A sign of things to come ...?

Police lines created to ensure tuition fees are tripled (despite all the protests)

The "Royals" - caught out, caught up, and looking at the road ahead ... ?

As the Government voted to triple student tuition fees, anger amongst the young bubbled up, a fellow blogger pointed out ...

"I reckon that most students protesting don’t really understand how the system works.

With all money (notes and coins excepted) being created as debt bearing interest, and more debt being needed to satisfy repayment of existing debt + interest, either there has to be more debt or deflation and debt default must occur.

The system is inflationary and requires an increasing level of debt to survive in its present form, but there’s a problem:

1. The hopelessly indebted will borrow till the cows come home, but can’t pay it back.

2. The modestly indebted could borrow, but are nervous of their economic future.

3. And the prudent won’t borrow per-se because they see it as the road to ruin.

Enter the poor student ... The system needs new debtors, and what better way to get them than sucking in the young with student loans. And if the system needs more money (debt), then raise tuition fees."

The banks created the crisis (and debt), were bailed out by the taxpayer, and continue to reward themselves billions in bonuses.  To generate more debt, the banks need more victims (and ones more likely to be able to pay it back) ... so the Government slash University teaching budgets by nearly 80% (over 3-4x the level of cuts to other public services), remove EMA for 16-18 year olds, and force students (the future generation) into becoming those debtors (to the tune of £40-80k)!  

Future generations will not forgive the perpetrators of this crime ... or those who renege on their election promises - so IMHO we will now see the Liberal Democrats heading towards the wastelands, along with any chance of real electoral reform  ... and for all the conspiracy theorists this will appear to be a cunning Conservative plan successfully completed!


But can the Conservatives be happy ... well no, not really ... as the politicians who are probably enjoying this the most are Labour, as they see themselves as the beneficiaries of all this at the next election, when both sides of the coalition are forced out of office for failing to deal with the mess (that Labour itself created)! This did not have to be the case, but the coalition are currently letting off/rewarding the guilty (i.e. the bankers) and punishing the innocent (i.e. future generations/hard-working people) ... which make previous comments by Mervyn King (referring to those voted into power in the 2010 election being subsequently out of power for a whole generation) more and more relevant!  

Whilst this may be the beginning of the end for the Liberal Democrats, IMHO it is not the beginning of the end to all the objections, protest and anger ... as the tuition fees debacle has a long way to run, and this is just one of numerous unfair, unjust and unpopular proposals/cuts the coalition are looking to force upon us ...

Money & Banking: The Root Cause of Debt, Crisis and Poverty ...?

Does the fundamental design of the banking system automatically lead to an unstable, unproductive, unfair and unsustainable economy and society ...?

If the answer to the above question is yes, then the logical next question to ask is will society take the opportunity to truly fix the problem now...? or will it resort to superficial changes and start saving up for the next bailout ...?

If the best minds in the world were to get together to design a new banking system now ... could they create something better than what we've got ...? could they create something fair (the current system throws millions into debt unnecessarily) ...? could they create something stable? (the current system triggers a recession every few years) ...? could they create something sustainable (the current system requires infinite economic growth) ...? could they create something productive (the financial crisis is throwing millions of people into unemployment) ...?

More and more people are starting to believe money & banking is the root of most of our social and economic problems.  For instance, due to outdated/flawed banking laws, Fractional Reserve Banking currently allows private banks to legally generate 'money out of thin air' from debt, and use it to drive individuals, economies and nations further into debt (and debt slavery).  Is this true? ... Can this be right ...?  Is there a better way ...?  

Well the latest Zeitgeist movie starts to address such issues, and there are many groups now also demanding change ... e.g. one such group, Positive Money, is holding a conference next month in London (entitled "Banking Shapes the World"), on the 13th and 14th November 2010. 

House prices wilting - a little more reality creeping in?

In recent months new channels (including the BBC only yesterday) and papers have been reporting the 'return to growth' of house prices ... based on a mixture of 'hope' and 'flawed economics'.  Today, following the Halifax figures showing them falling the BBC has had to report the situation slightly differently ...

UK house prices wilting in summer

House prices are falling in part because of more properties for sale. UK house prices have fallen slightly in the early summer compared with the start of the year, a survey has found.

Property values dropped by 0.6% in June compared with May, following a 0.5% fall the previous month, the Halifax said. This meant prices in the second three months of the year were 0.1% lower than the first quarter.

