It is 2017, 100 years since the Russian revolution. The UK general election results are in, leaving Britain with a hung parliament just days before the start of negotiations on exiting the EU. This wasn’t supposed to happen. Theresa May was supposed to increase the Tory majority, and to build a stronger mandate for Brexit negotiations; a strong a stable government, as she put it. But her attempt to capitalise on a Labour Party weakened by infighting has backfired, throwing the country into the opposite of what she promised. Meanwhile, political punchbag Comrade Corbyn’s anti establishment rhetoric and promise of free stuff has worked wonders, especially on the young, and Labour has stolen seats from the Tories, UKIP and the Liberal Democrats. Continue reading
Government has more than its fair share of power and money. Rather than viewing the government as distinct from big business, I view them as similar beasts, it’s just that government is funded by taxpayers, while big business is funded by government and private enterprise. Continue reading
For most of 2016, Bitcoin hovered around the £600 mark. After the Brexit shock the price rose slightly due to sterling devaluation, but in December Bitcoin broke out and started its ascendancy rising by as much as £150 a day to a high of £950 per BTC in the latter stages of 2016. It has since fallen and risen a few times and, at the time of writing is currently sitting just over 850GBP (1,050 USD) per BTC. Continue reading
What follows is a description of our monetary system. I just watched the video below, recorded in 2011, a TEDx talk recorded by Professor Franz Hörmann.
Professor Hörmann is an accounting professor at The University of Economics and Business in Vienna. That means he spends his time thinking about the economic structures that we in the real world take for granted and just get on with. In this video he investigates the question “What is money?” and “How can we have system of money which serves society better?” Continue reading
You might think house prices are not that important, but the reality is, credit cycles caused by the purchase of land are the primary economic driver in the modern debt based economy (USA, UK, Australia, New Zealand). Continue reading
After many years of waiting for the housing market to adjust to something which I might consider affordable, my partner and I decided to buy a home of our own. An unaffordable home, or one barely affordable. This is the housing market as it currently stands in the UK, caused by banks’ unconstrained credit creation directed into residential property. Continue reading
I am not freaked out by Brexit, but I know that many people are. What are they worried about? Change. People don’t like it. Markets don’t like it. Investors don’t like it. It’s a shame because change is not only inevitable, but an essential part of evolution. Continue reading
On the 23rd of June, the majority of the UK voted to leave the EU. This was a momentous occasion, it will not be without short term pain, but by focussing on the benefits and the opportunities, and by looking to the future we are now facing enormous opportunities for the UK economy. Continue reading
On the 23rd June 2016, the British people showed courage and fortitude; put two fingers up to the establishment and voted to leave the EU. Despite what the sore losers in the press would have you believe, the majority voted to leave the EU in order to restore sovereign power to the UK; brexit was a vote for British democracy. Let’s have a look at the brexit fallout, and try to make some sense of what’s really going on. Continue reading
The country is currently in a flap about securing a trade deal with the EU. Why? Do we really need a trade deal with anyone, or are we just asking for one because we think they are necessary? Continue reading
I’ve been wanting to write a piece about Brexit for a while now, above and beyond my strong feelings about the British fishing industry which the Brussels Common Fisheries Policy has all but destroyed, but I’ve not found much time recently to put fingers to keys. The arrival of the young pup has taken up a fair bit of my spare time. It’s been good to have time to think though, as I now have more consolidated views on the subject.
First I need to talk about the Brexit coverage in the press, and while this is an obvious point, you need to remember that everyone who has an opinion on Brexit (and any other topic for that matter) is speaking from their own selfish, self-interested point of view. If I have learned one thing from my years on earth it is that people are selfishly oriented, and if you accept that as the basis of who they are what they say and do, things will go smoother for you.
Now, it is also worth saying that some of those selfish people do care deeply about other people, and so their selfish approach involves what they deem to be best for other people, but they are benefitting themselves personally at the core. When you hear politicians, the IMF, any government organisation, Scientists, Arts funds, anyone, making a view about the larger government organisation that sits above it, and from which it does or doesn’t receive funding (the EU), know that whatever view they hold is because of how it benefits them.
What is sorely lacking from the debate is how the ordinary man on the street, how you and I are going to be affected by a change to the status quo, by a severing of bureaucratic ties to brussels. Economists for Brexit have had a go, and put forward the case for Brexit, led by academic Patrick Minford, these 8 independent economists have discussed the various elements of the debate and argue for the free market, deregulated model. Essentially they are individuals who at their core believe in the economic benefit of the free market, over the protectionist customs union, and a centralised, unelected, undemocratic government. Just look at Greece). Of course we may have the very same happen to us here. We might choose, like the Greeks, to vote no to the EU, and be overruled anyway.
If you’ve read any of the articles on this site, you will know that I am vote leave. I’d even reduce the control and power of the UK government if I could. UK politicians might well choose to vote to remove power from the EU government, so that more of it returns to them. But at least we vote for UK politicians, so there is some accountability, unlike the European government decision makers. In this article I will spell out my arguments for leaving the EU, and why you might choose to also vote leave on the 23rd.
This topic deserves a whole book to itself; the subject of the 21st century is decentralisation of power, physical power in the form of decentralisation of electrical power generation, decentralised mobile communications, decentralisation of publishing (kindle and ebook publishing), the media and how having a Facebook or Twitter account makes you a creator as well as a consumer of media, decentralisation of business via the internet, the decentralisation of money from banks by bitcoin and the blockchain, and now the decentralisation of government away from large bureaucracies to more and more devolution and self government. Large organisations become unwieldy, ineffective and cut off from the world, stuck in their own ideas. Like the captain of the Titanic proudly steaming forward into an iceberg field.
You can try to stem the tide of decentralisation, but you will only hold it off for so long. Just as the Scots nearly voted out of the UK, but fell for scaremongering, so a remain vote this time around would only put off the inevitable in a few years’ time. It is fair to say that we end up livingbegat the general consensus is, and if the consensus likes being part of a modern Austro-Hungarian Empire, if they like being told what to do by people who have very little understanding of the them of their specific lives, this is what we will get. Do you like self government, or do you like being told what to do? You’d be surprised how many people just want to be told what to do and follow those orders. Do you like being able to boot out politicians who don’t perform, or would you rather have them thrust upon you with little say?
