 Act has exactly the opposite effect to that intended. Once it becomes apparent that the printing presses are at full throttle the lack of transparency will spook the market and make it harder not easier to raise funds. Such an act can only be one of desperation and I search in vain for an alternative explanation to yours.

    I made a similar point about the resemblance of Keynesian deficit financing to Ponzi schemes, pyramid selling, and chain letters in a comment on Polly Toynbee’s article in Comment is Free today. The link is

    although I’m not sure the article adds much to the debate.

    However I am now more than ever struck by the similarities with other declining or falling nations, most notably the ancien regime of pre-Revolutionary France. Bourbon policies and their consequences bear more than a passing resemblance to those now being followed by the British Labour government - deficit financing; uncontrolled government expenditure on non-productive items (then mainly military, now of course almost anything but); unaccountable government; tremendous growth in bureaucratic complexity; confusion of the national interest with the interest of the government; and the singling out of some classes for special treatment (then aristocrats who had tax exemptions, now the public sector with salaries, pensions and job security completely out of line with the rest of the population).

    We all know how that ended...

    PS your RSS feed on this post seems only to produce your notes, not the finished article. A glitch in the system, perhaps?

  3. Like a poster on your previous column, I wonder about the effect computer based economics and trading has on things. I remember an interesting documentary -forget the name right now - which showed how a big unexpected crash in the 90's was exacerbated by flawed economic models and automated trading making the crash worse by continuing as programmed and trading stocks that made the crash deeper.

    Measures were put in place afterwards to be able to stop the automated trade, but if the economic theory is wrong, you can put the right figures in and still get the wrong answer, and if the economics are complicated enough that computer assistance is needed, and it gets the sums right for the short term, the trend will be to trust it for other calculations, even if some of the inputs are really only educated guesses based on theory.

    Coupled with the divorce from economic reality - the other poster is right, money has gone from a real thing you can hold in your hand, backed by real resources, to abstract numbers on a screen - you get situations where people with difficulties understanding the complexities trying to understand an economy using tools that can give misleading results if the data is flawed, and trusting the tools too much as they have worked miracles before.

    Computers are a powerful tool for certain but get the inputs wrong and the calculations will be flawed. Garbage in, Garbage out. Computer modeling breaks down by the famous "Butterfly Effect" in complex environments such as weather patterns, social or economic models, but many people can take it as gospel and not realize it can only predict broad trends, and must be verified constantly.

    It makes me wonder if the economists have run models and based actions on them forgetting that their actions and others reactions change the economic environment itself, thus changing the effects of the model in unpredictable ways.

    That said, some of the reaction of the UK and US seem to be based on more animalistic reasons ie panic after their delusions are shattered, their theories blown to pieces, and the stark reality of an imminent collapse.

  4. cynicus

    As always a well thought out and logical essay.

    Since it is now obvious how this is going to pan out, there is no way the govt will change direction now, in your opinion what sort of time scale are we looking at for the final collapse to occure. I'm assuming that the Quantitive easing proposed will be on a scale that will provide an immediate short term boost to the economy, thus delaying the inevitable collapse. Or it could be that this will spook the international markets so much that it will bring forward the collapse.

    Either way, I'm factoring this scenario into the direction I'm taking my business so any comments from you will give me more food for thought.

  5. I posted the following joke on Robert Peston's blog back in October; it bears repeating:

    "Crisis? What crisis?"

    Mervyn King comes up to Gordon Brown and says, "I'm in terrible trouble! the Bank of England is nearly broke! I've only enough for next month's salaries and if I can't pay the rates, Boris'll be mad at me, and there's nothing coming in! What'll I do?"

    Gordon thinks for a moment and says "Don't worry Mervyn. This is easy. Two things: first of all, don't tell anybody else. Second thing: get your printing presses going and print up as much money as you need. I can't really get any more off the taxpayers, you know."

    Mervyn says, "That's a great idea Gordon! Why didn't we do this sooner! But, " he says, "supposing somebody comes to me with a twenty pound note, and says 'Can you give me twenty real pounds for this note, like it says on it?' - and I haven't got the money?"

    Gordon says, "Well that could be a problem. I tell you what," he goes on," You can fix it with a wee change in the notes. Where it says 'Promise to pay the bearer...' just put 'We'll do our best...'"

  6. Just a note from across the Atlantic. Well written; I have not read any of your previous posts, however, I believe I will now.

    More to the point, I would say that your view of the U.S. economy is too bright. Please review, especially the Alternate Data page. Please note that most of the "SGS Alternate" data is simply defined by relatively recent goverment calculations of the past.

    From my seat, I would say that the growth of the U.S. "Debtor Empire" has indeed seen an importation of inflation within the U.S. I would actually state the U.S. government and Federal Reserve have purposefully imposed on emerging nations in order to create a global Ponzi of the type you describe between U.K. banks and the government.

    I would also assert that a loss of actual buying power of the dollar of greater than 90% over the last hundred years is rather disconcerting.

    For an entertaining--if not depressing--read, try Empire of Debt by Bonner and Wiggin.