More properties coming onto the market and less activity from house buyers has caused the fall, the lender said. The average home in the UK is now valued at £166,203 according to Halifax figures.

The typical property was still 6.3% higher than a year ago, although the figures point to the house price recovery faltering this year.

Martin Ellis, housing economist for the Halifax, said that the figures were not a great surprise. "This pattern is in line with our view that house prices will be broadly unchanged over 2010 as a whole," he said.

"A shortage of properties for sale in 2009 contributed to an imbalance between supply and demand and was a key factor driving up house prices last year.

"An increase in the number of properties available for sale in recent months has helped to reduce the imbalance, relieving the upward pressure on prices."

He said that the continued low level of interest rates continued to keep demand steady. The Bank of England's Monetary Policy Committee is widely expected to announce later that it is to keep the Bank rate at 0.5%."

David Smith, of property consultants Carter Jonas had previously told the BBC "where house prices go from here is difficult to predict because there are so many factors at work at the moment ... the fallout from the Budget will certainly have a major role to play in the coming months, with uncertainty surrounding impending public sector cuts and higher taxes, and of course we still have the ever-present threat of interest rate rises in the mix".

He is right, except for the predicted future for house prices (e.g. take a look at the standard curve for any 'asset' above - we are just going past the 'return to normal' point).  In fact the only thing that will slow the second decline is the realisation that supply of new property under the last Government was allowed to consistently lag well behind known demand (helping to 'inflate' prices and provide a 'feeling of wealth') ... but to everyone's cost.  If you currently feel you are a beneficiary of this, please think again ... e.g. think about the 'hand' you have dealt to your children (and grand children) and all young people today (and how long those clever enough to spot this are likely to stay in this country as a result), about how much you (and everyone else) have actually paid in your lifetime to banks (e.g. double the value of your mortgage) and bankers bonuses (and inflated estate agent fees), the fact that you only actually recover any actual 'profit' when you die and when it's of no use to you (as you still have to live somewhere), and the fact the Government plan to fund your old age care by selling your house to pay for it (as they don't have the cash to do it any other way)!  Speculation and investment in property also does nothing to improve the massive trade imbalance (and our ability to fund the nation's public services) or halt rising Government debt ...  etc etc

The new Government do not appear to be planning anything with regard to easing constraints to building new property either, which will maintain the long term imbalance between supply and demand, and will obviously reduce the speed and final level of decline.  They have also reduced the top rate of capital gains to help the 'speculators' who benefited greatly from property speculation in the past, to maintain people's interest in property, and to once again reduce the speed and final level of decline. None of these things solve any of the real problems however, and just wait until public sector jobs are slashed and interest rates start to increase (due to the rising costs of imports e.g. petrol prices up 30% to £5.30/gallon).

A little more reality still needs to creep in I'm afraid ... and 'flawed economics' (Poweromics - self interest, and greed) needs be replaced by a 'new economics' (Leanomics - based on value, values, trust, honesty, responsibility and respect). Nothing else will do ... as nothing else will work.  Where do you think the millions of jobs are going to come from to reduce the trade deficit, reduce Government debt, and pay for public services?

Steaming ahead ... to a Precipice?

As the UK Government continues blindly along its path (without changing a thing), the 'elephant in the room' is still steaming ahead and taking the UK economy towards the edge of the precipice.  With buoyed up (i.e. inflated) asset prices, colossal debts (Government and personal debts), collapsing tax receipts (income tax and corporation tax) and economic activity 'quietly' but steadily declining (and with massive jobs cuts predicted in the public sector too), it doesn't take long to see the unsustainable nature of the currently 'recovery' (0.1% growth!) and where it's heading.

However, 'talking things up' appears to be back, with news of house prices 'apparently' on the rise once again (i.e. more asset price inflation/speculation - rather than building of new property, which is real wealth creation).  The folly of such concepts is plain for all to see, with just a little digging, as the only people who truly profit in the long run from this are the landowners and the banks (who take away most of our younger generation's salaries). Reports of banks making bumper profits (and paying themselves large bonuses are also back), which is not hard to do in the short term when you can pay out at 0.5%, whilst lending out to businesses/individuals at 5%-30%, and whilst you can also take taxpayers money and re-invest and speculate it in the short term on collapsing assets prices (that are a result of previous actions of the banks themselves) whilst the Government/taxpayer underpins any of their bad debts.