The EU Economy
In case you hadn’t noticed, the EU, largely because of the terrible idea of monetary union, is in verg poor condition. The ‘real economy’ isn’t doing so badly, but the financial infrastructure which sits behind our money systems has been allowed to concoct too many, too-clever-for-their-own-good financial instruments, things like derivatives which on paper alone make for a pretty good way to hedge risk.
This problem has come about because of market meddling. When markets are not allowed to function as markets, they get skewed, and businesses which would have in the past paid for their poor decision-making with bankruptcy, instead of going to the wall they live to make another bad decision, and another, and another. They are encouraged to make ever more risky bets. Eventually we end up in a place where moral hazard prevails, because everyone is now a winner, interest rates are zero, and people are forced to look to ever and ever riskier ‘investments’ to get a return on their cash.
The financial system in the UK, US and Europe was never allowed to crash, to clear out the rotten institutions and processes which had brought it to the brink of death in 2008, this cancker has been allowed to spread through the rest of the tree. Central banks have been pumping liquidity into the global financial system to try to revive the arresting economy, but it has done very little but pump up asset prices. Europe is a mess, USA is a mess and the UK is a mess. The banks are ready to blow up as the extent of their liabilities becomes evident. JP Morgan Chase’s Jamie Dimon is using the Brexit referendum as a handy excuse to lay off 20% of his workforce if the UK votes to leave the EU. Nice move Jamie.
There’s no point trying to pretend that the countries in the Eurozone are the same; they clearly aren’t, and trying to peg them all to the same currency is only going to end in tears for some. In normal economies, as a country excels in exporting, its currency overvalues, which acts as a natural brake, restoring balance. While poorer countries have the opportunity to devalue their currencies and become competitive. But when the south of Italy or Greece has the same currency as Germany, the stronger country is going to do disproportionately well at the expense of the weaker one. Is this a bunch of people we want to hitch our economic fortunes to? Or would leaving them to it be the best course of action?
It is clear that a political union called Europe cannot exist without a common currency called the Euro. Given what has happened in the last 24 months in Europe with the Euro, do we really want to be a part of something with such fundamental flaws? Oddly nobody seems to think that the Euro is a bad thing, that what has happened is just a blip on the radar. These are the people who read the papers and digest what they are told, never really thinking about the real issues which lie behind them, the fundamentals and how wrong they are.
The political position of brexit is a fascinating one, which is transcending even party political boundaries; we have rifts in the Tory party as politicians take sides, and each takes swipes at the other. Both the leavers and the retainers know how important the vote is, paling into insignificance even a general election which is, lets face it, pretty much like picking from a line up of ugly girls. What we are seeing is the true blue versus red. Let me explain.
Leave = Conservative
In his excellent book, Life After the State – Why we Don’t Need Government, Dominic Frisby put into words a great number of points which I had observed and desired to be different in my own life, but had never managed to put into words. Frisby is a free market libertarian, and I share many of his views on Government; namely that it should exist to provide essential public services which need to be centrally organised, but that it should not be a key decision-maker in its own right. The government should exist to carry out the will of the people. People vote, and the government does what they vote for. How novel.
Conservatism is about self-empowerment, about creating the atmosphere where individuals can make for themselves, can stand up and be counted (community charge rather than council tax bands), where individuals; husbands, wives, parents and even children are best placed to decided how they live, which laws are passed, and where they spend their money. Not given away in taxes to large bureaucratic organisations which inefficiently divvy it out to the causes that they consider to be worthy, keeping a fair chunk of it to pay for their own expenses, of course.
Conservatism is about acknowledging that everybody has value, and that they can make a success of their lives if they are only given the opportunity to make their mark on the world. What does that look like? Well, clearly it looks a lot different to the current state of affairs, because I don’t see very much conservatism going on. I see a lot of people still of the government payroll, whether the UK, or the EU superstate. Once milk is flowing from the nipple, it is hard to say no. The UK gives handouts to the underachievers or Europe, much keeping them in their wretchedness rather than demonstrating how to thrive to the rest of europe, we would rather sit in the tub with the others and do what the british do best; whinge.
I have often thought that the Brits wouldn’t appreciate a land like Switzerland where everything is logical, where things run on time, towns are clean, where money is spent transparently, where people have pride in their achievement. We Brits would have nothing to whinge about.
Remain = Socialist
Socialists have embedded deep inside them views which effectively say that there are good people in the world and bad people. The good people are poor and the bad people are rich. The good people are usually socialists, because they hace an innate tendency to agree with the unfairmess in life. They mean well. The rich, usually conservative, self empowered types apparently got their ill-gotten-gains through some bad behaviour. They took more than their fair share and so they should give some of their wealth to those who have-not.
The ‘remain’ camp either believes in the injustice of capitalism, that people can have too much money, or they are those who have benefitted from the status quo and want to keep things that way. They believe that government is good, and that centralised planning and expenditure is better than decentralised power. Either that, or they can’t be bothered to sit down and actually think about how politics works.
They believe that a centralised government is better placed to take your money and spend it on your behalf, precisely because if the government didn’t take you money and give it to these ‘good causes’ that no human being would ever choose to do so himself. Socialists believe that man is inherently bad natured, and that he cannot be relied upon to show compassion for his fellow man, and so we don’t even get a chance to try. All compassion is outsourced to the government. When we see a beggar on the street, our natural response is “I pay enough in taxes, go and get a hand out from the government like all those other sponges who don’t contribute to society.”
When you hand over your human responsibility to your fellow man to a faceless government corporation, you become less human in the process. This is the irony of socialism, in trying to make people more humane, it actually takes away their humanity.
If you’ve ever worked in or for a public sector organisation, you will be well aware that your taxpayer money is being spent in an inefficient manner. These businesses are not real businesses which have to make ends meet, if they were private sector businesses they would have folded decades ago. The people who work for them have a view that they know best, and the way they deal with the private sector is self important because they have the money, that private sector businesses want.