    In anycase, I wish you well and good luck in these interesting times.


    P.S. I am not affiliated with either of the publications mentioned, I simply find them useful.

  7. Ok, I hold my hands up, I'm not savvi enough to get a handle on this....but waddya think?

    Something I've just come across.

    Is there any validity in any of this?


    "Some of those new financial poisons were called credit default swaps (CDS's), some sixty to seventy trillion worth that are currently reeking havoc with AIG, Lehman and Citigroup, as well as many hedge funds. But if you think these are bad, wait until you see what happens when interest rate swaps (IRS's) meet double-digit interest rates. It will be like "Frankenstein Meets the Wolf Man." This event will quite literally be a financial Armageddon from which none will escape.

    Enjoy the low rates while you can, our fine Illuminist miscreants. When rates go into double digits, it will be like the sun going supernova. Hundreds upon hundreds of trillions in notional value are at stake when the interest rates do what they did in the early 1980's. When the huge imbalance between low fixed rates that have been exchanged for what will become astronomical variable rates starts to generate losses, the likes of which have never been seen before in the history of mankind, the IRS's will reach critical mass and start a thermonuclear chain reaction that will vaporize everything in their path."

  8. Mark

    I'm very much looking forward to your future article on the banking system. What I'm currently trying to understand is why most people think that the economy, as a system, is basically stable in the first place.

    At some point in the past, someone decided that we should issue our money via fractional reserve banking which, on the face of it, cannot work without perpetual economic growth, despite the world and its resources being finite. You suggest that the UK's economy is really 30% smaller than its current GDP, yet maybe it is FRB that dictates that GDP can never be allowed to shrink to its natural level - which would solve the mystery as to why the government is behaving in the crazy way it is at the moment. Surely if the country as a whole was told that it had to return gradually to its 1998 or 1988 standard of living there would not be rioting on the streets, but maybe under FRB this cannot be allowed to happen; perhaps catastrophic collapse and then a resumption of growth from the low is the only such option available.

    I hope that your future post on banking can confirm whether this naive interpretation of the FRB mechanism is correct.

  9. Gordon Brown's government will spin and spin and spin this. They will spin it so hard that, like anything rotating that quickly, you wont even be able to make out what the pattern is.

    The government will take ever greater control, borrowing more fake money to bail out more businesses and individuals. There will be some unrest, and so the many new laws implemented for 'our protection' will be used to keep control.

    Instead of realising this is all their fault, the masses will think Gordon is 'saving them' from the chaos that would otherwise ensue.

    As people become unemployed, they will gain benefits. As money gets tighter, they'll be made to work for their benefits. The more unemployed you get the more people will then be working for the government.

    The government will spend huge amounts convincing everybody that, if we just work hard for the community, we'll be helping to pull our comrades out of the mire.

    So what do you call a state where everybody is the same, working on behalf of the government, for subsistence-level supplies? Where government keep control with draconian powers? I'm sure there must be a name for that...

  10. Hi, I've been a regular reader of your blog for the past few months and find it fascinating and chilling at the same time.

    I know you don't like to give advice on this, but you seem like the best guy to ask- I've been working very hard the past year to save money and have around £15,000 tucked away. The idea of all my work turning to nothing with the pound crashing scares me, and I would really appreciate some advice about what would be (in your opinion I know) the best place / the best commodity to put my savings into to avoid their value being wiped out.

    Thanks very much!

  11. It seems that Steve Tierney is trying to allude to "socialism" in a way that is neither accurate or useful. I don't see how what is happening now connects to socialism (rather than facism, State corporatism, totalitarianism, fraudism ) in practice or theory -- no more than UK / US 'conservatives' have espoused financial conservatism for the last +/- 15 years. F.eks => Nouriel Roubini calls it the socialisation of losses and the privatisation of profits.

    As CE suggests in the article, we are in desperate times -- it seems to me that any pretence at ideological motivations has been abandoned long ago.
    It's a minor point, but there is so much irrelevant waffle, posturing, obfuscation and bullshit surrounding the financial crisis that accurate, definitions and thought should be used to describe and deal with it.

    Using emotive terms like socialism or capitalism to describe what is happening seeks to hide the reality of our situation rather than reveal it.

    I have appreciated your contributions, but found this one less intelligent than your previous posts.


    This link (and others I have read) seems to point to growing instability in Russia, China and other countries due to protectionist methods, and points out other countries taking similar steps.

    It mentions the rioting in Greece, and while the trigger for the riots was the shooting, the underlying reason for discontent is the economic situation there. Also of note is the "sympathy" riots in France, Spain, and Italy.

    Protectionist methods from some countries are going to clash with the goals of the globalist ideologies such as the US and UK, the World Bank etc, and are bound to lead to international tensions. (of course the globalist nations are just as quick to use protectionist methods when it suits them, and claim it is helping the global economy, but that is another matter)

    While at the moment discontent in Britain is confined to our usual moaning, I see no reason why it would not end up with similar instability as the crisis gets worse, especially as it enters the public consciousness just how badly it is going to effect them, how the government has focused all its efforts at keeping the rich wealthy by exploiting everyone else, and the authoritarian methods to enforce such theft, such as the proposed powers to bailiffs to break into houses and restrain householders to collect debts.