However, inflation is now rising (the Bank of England has had to write to the Chancellor this month), and in normally the best month for tax receipts (January), the Government has had to borrow yet more money rather than being able to pay any debt back - for the first time since records began!! Our economy is in crisis, and founded on outdated/flawed leadership and management practices (i.e. poor moral values, self interest and greed).  The present system is continuing to collapse, but those in power (e.g. Government leaders, banks) are choosing to look after themselves rather than doing anything about it (for the majority of people in this country, and particularly younger generations).  Real economic inactivity and the impact on future generations has been recently highlighted, and there will be more of this to come in the future unless we change things quickly and for the better. The opportunities in the future are vast, but only if we embrace them.

As the risks associated with our economy grow, investment in the UK will drop, our debts will become increasingly expensive to service, and more young people will look elsewhere when considering their future - none of which the UK can afford ...

QE: So where did the £150bn go?

Of the extra £175bn the Bank of England created through its Quantatitive Easing (QE) programme, around £173bn has been used to buy UK gilts - i.e. to buy Government debt to keep it afloat - as highlighted in my previous blog, 'Printing Money, Inflation and Spin'.

Today the Bank of England also announced it will be pumping in another £25bn too (QEII) - so it looks like Gordon is looking for the bailout to continue to keep the UK ship afloat until at least the general election, so he can try to avoid any more blame falling upon himself (e.g. for the impending tax hikes, and the slashing of services & public sector jobs), and so he can pass the problem onto someone else (rather than deal with it).

Trust, Honor, Responsibility, Respect? ... You decide!

Why the Prime Minister hasn't learnt a thing

Gordon Brown said today he is "appalled" that some financial firms are continuing, and even extending, their bonus culture ... so why did he present an open-cheque book to them, bail them out with £100's billions of taxpayers money, and put nothing in place to stop this from happening again? ... for instance why has he not pushed for the introduction of a new Glass-Steagall type act to separate commercial banking (supporting wealth creation) from investment banking (supporting wealth manipulation) again, given the removal of this was a key factor in the financial crisis in the first place?

Mr Brown also refused to blame Britons for their level of rising personal debt during his time as chancellor and prime minister, saying the vast majority of debt had been the result of the "legitimate aim" of people trying to buy a home ... a "legitimate aim" to have a roof over ones head - yes ... but to have to take on huge personal debts to do this - no! ... and this would not have happened if the Government had ensured a steady & sufficient supply of housing (ideally driven by a Land Value Tax too), rather than 'promoting' self interest/greed and house price inflation/speculation.

The problem is the Government do not know how to create real wealth ... they only know how to manipulate wealth, and letting landowners profit from land whilst bankers profit from loans ... and what's even more worrying is that the Prime Minister's comments today show he hasn't learnt anything from this crisis! ... so how could we ever believe he is the right man to fix it?

A Tale of Two Economies ...

Stephanie Flanders, following a recent visit to Germany, posted a great blog today entitled "The tale of Two Economies", which compares the very different economies of Germany (export led) and the UK (borrowing led).

The differences are stark, and the two countries also have very different strategies for dealing with the current financial crisis too (as highlighted by Germany's ministers - e.g. see the links provided below). 

In Germany most people tend to i) class a house as a home, ii) rent rather than buy, iii) save rather than spend and tend not to iv) invest or speculate in property.  In the UK (and the USA) however people have tended to do the complete opposite ... 

So who is positioned best to cope with the current financial crisis? ... and who has already indebted their nation for generations to come?  Take a look at these interviews with Germany's finance minister, and economics minister, and the fact that Germany's exports are already starting to grow again ...

... and take a look at Stephanie's blog too, and the additional comments that I have made and others have made below ...

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Post 14 (Leanomist) wrote: 

Thanks Stephanie - good work. We are now starting to address some of the real issues, which countries like Germany have understood for years (nb Germany also appear to understand the current crisis better than our Government does, and they are tackling it in very different ways - e.g. they are not taking the 'easy option' and burdening future generations with huge debts)!

To survive in a global economy the UK will have to be far more innovative and create more products & services other countries need and actually want to buy (e.g. beyond trying to sell Germany beer!) ... because they add value, solve problems and offer new (and unique) ways to improve people's lives! 

The UK cannot rely, and in fact really does not need, another credit fuelled consumer boom (e.g. based on more housing asset price inflation) and we need to avoid this happening (as it will only worsen our borrowing & trade deficits, and create even worse problems further down the line).