“But we get handouts from the EU government!” I hear you cry. “We can’t vote to leave the EU.” OK, and where, pray, do you think those funds come from? Do you think the EU government is a productive organisation generating its own cash? It doesn’t take long to find out where the EU gets its money from, and it won’t surprise you. On the EU website, the source of its “own resources” is clearly stated:
Traditional own resources
- Customs duties on imports from outside the EU – [this increases the cost of our goods] – the EU takes 75% of this money – UK and other governments get 25% of this money collected to cover the cost of collection. 25%!
- VAT percentage levy (worth €14bn)
- Own resource based on Gross National Income (GNI) A standard percentage levied on the GNI of each EU country. It is used to balance revenue and expenditure. Although designed as a balancing system, this has become the largest source of revenue – €92.7bn in 2010.
Like any bureaucracy with growing aspirations, the EU budget has got out of hand and it needs more and more cash from members to fund itself and its schemes. The balancing system becomes the largest source of revenue. There is a bit more money from EU fines (usually big, successful US businesses), taxes on EU salaries, and contributions from non-EU countries. So how much do you think this giant bureaucratic machine costs to run? Well, in 2011, the EU administration costs were €8.3bn. Quite expensive, and no wonder people on the EU gravy train want to keep things ticking along nicely……
Subsidies are Phoney Baloney
The EU is a private members club, a gated city where the rich EU ‘members’ (the terminology speaks volumes) live and do business with each other. They want nothing whatsoever to do with the poor people who live outside the tall, policed iron gates, and while they could very well trade with them and give their citizens goods at a lower price, in order to keep their own goods makers rich they charge import duties on the goods coming in from oupside the trade block. The citizens of the Gated City pay more for their goods than they otherwise might, raising their cost of living.
Inefficient organisations which wouldn’t survive without this protectionist mechanism are encouraged to go on in their inefficiencies. The government of gated city believe that enriching uncompetitive manufacturing businesses is worth the high price on increased cost of living, because some of that money is paid to individuals who work for these companies and earn wage. It doesn’t stop the poor people living outside the city trying to scale the dangerously high walls to get inside to improve their lives, and they come in their thousands. Many of them die making the journey, others fall from the walls and perish before they even land foot in the city. One wonders whether it might be a better idea to just allow them the opportunity to trade with those in the gated city on a global level, thereby enriching themselves where they currently stand rather than leaving them like a beggar on the street. It’s the same argument; Socialist vs Conservative on a bigger scale.
Subsidies are the opposite of a free market, and yet the EU loves to hand out money to organisations who are not competitive, rather than allow them to adapt and improve they carry on, like a blundering public sector organisation, never being forced to adapt or die.
Regulation = Interference = Inefficiency
The EU loves to regulate. Regulation quashes the free market. Regulation affects your competitiveness, because you have rules to comply with. You can’t just get on with what you are doing, you need to comply with the regulations, much of which gets in the way of a productive, efficient output. Go and work in a public sector organisation for six to twelve months, and you will know what I mean. Very little gets done, even though there are people scurrying about all over the place, doing their best to look busy, so that they can collect their pay cheque and do the bare minimum necessary to prevent from getting sacked.
The free market is the reason I will vote to leave the EU, the opportunity to give capital a chance to work once more. Capital works though market forces to find the most appropriate place to go. I’m not saying have no regulations, I’m saying set your policy on things that matter (e.g. pollution and not CO2), immigration which encourages talent, taxation which encourages innovation and entrepreneurialism, regulation which is light enough to do the same. We want to give people a chance to make for themselves, not be reliant on handouts, whether on the dole, or benefits, or taking subsidies from the government whether the EU or the UK, or working on some phoney government project.
Is Boris Johnson paid by the hedge funds to vote for a Brexit? Possibly. He doubtless has many friends in the City of London following his stint as mayor. Removing regulation would be a good thing, as would letting banks which fail go to the wall. This is the only way to make them accountable, not by propping them up against all sensibility. I do believe that Bojo and David Cameron are both Conservatives who want a Brexit for the UK. If you don’t believe Dave wants Brexit, watch his Bloomberg speech on youtube. For some reason Cameron has changed his mind after his visit to brussels, I wonder how the conversation went?
As for the rest of them, the IMF, the OBR, the OECD, John Major, Scientists, Actors, and even Barack Obama are obviously all benefitting from the EU in one way or another. But are you, the men and women on the street? I suspect that unless you work for a protected industry, you will be better off out of the EU working in a more real economy.
If you vote to remain, you are essentially saying that you are happy to have no control over your political system, the laws and stifling regulations which will will be passed upon you by unelected representatives who we cannot remove if we don’t like.
I spend a lot of time on the M5. Not as much as a professional driver, but at least 10 hours a week bombing north to south, south to north.
Motorways like the M5 are the arteries which carry the life blood of our country about. If you want to know what people are buying, have a look at what’s going up and down the ‘backbone of Britain’.
We have shipping companies, retailers, hauliers of everything from live animals to kitchen timber, bespoke fabrications, train axles, even 50ft yachts make their way along the motorway. What I have noticed recently is a rise of the number of static homes moving down the road.
I’m not a gambling man, but if I were to gamble on one thing happening over the next three decades, it would be a significant rise in the number of people moving out of proper houses into retirement static homes.
It makes perfect sense to me. The baby boomers have huge property wealth, and potentially thirty years of lifestyle to fund. They have looked at what their pension pot means in real terms, and realise it doesn’t mean very much, and so are cashing in their casino chips, and undertaking the ultimate downsizing to raise funds to live well in their final decades.
It needn’t have been this way, of course. But the government, any government, was never going to deflate the housing bubble in the UK once it was blown up. Instead they just kept on blowing it up and up in the hope the lack of decent housing supply would stay off the ‘pop’ until they’d left office.
Many people bemoan the lack of new build housing in the UK. Personally I’m not in the least bit concerned. For every new static home I see moving down the M5 means a proper house coming back onto the property market. As the baby boomers retire and perform the ultimate in downsizing, not only are we getting a flood of new properties on the market, we may very well see an oversupply of the kind of properties that real people can actually afford. This means only one thing, falling prices all round. Developers may be building new condos in London, but most Londoners don’t even know what a condo is. Investors in China however….
Even though I’ve bought a house, I’m all for falling house prices, even if it means negative equity for a period. For too long the UK Govt has focussed on property price rises at any cost. We don’t want high living costs, we want low living costs. We don’t want lifetime debts, we want freedom. We don’t want money tied up in bricks and mortar, we want innovation, sustainability and new technology to improve our lives.
