Corrupt capitalism: Banks are throttling Economic Recovery

The Business Secretary, Vince Cable, today accused Britain's banks of "throttling" the economic recovery because of an anti-business culture which focuses on short-term profits. 

Speaking on the BBC1's Andrew Marr Show, the business secretary said: "The real problem at the moment is that the banks – because of their existing culture which is frankly anti-business, obsession with short-term trading profits, not focusing on the long term – are throttling the recovery of British industry."

The business secretary blamed the banks for undermining the multibillion-pound quantitative-easing programme by the Bank of England to inject liquidity into the economy.

He said: "There has been a breakdown in the mechanism, in the transmission. It just doesn't get through to companies. We are going to ensure that the new money that the chancellor and the governor of the Bank of England talked about at the mansion house does actually directly reach the companies.

"Given that our leading banks are, frankly, throttling recovery by not making business-lending available, particularly to small-scale companies, we now have to focus single mindedly on that task. How to make sure that the additional money gets through to business."

However talk is cheap ... as he/his party voted against a wide ranging judicial inquiry into the culture and practices of banks. His limited understanding of the level of corruption involved is also deeply worrying (n.b. the banks actually create/counterfeit over 90% of the money supply in the UK, not the Bank of England, and given this they are able to decide how they want to spend/gamble it).

We need to i) take back control of money supply (off the private banks), ii) separate casino banking and retail banking fully (i.e. not just 'ring-fencing') and iii) tax financial (casino bank) transactions just like any other form of gambling.

Only by doing these things will real businesses start to thrive and the UK economy start to flourish. Unfortunately Cable doesn't understand this, and the Labour party doesn't either (given their parallel announcements today)! 

No wonder Cameron and Osborne were desperate to stop a wide ranging judicial review ... as it would have started to expose/explain everything to them!

Double dip ... here we come!

Further evidence today that we are heading for a double-dip recession ... 

1. Two of the nine Bank of England Monetary Policy Committee (MPC) members have effectively now admitted it ... with one now saying there is a 50-50 chance the economy will contract in the final three months of the year. They are trying to 'rescue us', or should I say 'cover the recession up', with a further £75bn of quantitative easing (printing money) ... and they hinted a further extension of this is likely in the coming months. The problem with this approach is that the money simply ends up in banks (who caused the problem in the first place) for them to speculate with (rather than lend out to businesses) and it also pushes up prices/inflation (nb the idea that the stock market is 'rallying' is a big con ... it simply follows the effective devaluation of the pound).

2. Sentiment among the British public has dwindled to recession levels as fears mount over the outlook for the economy and household finances. GfK NOP's consumer confidence index fell to -32 in October from -30 in September. It has only breached that level on two occasions since the survey began in 1974 - March 1990, and June 2008. At both points the UK was heading into recession.

But don't worry ... the Chancellor and the Government now have something else to 'pin the blame on' ...  not themselves ... or any of their policies/inaction ... but the crisis in Europe* ... how convenient ... and timely!

* After all the rhetoric from Cameron and the Government about listening to the voice of the people (and giving them a referendum on Europe), it's interesting that they imposed a 'three line whip' to force MP's to vote against a proposal aimed at giving ordinary people an opportunity to have their say over Europe ... whilst they continue to use taxpayers money to prop Europe up! Hypocrisy indeed.

'Recession' and 'Depression'

Official figures confirmed last week that the UK economy 'contracted' once again - pointing to the fact that the country is still in recession - and it's the first time that UK Gross Domestic Product (the total amount of goods and services produced by a country) has contracted for six consecutive quarters (ever since quarterly figures began to be recorded in 1955). The pound fell further after the figures were released, reflecting the fact that many investors had expected the UK economy to 'grow' slightly in the last quarter, which would have technically taken the UK 'out of recession'.

Despite 'printing money' and generating a 'great deal of spin', the UK is one of the few G20 countries still to technically come 'out of recession' (e.g. France and Germany came out of recession six months ago). Potential investors have seen the effective devaluation of the UK's currency (through the £150bn Quantitative Easing programme), but they are also now able to see through the 'spin', and to see the fundamental weaknesses within the UK economy.