The answer is to stop focusing most of our time, energy and resources on 'gambling' (investment banking, house prices), 'banking' and other services that 'move money' or 'count money' (i.e. 'manipulating' wealth - activities which should arguably be taxed more from an ethical point of view), and focus them more on innovation and creating more products/services people value that we can export and which will actually bring in money (i.e. 'creating wealth' - which should arguably be taxed less).

But will anything like this happen any time soon? I don't think so - not until we have 'leaders' who are able to act responsibly and see beyond their own career/wallet (ie. who don't apply Poweromics*), or until things get so bad that apathy within the general public diminishes to a point where they decide to take responsibility for improving the situation themselves ...

David Clift, a Future 500 Leader

* Poweromics = People using position and power for their own personal gain, based on poor moral values, self interest and greed. http://poweromics.blogspot.com has more examples/information.

PS I agree with a number of comments already made, including 2, 6, 9 and 11 (nb I am one of those who, like yourself and many others, have raised this issue on a number of occasions - let's hope Stephanie goes further down this road now - please don't disappoint us now you've started Stephanie) ...

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Post 2 John_from_Hendon wrote:

Stephanie wrote

"most of the rise in borrowing over the past decade went into the housing market"

Oh dear, Oh dear, Oh dear,

It has vanished then into asset price inflatuion NOT into building productive capacity! We have thus seen nothing for all of our borrowing. If only we had bought something we could use or make something with!

I remember the German Housing market: Second-hand houses cost less than new ones as they are, how do I put it, "Second-Hand"!

The Germans have not dug a huge hole and filled it with debt then... Like we did.

We have stocked up a huge level of latent and actual inflation and currency depreciation which is disastrous. The money men (The Banks that we 'love' so much!) have siphoned off our houses to no advantage to us, indeed to our huge disadvantage!

Why did we let this happen? 

Why did you as a representative of an economical commentator not complain about this at the time?

It was, and still is, the hight of idiocy to see increasing house prices as a sign of something good - it is not, it is a terrible apocalyptic sign of national decline, and banking collapse!

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Post 6 Wee-Scamp wrote:

If Germany is the export champion then the UK has been the import champion. Our trade deficit is legendary. That apart we have of course allowed the financial services sector to make money out of selling our companies off to overseas buyers and there has been little real investment in new companies capable of becoming export meisters in their own right. It's been the economic equivalent of the slow train crash.

There's little doubt that the Govt (especially the Treasury) and the City have let the UK down badly in the last three decades or so and certainly since the big bang... In fact you can track the growth of the trade deficit since the big bang and watch it get bigger and bigger.. At the time of the big bang it was modest but by 1997 it was �11bn.... Now it's probably incalcuable. 

What we can be sure of is that when the economic recovery starts Germany will still have most if not all of its industry intact. We'll have a bunch of badly managed and crippled banks. 

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Post 11: hants_gw wrote:

This is quite a provocative entry.

"With consumers likely to be saving more and spending less, export-led growth is our main hope of a healthy rate of economic growth"

Exporting what exactly? And to whom?

My apologies to various people who have asked essentially that question over the last few months, but it never gets an answer. Supposing I were a wealthy German who wanted to do his bit for global economic balance by buying British, what is on offer? Novelty beers apparently.

Since "export-led growth is our main hope of a healthy rate of economic growth", what is the government doing to make sure that happens? I'm not aware of anything. Perhaps that is just ignorance on my part, but I seem to be well aware of plenty that the government is doing to prop up incompetently run banks.

By the way, what happens after the exports don't materialise?

"Germany's addiction to exports is a problem as well."

Ah yes. Those wicked, wicked Germans with their naughty habit of designing and building high-quality, well-engineered products that people want to buy. It's just not playing the game is it. The next thing you know they'll have banks run by financially literate people; banks that make real profits by investing in real businesses. Good grief, where does it end?

"Yet, on the basis of my trip, I don't think there's much chance of Germany becoming more like Britain or America, despite the big hit they have taken in the past year."

Yes it's a puzzle isn't it? Why would the ant want to become a grasshopper?

Some of the original entry makes a lot of sense, notably the observation that Britain needs to export more (actually lots more) - but having said that why not think through the consequences. If exports are so essential, why isn't that fact visible in the government's behaviour? Where is the support for exporters? As best I can tell the current government's top priority is to increase public spending. I have never heard a government representative talk about boosting exports.