The U.K. has long been obsessed with property, and rising property prices (as if it was a good thing), so much so that almost everybody I meet is a multiple property owner. Even people I work with in their early 20’s are part time landlords and landladies. I wonder which provides them with more income, working or owning property. When market saturation has reached the point where people with a 20k salary are BTL landlords, it says a lot about the state of the market, and where things are headed. Behold the future of uk property.
Stay in the EU, or leave? What difference does it make? Not a great deal you might think. I’m sure it won’t make much difference to my life, but as someone with an overarching interest in self government, there’s simply no way that I would vote to have some far off bureaucrat making decisions about the UK. Continue reading
The Keiser Report is running a series on solutions to the global financial condition. Max and Stacy, here is one for you: Solutions for a progressive economy.
The current economic system incentivises speculative bubbles in fixed assets. This benefits money creators (banks) and those who are already asset rich (the rich), over the workers who produce and serve (and are poor in comparison). Continue reading
I was among those cheering loudly as the Greeks stood up to the classroom bullies of the IMF, ECB and EC at their referendum, delighted that they chose, against the terrorist tactics of the Troika, to vote “Okhi” (No) to more austerity. Finally, a triumph of democracy over crony fiat capitalism. Or so we thought. Unfortunately, the man with the mettle, Yanis Varoufakis left the stage too early, and PM Tsipras failed to hold his ground amongst the high power stakes of Merkel, Lagarde and Tusk. Continue reading
For many years, governments have focused upon GDP, but with our current global demographics collapse , GDP growth is no longer a relevant means to measure economic health, and it’s time politicians chose a more appropriate yardstick to beat themselves over the head with. Or perhaps it’s time for politicians to acknowledge their powerlessness to affect anything more than what they have for breakfast.
Really, Who Cares?
First of all, who cares about GDP? Apart from politicians and statisticians who want to demonstrate the success or failure of a particular pet policy of the day, does anyone else really care about GDP? Of course you care if the economy is doing well, but can you even tell when it is supposed to be? The fact is, some people thrive in recessions and others lose it all in the bullishest of bull markets; it seems there’s no accounting for individual freedom to make self-informed choices in life. So for a nominal GDP statistic, you could still be living in an area where everyone is doing great business. When you pick up the papers and read about the lives of those wretched others, how much of that do you think has anything to do with you? Not very much, so mind your own business.
There was a long period of time Before GDP (let’s call it BG). People lived their lives, grew up, married, bought houses, had families and grew old blissfully unaware of the means politicians use to justify their existences. With significant global change making its presence felt, isn’t it time the OECD had a cold hard look at Gross Domestic Product, and replaced it with something altogether more befitting of a 21st century world?
I put to you that using GDP as an economic target is not only fallacious, but in our current times it is outdated; out of sync with our new normal fundamentals; an ageing population where one in four is over the age of 55, an increasing environmental awareness, and the realisation (by the younger generation at least) that money on its own doesn’t make you happy, and an impending monetary disaster based upon a mountain of debt (aka our debt based money system). People want to enjoy their lives, to live in more harmony with each other and the planet. In such a frame, why the incessant need for growth growth growth, at the expense of everything else?
Masters of the Universe, or Misguided Fools?
GDP is a hangover from industrial revolution thinking, and our debt based money system which is designed to increase competition and productivity (except with money currently worth nothing, it only encourages highly leveraged speculative activity).
Annual GDP growth as a benchmark of economic activity was given weight by the baby boomer generations. The real boom effect is observed when vastly more children are born and enter their years of maximum consumption. This economic boom coincided with central banks’ tinkering with the economy, giving them the (false) impression that they somehow initiated the success, and could pull strings to repeat the effect.
This reasoning is a bit like a stock broker working in the 80’s thinking that he was a top trader because he was making vast amounts of money, or someone buying and selling property between 1995 and 2015 thinking that they had made great investment decisions. In both instances individuals were just carried along by the crest of the greatest ever bull market in credit, and their success was down to the underlying market conditions, and nothing to do with any action anyone took. A trained monkey could have made a fortune as a stockbroker in the great bull years, and in fact, many did. Central banks have this idea that their tinkering has a beneficial impact, but it doesn’t. The economy is what it is. But when central bankers think their actions have an effect, so they look to see what those effects are by studying spurious statistics; things like GDP.
A Tipping Point
What we have seen since the tipping point of the median baby boomers entering the age of 55 in 2013, is a natural drop in consumption spending, as these boomers save for their retirements. Government controlled central bank ‘stimulus programmes’, in an attempt to keep the golden years of baby boomer consumption going, have injected trillions of new debt into the economy. But you can’t create demand by printing money any more than you can encourage someone who’s eaten their fill to eat more from an enormous buffet, no matter how delicious and exotic the food on offer.
This is what central banks and their misguided leaders are currently finding out, at great cost to their respective economies; you can’t fake demand. You can print more money and give it to banks to play with, and they will just blow up speculative bubbles in property stocks, and derivatives. But the real economy, where the people who can’t counterfeit money live and work, only receives the ‘benefit’ of inflation of the assets the money flowed into, which amounts to an increased cost of living. None of which helps them spend more money, or pay more taxes.
Are They Mad?
Central Bankers really should all be taken away and assessed for soundness of mind. They patently all believe that they have the power to control, manipulate and steady fluctuating markets. But they can’t, and any attempt to tinker just makes things worse. The economy would have fared far better if it was just left alone by the likes of Greenspan, Bernanke, Yellen, Carney. One of their most destructive policies is zero interest rates or ZIRP.
There is a current policy popular with central bankers called ZIRP or Zero Interest Rare Policy. ZIRP may look to be a helpful load off all debtors shoulders, and it does indeed do that, but those with the biggest debts are the financial institutions and the government.
ZIRP favours those with access to credit over those without, making the rich richer, and the poor poorer. Termed by some as an Interest Rate Apartheid; rich people get access to credit at very low interest rates, the very rich (and bankers who conjure the debt into existence) get to play with money at near zero percent interest. Everyone else gets charged more, and thrifty savers are punished for their prudence. Sound fair?