The 'stock market recovery' and 'housing recovery' are all part of the 'spin'/'scam' to artificially raise confidence, as 'assets' such as these 'appear to rise' because the 'value of every pound has been reduced'! As highlighted previously, as the pound slides against foreign currencies (nb the UK pound has already lost nearly 30% of its value against currencies such as the euro), the price of imported goods entering the UK will rise (e.g. including oil & gas), pushing up prices and affecting people's purchasing power further. High unemployment may hold back 'wage inflation', but it will not stop 'import price inflation' or people becoming 'progressively worse off'.

As import prices rise, unemployment grows, taxes increase and massive cutbacks are introduced (to pay back spiraling Government debt), the UK will start to feel the real impact of this Government's failure, their lack of prudence, their self-interest (e.g. MP's expenses) and their support of greed (e.g. diverting tax payers money to bail out banks and effectively paying for their excessive bonuses, rather than fixing the problem and helping hard-working people/businesses) - all of which will negatively impact the overall well-being of our nation for generations to come.

Gordon Brown is telling us we will come out of recession by the next quarter, but as many analysts have pointed out, this will mainly be because of a rush of purchases taking place before the Government puts VAT back up to 17.5% at the end of the year! The timing of this change, alongside the delay in addressing spiraling Government debt, are clearly linked to Gordon's own personal agenda/self-interest and demonstrates a cynical 'misuse of power' ... as he wants to say 'he was the one who brought the UK out of recession' (just before the election), as well as to 'blame others' for it all going wrong afterwards! (e.g. see my previous post on the double-dip recession) ... which shows the sheer hypocrisy of a man who is happy to preach to us about 'values' and 'prudence', despite demonstrating neither of these qualities himself.

In the 21st century, GDP is not a true indicator of a nation's 'economic success' either. The use of the word 'recovery' whilst everyone is effectively becoming worse off, and more and more people are losing their jobs, is arguably perverse too. Such outcomes not only result in 'recession', they also create 'depression'. More holistic measures are needed to assess the overall well-being of a nation (e.g. take a look at the 'BUTS' test for instance) and as the overall situation continues to gets worse, ignorance will reduce, depression will grow and anger will increase (e.g. towards the bankers who are once again 'pocketing' billions in bonuses, whilst everyone else pays for it through increased taxes, and and through more and more people losing their jobs).

Traditional economics is dead, and a new economics & politics is about to emerge (powered by the internet) ... focused on community contentment, the well-being of people, and the ability to create real value for others (founded upon fundamental values such as trust, honor, responsibility, respect) ... instead of focusing on wealth manipulation, based on poor moral values, self-interest and greed (e.g. fueled by envy, celebrity and the media).

The battle of the future is one that transcends nations, and is a battle of values:

Leanomics vs Poweromics & Ignoromics

... where values (and value creation) once again return to challenge poor moral values, self-interest & greed (and wealth manipulation)

Nations that fail to change will fail to survive ... and with the advent of modern communication people now have far more 'information', 'choice', and 'power' ... they just haven't realised, or exercised, it yet ... but they will ... and as Ignoromics reduces Poweromics will be challenged, in many different ways ...

Printing Money, Inflation, and Spin

With all the 'headlines' & 'spin' associated with 'Quantitative easing' ... do we really understand what it means, and what's really going on ... ?

This post is designed to do just that ... to get behind the froth, the big words, and all the hype/spin to understand what's really going on. ...

Let's start with Quantitative Easing (QE) - a big word used to bamboozle people and to make something sound very complicated when it actually isn't (remember previous ones like this too) - as what it really means is "Printing Money" ! ... well we can start to understand what this might actually mean now, and what it might do ...

So let's move on then ... if we print more money (£notes) to represent the same 'assets', then money (£notes) is effectively 'devalued' and the same asset is therefore now worth 'more money' (£notes) - this is 'true inflation' - or 'monetary inflation' - i.e. the amount 'money' has been 'inflated' without changing any assets at all ...

Hence it should come as no surprise that asset prices (including stocks) have 'risen' as a result of this (QE) - money has been devalued, but the 'value of the assets' are still the same - so there's no point getting carried away about the recent stock market rise (or in the fact that house price falls may have 'stabilised') ...