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Honesty, Honestly II

Taking a look at Nick Robinson's latest blog today, entitled "Honesty - the New Battleground", takes me back to a post I wrote last month ("Honesty, Honestly") which referred to the Seven Principles of Public Life and the clear failure of Politicians to apply them ... well, this is clearly coming to the fore now (with a little bit of nudging perhaps), and the net is also widening to the Civil Service (e.g. the Cabinet Secretary) too. 

It's should start getting very interesting now.  The Cabinet Secretary, who earns over £280,000 per year, has not responded about his reasoning behind delaying and declining the opposition request for Government financial data, but has been very quick (and the first) to publish his last three months of expenses today (which includes a £19,408 car bill)!  He can obviously see what's coming ... and there are many more questions that need to be asked too (e.g. "The Targets era is over" from last months blog) ...

Take a look at my post (and others) added to Nick Robinson's blog below too:

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Leanomist (281)

Trust, Honor, Responsibility, Respect - Don't hold your breath waiting for any politician to show us any of these. They have all been 'tested, measured and found wanting'.  

The net is also (quite rightly) being cast out wider now - e.g. to the Cabinet Secretary (head of the Civil Service) ... a man who has knowingly allowed 20th century management practices (e.g. command and control, target driven cultures set up by Government) to be used to systematically generate wasteful/inefficient practice, consume massive amounts of our money and create massive public debts. e.g. take a look at http://poweromics.blogspot.com/2009/06/targets-era-is-over.html for instance

The cabinet secretary also made it clear that he was fully aware and understood the lack of 21st century leadership and management practices in the Civil Service (and the Government), but failed to do anything about it ... so I think we are probably safe to assume that these kind of values will be difficult to find at the top of the Civil Service too!  Perhaps we need a bigger broom to sweep the decks ...

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Confidence ... what Confidence?

In her blog on Friday Stephanie Flanders focused on the Global Property Market whilst discussing 'confidence' and potential 'green shoots' of recovery ... but is housing the right thing to be focusing on when looking at 'Confidence'?  Personally I think not, and worse still I believe it focuses us on the wrong things ... take a look at the comments I added (post  25) to her blog below:

"Confidence/Speculation in housing does not improve trade deficits or borrowing levels, it just makes more money for speculators/banks, more misery and indebtedness for young people (and future generations), and a even less competitive economy ... 

The green shoots of recovery we need to see are in innovation, exports and jobs, not in how much banks/speculators think they'll be able to profit from loans given to hard-working UK people just to get a roof over their head. People are being taken for a ride again ... by a corrupt form of 'spin' focused on 'feeding' everyone's 'self interest' and 'greed' (and supported by a plethora of TV property programmes too)! 

Contrary to popular belief, 'confidence' does not really derive from the price of a house, but from security/opportunity in ones job and the robustness/strength of the overall economy (i.e. trade and exports). 

Some people need to take a reality check ... and realize that many old people's houses are already being taken back and sold to pay for their old age care - this is the only plan (and a hidden one at that!) that the Government have to cover the demographic changes now starting to occur and all the pensions black holes that exist (nb the entirely unfunded Civil Service Pensions liability too)! 

A very sad state of affairs, and it's a disgrace that many people in 'Power' know this already, but because most of them apply Poweromics*, they do not listen and don't care! A few do - but they have not been listened either - take a listen to Frank Field's interview below**

Young, hard-working people and future generations have been failed badly by us all ... responsibility clearly lies with Government (applying Poweromics*) ... but we are all responsible for doing nothing about it either (Ignoromics***). 

We should not be surprised if they do not tolerate what has been done, and make choices of their own, either by withdrawing their labour/support and/or moving to countries who have a taken a more responsible path (which some have, and in the EU too ... which means young hard-working people can move there without restriction)!

For the sake of future generations, can we stop this downward spiral now and only use the word 'confidence' when we're referring to jobs and trade/exports please ... so we can focus on improving the right things, not the wrong things ...

David Clift, a Future 500 Leader

* Poweromics = People using position and power for their own personal gain, based on poor moral values, self interest and greed. Take a look at http://poweromics.blogspot.com for more information/examples of Poweromics.

** http://news.bbc.co.uk/panorama/hi/front_page/newsid_7955000/7955859.stm - "I predict a riot" - Frank field

*** Ignoromics = People are either effectively ignorant of the situation (e.g. the overall environment) or not prepared to take responsibility to make sure it changes for the better."