The Bank of England and the Fed have a money printing machine, but it is still debt money, and so needs to be repaid (as Greece is finding out). So the cheap money has to go to work. What do banks do with it? Whatever brings them the best return, which usually means some form of speculation. Derivatives and asset bubbles are two of their favourite ’investments’.
ZIRP also creates zombie institutions and zombie households. Like a modern day Greece, saddled with a debt they cannot repay, the solution is to default on the debt and start again! Wipe the slate clean. Instead the printing presses run, and anyone with savings has the value of their savings deposits shrinking along with the debts of the individuals who overborrowed. Does it sound fair? This point raises a question about the nature of debt money, and how it works most effectively (saving and hoarding should be discouraged to keep money velocity as high as possible)
We need governments in the Western world to acknowledge that with the baby boomers retiring, we must let their legacy statistic “GDP” do likewise, and find a more fitting means of assessing how well we are doing. There will only be a fall off in national income as the boomers retire. A better way to guide economic policy might be to do things which will actually encourage a better quality of life for all.
If you’ll indulge me, I have a few suggestions.
1. The Will of the People
What we’re talking about here is true democracy, not the crony capitalism and crony political system we have at present. Not a political party getting a tiny fraction of the vote and then doing what they see fit, often against the wishes of the voting public. Politicians need to wind their necks in, and start serving us the people, behaving as the public servants that they are supposed to be. A cryptographic voting system based on Blockchain technology would allow individuals to vote for the specific issues they wanted to see enacted, and public servants (our emasculated friends the politicians) would carry out the majority vote within their constituencies. There would be no more focussing on GDP figures to justify the government’s economic decisions. The people would be making the decisions and the politicians would merely be carrying them out.
We would still vote for individuals, locally elected representatives to carry out our wishes, and these poeple would be selected based upon their moral fibre, their character and their sense of fairness and justice. Not upon their policies, or who they know. They would be required, and would be willing to carry out the will of the people.
A lot of members of the public aren’t ready to take on this level of responsibility for their lives, having been content to outsource their decision making to politicians for many years, but once they got the hang of it, and started engaging in the democracy of their local areas, they wouldn’t look back.
2. The Death of Party Politics
The introduction of an alternative voting system (which addresses specific issues rather than political parties) will remove the politicians’ mandate to appease their funders, and put a stop to their Punch and Judy show. Current politics, and the economics which comes out of it, is all geared towards big business, banking and finance who lobby the government (pay them in exchange for legislation which benefits their cause, i.e. makes them richer) and in return they have laws passed and reform takes place in their favour. For their payment, they are given titles in the Queen’s Birthday honours, regardless of their level of integrity of public service.
Under our new voting system, the people would vote directly for their chosen policies, social, economic etc. There would be no election campaign to pay for, fewer brown paper envelopes in exchange for favourable policy, or CBE’s. The politicians wouldn’t be able to enact any law, or hand out honours to dodgy “funders”, without first seeking the mandate of the people.
For example, if people wanted to prevent commercial banks from creating the UK money supply (something which seems perfectly reasonable), it could be voted on cryptographically and enacted into law, and never mind what happens to ‘The City’, or ‘GDP figures’ or ‘London’s reputation as the global hub of money laundering’. Things would have to change, whether the banks liked it or not.
If society felt the need to prosecute certain individuals who broke the criminal law? Not fines for bank fraud, jail sentences. We could vote for that. How about banning the use of derivatives and other questionable financial ’products’ of mass destruction? You got it. Want to have a system which promotes home ownership for young families over rent-seeking buy to let landlords’ return on investment? You got it. Want an economic system geared towards having a happier (and therefore healthier) population? We can do that too. Let’s use happiness as the measure of success instead of our old destructive yardstick, GDP. When governments use GDP as their measure of success, business gets priority over the man on the street, and there’s something very wrong about that.
3. Promote ‘New’ Economy.
People, mostly those who work in politics and economics, think of GDP as productive flow of cash, but little differentiation is given to activities which truly expand the economy, versus those which are rent-seeking. As rent seeking has become largely what the UK economy is about, it’s not surprising. Creating a new business or product increases economy, lending money into existing assets, or zero-sum game bets, doesn’t. Building a new house does add to the economy, and leaves behind more than was there to begin with, increasing the economic value of the world, employing individuals etc.
Financial (rent-seeking) activities and entrepreneurial activites are viewed as the same by government when calculating GDP, when they shouldn’t be. New ventures should be counted, and rent seeking activity of the banking sector, if not penalised, should as least be seen as it is, a tax on the real economy, and subtracted from the real GDP figures
If banks were only allows to lend out 1/3 of their newly created money into residential mortgages, and if exchange rate derivatives and their (wholly distasteful) ilk were banned, banks would be forced to put their newly created money into productive new ventures, ideas which might actually make the world a better place. Your house would also be much cheaper to buy.
The UK could create new demand by actually producing products that people want to buy. Take a look at Apple. It makes over half of its profits selling iPhones. Phones. That’s a lot of phones, and a lot of money, but it works because those phones are desirable and sell all over the world. Even the guy sweeping the streets has an iPhone. What do we do in the UK? We let banks create money, lend it to the likes of you and me to buy property at ever higher prices, and then extract interest payments from us, and gamble with derivatives with essentially free money so they can pay themselves their million pound bonuses. When their gambling goes awry, they come back to their rich parents (Mark Carney and Janet Yellen) who slap them on the wrist and pay off their debts. Nice setup.
Banks go bankrupt, that’s why there is a word for such things. But most of the banking and financial world won’t hear of it. If you cannot repay your debts, you can keep restructuring your debt, but this is only prolonging the inevitable. Default will come eventually, and you will be required to give away your assets to your creditors. Like a high stakes card game, each double or quits builds the collateral on the table until they have taken your watch, your car, your house and even the clothes on your back.
Man of the moment Alex Tsipras knows that Greece, despite looking like the European lame duck, is actually standing in a very strong position. He should be exercising his power, and fortunately for Greece, he is. Meanwhile the Germans and the French want Greece to accept more debt, money which incidentally would go straight back its creditors; Germany and France. They are bailing out their own creditors, and trying to lump Greece with the bill. I can see Tsipras’s reluctance to sign up to more ‘bailouts’.