    The Government is showing none of the aspects of a "normal" democracy, as is shown by its excessive secrecy, lies, spin and arrogance. It's handling of the economy, and of the crisis has shown that it thinks it knows best, and hides its dealings to stop the population having a proper discussion about what the effects could be, as is so ably demonstrated by the change to the bank charter act to hide its money printing efforts.

    This last cover up could very well be the final straw for people to take if hyper inflation does begin to take hold, or an already artificially inflated but under control sterling is tipped into hyper mode due to the general population finding out that the government is not disclosing how much it is printing, and the panic that could ensure from it.

    Of course it is precisely due to worries about panic that the government is covering up its figures, but this could spectacularly backfire if said population finds out about the cover up just as inflation is too high to spin away as due to something else.

    My fear is that due to the internet the news of the cover up cannot be suppressed, we are not in the days where the news was confined to a few newspapers which the government could quietly hush up for the good of the nation. The story is out now, and it cannot die without stopping all traffic, as someone somewhere can keep propagating it. While I dislike censorship, the timing of release of news can be critical, especially when it regards the economy due to the effect of confidence on it.

    At some point the spin will not stop the possibility of dangerous inflation from sinking in to the minds of the population, and when it does, the fact that the government has covered it up is likely to cause the panic it hoped to dissuade, and thus the social instability unfolds.

    There are only two real things we can do about this.

    First, hope the government knows what it is doing and can control the inflation - It's record so far has not been impressive to say the least.

    Second, preempt the panic by drawing the publics attention to the danger BEFORE the effects of inflation get to an unstable condition. If the government cannot hide what it is doing, and enough pressure is put on them by the public as well as informed economists, It may stop the rot before it brings down the house.

    While the second option is just as risky as the first, the more minds aware of the problem means a public debate happens before the situation is unstable and panic caused by the news is mitigated by reasoned minds educating the public so they are more able to deal with it if it were to pass.

    If my opinion makes sense to you, would you help spread the word to make it a reality? I will not start myself unless it got a consensus here, as to act on my own without input from others would be reckless.

  13. It's James Kunstler - It must be Monday.

    "Legitimacy Dwindles"

    The first comment to Jim's post is worth a visit in itself.

  14. Very interesting article and blog! I believe era of information makes this crisis worse. People can easier and much faster panic, because the bad news spread extremely quickly. Governments are not so irresponsible like during the Great Depression, but still many stupid things, just to show they "fight" the crisis...

  15. On reading your v. interesting article, i was reminded of past situations in Argentina, and in this respect i am quoting a couple of brief paragraphs:

    "In Argentina, workers are rioting for a reason. One in five workers is unemployed, and the gross domestic product has fallen by 25% since 1999. The Argentine peso, which for the last decade was worth a dollar, is now worth a quarter. The government has defaulted on its debt, and most banks are technically bankrupt. Financial and human flight is rampant. The Argentine provinces are printing their own currencies. Prices are rising and hyperinflation lurks. The nation has seen five presidents in six months.

    And the International Monetary Fund, not to mention the U.S. government, has largely washed its hands of the country."

    Excerpt from "Solution for Argentina Is Right on the Money", Los Angeles Times. Opinion.

    By Laurence J. Kotlikoff and Juan Pablo Nicolini
    June 30, 2002 in print edition M-5

    Yet, comparisons between Argentina and the UK are likely to stop here, since neither the territory size nor the availability for food manufacture and home grown crops are remotely similar...

  16. When you're calculating the scale of the indebtedness of Britain, are you factoring in PFI/PPP commitments?

    If you are, do you think that Gordon Brown (who engineered them, after all) can default on those commitments and buy up those schools and hospitals when outfits like Crapita are made bankrupt?

    Or if you are not counting them, how do you think they change the picture?

  17. Really great blog!

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    Vice President

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  18. But how would you have done it CE?

    Of course academically you are absolutely right. But in practice... How would you have done it?

    As Thomas Hobbes said, the first job of the state is to protect the people from the people. Suddenly saying to someone living in a democracy that they are going to have to downgrade their 4 bedroom house, professional job and BMW for a tent in a field, a horse and harvesting spuds for a living before the poo really hits the fan would incur a revolution whichever way you look at it, so how would you do it? The Chinese government's autocracy allows it to do what it wants with impunity, but the British government has to use smoke and mirrors... Its part of a culture that won't change until the poo really really does hit the fan... So I reckon the 'government bashing' smacks of a little bit of arrogance. Take the macro picture, encompassing all consequences, and if Thomas Hobbes was right, maybe they're not doing as badly as you think... Given the circumstances.

  19. Thanks for your lucid articles. I have a question regarding the printing of money. Doesn’t economic growth imply an increase in the money supply? If so where is the new money comming from?


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