The reason Greece is in a strong position, is because the last thing an economically weak euro zone needs is a country like Greece, laden with unplayable debts, to default and start in a short period of time to become economically prosperous again, in charge of its own currency. This would spell the beginning of the end of the euro and the ECB. When one individual stands up to the classroom bully, the illusion of power is shattered, and others feel bold enough to do the same. If Greece makes a go of it outside the euro, how many other fringe countries would follow suit?
The snap referendum is a good move, and will give the demos (people) the opportunity to have their say about which way Greece goes. If they vote for a new start, they must acknowledge the short term pain ahead, but a brighter future. Bust clears away the debt wreckage and allows new growth.
In the modern world of socially cushioning governments, and economically cushioning central banks, it seems that nobody wants to let nature take its course. People cannot be allowed to feel any kind of pain. But when an organisation or household over leverages beyond their ability to pay, nature must be allowed to take its course. Otherwise the healthy individuals suffer at their expense (as we have seen ZIRP erode savers’ cash).
My big question for the UK government is what they will do when the UK banks fail. We need a contingency plan in place where funds are transferred to a national bank account, and the bankrupt institutions are allowed to fold. No bail out. Bankruptcy. A new beginning. Where is this contingency plan? Never mind ring fencing banks, we need a national bank which can accept deposits from bankrupt banks to allow them to fail. If anyone out there has the ear of the chancellor of the exchequer, it may be worth asking him what his plans are. Any chancellor should be asking this question of their own system, as Greece is just the tip of the debt iceberg. A lack if inevitable contingency plans brings about panic, which can cause trouble.
Since QE commenced in 2009 we have been living in an economic la-la land. Nothing is real anymore. Capital has no value, and the income gap between the normal economy, and those who have access to the money in banks and financial institution for high stakes gambling, grows ever wider. Statistics used by the grand wizards of the high church of fiat currency are all but meaningless. Never fear, the smoke eventually clears. Things are about to become a whole lot more real.
So, Amazon has decided to pay just £11.9m in tax, despite over £5bn in revenue passing through its books. How about that? Feel annoyed? Do you like Amazon’s cheap prices but dislike their tax policies? If you don’t like to support a business which extracts money from the UK economy, yet gives little back, then you do have the option to go elsewhere.
For example, Waterstones is still alive and kicking, operates bookstores and an online site. It may not be as slick as Amazon’s, and if you’ve been sucked into Prime “free” one day delivery, you’re most likely buying everything you can from the retail giant. If you still have the choice to, you can vote with your wallet and boycott “The Big Frown”. There are of course a few remaining independent book shops, and these should be able to source you with any book you might care to order from them, although they don’t have the buying power of Amazon and Waterstones, so will cost more.
Amazon is such a big player in the shrinking physical books marketplace that customers often assume that their prices are the cheapest. In fact, they are normally matched by the likes of Waterstones, and you can visit your local Waterstones and pick up a copy of the book, saving yourself the postage. You can’t do that with Amazon.
When you buy a book (amongst other things) from Amazon, and Amazon dodges paying any tax to the UK exchequer, how does this impact you? Well, the tax deficit will need to be made up by government borrowing, which means that you, and the rest of the country and your children, and your grandchildren will have to pay for amazon’s (and other corporate tax dodgers) shortall. Or they might put taxes up to recoup the money in other ways. Still feeling good about the cheap prices? There’s no such thing as a free lunch.
Tax is too complicated. As complication rises, the ability to dodgy rises with it. Simple tax structure based on profits earned from within a state boundary being taxed at a flat, say 20% would make tax more transparent, and harder to dodge. Leaving the EU would also improve our situation in this regard, albeit to the detriment of tax havens like Luxembourg. As the consumer, you have the power to change all sorts of things, but there’s no point huffing and puffing, while continuing to click on Amazon website. Do something about it.
As an economy evolves from primary industry, through labour intensive and capital intensive manufacturing, to the services sector, what comes next?
What is economy?
According to the OED, economy is:
“The state of a country or region in terms of the production and consumption of goods and services and the supply of money”
Let’s break economy down to its basics. Economy is a measure of the ways that people can find to do beneficial things for each other. The more ways people can find to exchange goods, services and ideas with each other, the greater the economy. Economy is also about the flow of some sort of currency, which is useful as barter economies are not that efficient.
Assume there are two closed loop economies; A and B. Economy A has a total money supply of £1000 which gets spent freely and flows through individuals’ bank accounts numerous times over. This is a rich society. We have butchers, bakers, candlestick makers, and they all pay each other for their respective services many times over. There is sufficient money in the system to provide the means of exchange commensurate with the economic activity taking place i.e. People have sufficient liquidity (hold sufficient cash) to transact with each other as necessary.
Then we have Economy B which also has £1000 money supply, but one individual owns £990 and hoards them, while the rest own £10 between them. The same amount of money is present, but it is not flowing through the economy to the same extent as Economy A. This is not only a liquidity issue (there is not enough cash to allow transactions), but also a deflationary one as the same services exist with a constrained money supply so the value of that money goes up / prices go down to reflect the increased value of the means of exchange (the relative scarcity of money).
“What matters in an economy is the flow of cash, not how much cash there is”
Economy B is an example is what happens in a credit crunch. People hoard money, and because our money supply is debt, when others hoard cash, those on the other side of the coin (hose who went into debt to create that money) cannot service their debts and default. As they do, the money supply shrinks, banks become less willing to lend any more out debt, reducing the money supply further. The vicious cycle continues until confidence is restored. This is an example of a poor society. Even though the amount of money is the same in both, the second ’economy’ is far less prosperous than the first. What matters in an economy is the flow of cash, not how much cash there is.
What Does it Mean to be Rich?
A rich person is not someone who has money, it is someone who has money flowing through their bank account. They may have very little in the bank, but if they experience the benefit of having money flowing through their life, they are benefitting from that money, as are those they spend their money with.
There are many people with lots of money who are misers, hoarders of money. They live meagre existences; buy cheap clothes, eat meagre rations and don’t use their financial resources to accentuate their lives one bit. To the outside world they appear poor, and to all intents and purposes, they are.
Then we have an individual who has a great deal of money flowing through their experience, they run a tight ship; money in = money out. Their life is in balance, they take in £6000 pounds a month and the flow out approximately the same. Being rich is about spending lots of money in a way that is comfortable and benefits the world.
The family benefits from the flowing of these resources: good food, private schooling, a reliable comfortable car (less than five years old), a nice spacious home and time to enjoy life, with family holidays coming twice a year. They look at their finances, and see the bank account empty, but in reality they have all the money they need for a very good life. Despite having meagre reserves, they are benefitting more from their financial resources. An economy full of individuals who behave like this is a thriving economy. The more people spend, the more others are benefitted in the process.
Supply and Demand
Economics is about supply and demand. It always has been and it always will be. Supply and demand sets market price discovery. The purchase (consumption) of consumer goods is certainly part of the economical picture, but so is the production of goods, services and ideas. But modern ’developed’ economies such as those of the UK and USA needn’t hold huge factories full of workers. Labour intensive manufacturing is part and parcel of the process of production, but not nearly the most lucrative bit.
The curve of development of any economy starts in primary production, before it advances to labour intensive manufacturing. As workers’ education levels and salary expectations rise, so the labour gives way to machines as capital intensive manufacturing takes over. Finally a ‘mature’ economy moves into the services sector. As workers demand a bigger slice of the pie, they end up working in higher valued, higher skilled sectors commensurate with their education, training and contribution.
Modern ‘developed’ economies are founded on and derive their value from ideas. Apple may design its iProducts in California, but they are manufactured by whoever can meet Apple’s minimum manufacturing standards at the best price.
This currently means Foxconn in China. Yet Apple makes a lot more money than Foxconn does, and very soon, when the world is deplete workers who are prepared to work for less than the cost of robotics, the robots will take over and the cost of transport will likely render Chinese factories less competitive than their American counterparts.
Commentators in countries like the UK and USA frequently bemoan the loss of so much of their manufacturing base, but moving out of less competitive sectors such as labour intensive manufacturing is not a bad thing per se. These labour intensive manufacturing roles are just handed over to the countries which are best placed in their economic evolution to perform the task most effectively.
There is no sense in keeping manufacturing if the cost of doing so means that you are uncompetitive. What the UK, Japan, the U.S. And Europe does very well is capital intensive manufacturing; robotics, metrology, and specialist industries from large scale metallurgical forgings in Sheffield to leading-edge composites, powertrain and combustion technology in Formula 1 (virtually all of the F1 teams are based in the UK).
What is important in any mature economy which has moved into the services sector is that it produces products that the rest of the world wants to purchase; flowing cash from other countries’ economies into its own.
It’s All down to the Baby Boomers, Silly.
The UK, the USA and Western European countries have been and are still currently in a recession because of a wave of retiring baby boomers and the corresponding drop off in consumer demand. The timing of the recession coinciding with the peaking of productive age of those baby boomers. When the median age boomers in an economy moves out of the 24–55 age range which is associated with maximum consumption and maximum production, the economy reaches a tipping point from which it will never recover.
What the Western world, USA, Europe and Japan need to do is seek to meet the real demands of those same baby boomers who have caused the biggest economic boom ever seen, but who are now entering their retirement years, or abandon the current measurement methods of GDP, and start to assess success of economies by other means such as how happy people are.
To really thrive, an economy needs:
- To encourage meaningful spending (not borrowing to spend)
- To produce products, services and ideas which other people want to purchase in exchange for the benefits they offer
- A low tax on economic exchange (to dis-incentivise unproductive rent-seeking activites, lower economic transaction fees, and reduce or (better) remove productivity taxes such as income tax)
- A low cost of overhead (government and bureaucracy)
It’s a simple premise where the outcomes are clearly beneficial to all parties involved. Here’s how it looks:
- Individuals are encouraged to earn money for themselves, rather than having their earnings taken by the government.
- Government and its public offices are a fraction of their former size, and so taxes can be appropriately smaller, and simpler (a 15% flat tax across the board for individuals as well as businesses). Simpler taxes means less bureaucracy and greater compliance.
- People will hold onto the bulk of the money they earn, and they will get to choose what they spend their cash on, rather than the government. This will lead to more effective free market economics, rather than what the government thinks is noble (like its crony climate change policies which hand out subsidies to giant corporations)
- The notion where the government handles everything will be replaced with individuals who are aware; aware of what they are buying, aware of what they are investing in, aware of the social issues which affect them and their communities; and aware of which social issues they want to contribute towards. A beggar sitting behind his cardboard sign will be met with more that just the usual “I pay enough in bloody taxes, I don’t see why I should have to give this guy more. If the government wants to take my money and spend it on my behalf, the government can sort out the problem”. The current state of affairs where compassion is outsourced to the government will cease, and the big business charities will be joined by smaller groups funded by private individuals.
The Fallacy of Austerity
When observing politicians and their handling of the economy, we have to wonder what is going on. Are they so stupid that they cannot see the folly of their actions, or are they actually aware of what they are doing to the detriment of the societies they purport to serve? I hope for the good of society that they are just unaware of the level of the errors they are making.
Let’s take austerity for example. The government doesn’t seem to understand the very simple link between debt and money. In modern western fiat money economies, money = debt; 97% of all of the money in the economy is created by banks when they make loans. As long as we live in a society where money = debt, the following is going to happen.
- Banks are going to tax the productive economy for effectively issuing its money supply. The more money we have, the more the banks are taxing productive exchange through debt money issuance.
- For the economy to have lots of money flowing around it, individuals and businesses must be in debt. In the balance of the Eurozone debt = money equation, Germany holds all the cash, the rest of the eurozone holds all the debt.
- If all of the debts were paid off, the money supply in the economy would shrink to near zero, which would adversely affect economic exchange.
- Every X years, the debt cycle reaches unsustainable proportions, and the debts become unpayable. The only logical solution is the inflate them out of existence (money printing or QE), or to carry out a debt amnesty and write off the debts, particularly those debts of households who are required to carry out productive economy in order to pay for government and public services through the taxes which ensue (Income and Value Added taxes).
And yet the government seems to be interested in using austerity to pay down the debts and run a surplus. Is this such a good thing? Let’s investigate. The government is an overhead, it takes your money from you, and spends it on your behalf. Now, if the government runs a surplus, this means that it has taken your money and given you less of your money back in public services. Does that sound like a good premise for any government charged with spending public taxpayers money? The ideal situation is one where the government, in keeping a close eye on GDP (which it clearly has no idea about), tops up tax revenues where necessary with deficit spending.
If society wants to change the status quo, to remove debt cycles and their boom and bust economics, and the asset speculation bubbles inherent in such a system, it must also move away from debt based fiat currencies. Don’t expect the banking sector to want to change a system which benefits them enormously; in market rigging, fraud, money-lending and in controlling the value of money. We need to come up with an alternative solution, for example to create an alternative currency without any debt burden attached, and to ensure that the economy has sufficient money in it to allow it to function to its maximum extent possible. Without the lubrication effect of a means of exchange, the wheels of an economy cannot move. This is the electronic cryptocurrencies that the Bank of England are considering employing.
Austerity is about cutting government spending. Closing the taps which flow money into an economy from an ’organisation’ as large as the government is always going to have a detrimental impact. Governments implement austerity in an attempt to pay down their budget deficit (reduce the country’s debt burden).
Politician struggle to balance their books for a number of reasons:
- Politicians want more than anything else to be re-elected so would rather borrow more than tax their voting public to pay for their services.
- Politicians want to look after their own, so wouldn’t dream of slashing the size of the government overhead, or looking at what’s required to make the current system more efficient.
- Unlike companies, countries with their own fiat money issuing central banks cannot be bankrupted
- Governments with their own central banks issue their own money supply and they can print as much of it as they like.
Let’s Discuss the ‘Velocity’ of Money
The government doesn’t understand the basic concept of ‘economy’; the flow of cash, and aims its policies, taxation and welfare programs in a way that doesn’t encourage productive economy.
In the current economies of the UK and USA, the real consumption of the baby boomers has gone, but central bank ‘stimulus’ programmes aimed at stimulating more spending based upon the ‘wealth effect’ created by soaring house prices and equity withdrawal have all failed. They have pushed house prices up, however. This has shifted the focus away from productive economy toward rentier economics. The money flows from those without assets towards those with assets. Rentiers needn’t do anything productive, all they need is access to credit, which rich people generally have and poor people generally don’t have. The banks themselves are happy to play the government’s “housing Ponzi scheme”, gaining significantly from “lending” money into the fixed assets of land and property, pushing up prices and collecting their percentage.
The less productive individuals are, the more they need state assistance, and the more sick and the more helpless they become. Helpless, powerless individuals do progressively worse until whole generations are caught in a poverty trap from which it is nearly impossible to escape under the present system. Rather than helping them, Government welfare has actually made them the most wretched of individuals. This is the Labour Party’s issue and one they would do well to consider.
In a similar manner, austerity, instead of helping matters, has the opposite effect. The taxpayers of the land who fund government spending are not typically the top 1% or even the top 5% of the earning population. The majority sit somewhere in the middle, the bulge on the Normal Distribution curve, and these are the people who are impacted by austerity; people who work in the real economy, providing goods and services to others. The rent seekers who work in banking and finance, and their accomplices on the property ladder, get their money as long as people can afford their interest repayments, the banks are fine. In a heavily leveraged, debt burdened society such as the UK, where household debt is at astronomical levels, ratcheting up interest rates by even half a percent can push households into bankruptcy. This is why Mark Carney keeps talking about raising interest rates, but his mates at the commercial banks are pushing him to keep rates low, and to keep their income streams alive. Expect more chat and no rate rises.
I don’t dispute that the state has got too big, and that austerity may work in the long run, mainly through the gradual dismantling of the costly state overhead, and getting people involved in productive work, but the interim is uncomfortable.
Under the Tories ’austerity’ programme they have borrowed an additional £465bn, nearly half a trillion pounds. This more than Labour borrowed in 13 years in power, and they were hardly spendthrifts. Most of that cash went to the financial sector after their reckless lending (money creation) caused a credit bubble which imploded in 2008. Any time more borrowing is required rather than less, this points to a failure of austerity as a policy, and a requirement to prop up falling taxation revenue with additional borrowing.
Is there an Easy Solution to the Global Economic Problem?
There is. But the actions must come from a basis of reality, and from a basis of straight talking sense. It is easy to imagine, but not so easy to implement.
For an economy to function efficiently, it requires a shift of focus away from the current measures of economic success, and going back to basics. Economies which thrive have low proportions of the population dependent on the state, and low proportions of administrators. People are encouraged to make and spend their own money on things that they want. The proportions of the unproductive economy, those who are not contributing to the economic benefit should be minimised or discouraged as far as reasonably practicable.
When I speak of unproductive economy, I am of course talking about government and bureaucracy, and predominantly rent-seeking activities, which have replaced productive economic exchange as the de-facto British economic model. Examples of rent seekers are: moneylender, those who have access to cheap debt to buy assets and rent them out, owners of assets (particularly land and property). Meanwhile, income is taxed, while capital gains on buy to let property gets a tax cut. Banking and finance, another rent seeking business is subsidised to the tune of billions (largely when it is given control of the money supply) and is allowed to create as much debt as they want and use it to extract capital from those who work and earn money in the real economy.
Funnily enough, banks’ and financial institutions’ earnings are counted as productive activity in GDP figures, when the vast majority of banking and finance income are usury fees extracted from debtors, or those who hold capital with investment funds. This is a transfer of money across from real economic activity to the banks, yet if much of banking and financial services disappeared overnight, the majority of the population would be richer rather than poorer, would have less debt and would spend less of their salary paying off debts to the banks. This would leave more money to spend into the real economy. Houses would be cheaper, and therefore the cost of living would be equally so.
We need to encourage productive economy, and discourage rent seeking, and we need to have a grown up debate about pensions (and the fact that we cannot afford to pay them and that you’re going to have to work or sell your house to fund your retirement, because there’s not enough money to go round.
The notion of a ‘trickle down economics’ from high rolling bankers and financiers is a misnomer. These people have inordinate amounts of wealth, and will not be spending more than a tiny fraction in the real economy. How much food, how many flat screen TVs and cars does one man or one family need?
Booming UK house prices don’t benefit anyone except moneylenders and property speculators – it’s time the great British homeowner woke up and realised they’ve been swindled. Continue reading