So why all the 'spin' about the stock market rally and using this as 'evidence' of a recovery? ... well that's part of the overall strategy ... to make 'people', and 'foreign / currency markets', believe that our economy is recovering, when in reality it's not recovering at all (as in reality it's still getting worse - take a look at unemployment continuing to rise for instance)!

Let's take the foreign/currency markets first. At the moment, as far as the currency markets are concerned at least, the spin/scam appears to be working a little, as the despite devaluing our currency, the exchange rates for £notes has risen recently in the belief there are signs that the UK economy is starting to recover! Take a look at the simplified model* below, from 'printing money', through to the 'illusion of recovery', combined with the 'spin' associated with 'Quantitative Easing' (QE), and it's temporary impact on 'currency markets'.

The temporary increase in exchange rates will also temporarily reduces import prices, but the problem with all of this is simple ... without changing what's actually happening on the ground (which our 'leaders' are not!) the spin/scam (just like any other pyramid scheme) won't last ... the 'illusion' and any 'assumptions' will quickly disappear ... and then there's likely to be a massive exit from (and huge reduction in value of) the pound, and hence a massive rise in import costs and 'price inflation' too.

Let's now look at people - starting with the vast majority of people. The spin/scam is designed to bring back 'confidence' again ... and to kick-start the majority of people to 'buy' again. For instance QE (or 'printing money') means the 'value of houses' can continue to reduce, but without 'house prices' appearing to go down (i.e. the value has actually dropped, but it's still 'worth' the same amount of £notes, as the currency has been devalued) - great eh ... and another aspect of the scam to bring back a feeling of confidence again, so people are more likely to spend as well as take on more debt!

Again, this scam is not hard to spot and is quite simple in its construction - the problem is it doesn't change anything on the ground in any sustainable way - and as any pyramid scheme/scam it will also fail and it's likely to enhance the decline in housing speculation further down the line (see my previous post) too ... as it combines with interest rates starting to track rapidly upwards again (to deal with all the growing 'inflationary pressures', as highlighted earlier), and as the debts taken on by Government have to be paid back through higher taxes. Most UK people are currently set to become a lot worse off over the next decade, in terms of the value of their pensions, the money they actually have to spend, and the value of some of the 'assets' (in particular - their house) they currently 'own'. Wage inflation will also attempt to be restrained, by keeping fear and unemployment levels relatively high [nb the problem is the UK Government cannot afford to do this, without cutting Government support or raising taxes even further too ... which will create further problems / unrest].

This outlook is not the same for all people however. For instance it's not the case for current 'leaders' and 'bankers', because as the model above also shows, they will 'profit' greatly once again - from the apparent 'rise' in stock prices (once again without doing anything at all), from reducing all of our pensions, and from the 'interest' people have to pay for any debts they have, or take on in the future. Whilst wage inflation will be held back for the vast majority, current 'leaders' will be 'rewarded' for their efforts in ensuring this happens too.

The application of Poweromics** will become increasing clear, and Ignoromics*** will reduce as more people lose their jobs, become progressively worse off, far more aware of what's going on and step forward to make their 'voice heard' ... a real 'battle of values' will then begin (powered by the internet) ... and a new 'values system', and a 'new economics'****, is likely to emerge ... though those currently in 'power' will fight all they can to avoid this from happening and to maintain 'power' ... so they can continue to 'profit from power' ... [nb many of the laws passed in the wake of 'terrorism', weren't really about dealing with 'terrorism'!]

Hard-working people around the world will soon face a stark choice about the future, and the success & well-being of their community/nation will depend on the choice they make, the values they uphold, and the 'real value' they create ...

We all face challenging times ahead, as history tells us 'change will happen' ... we just don't know exactly how or when ... but given the advent of the internet, 'change' is very likely to occur in many different ways ... and foreign investors / currency markets are unlikely to buy the 'illusion of recovery' for very long too ...

* Whilst more complex models can be used, IMHO the simple model above tells us most of the story, whilst the rest simply adds finer (and arguably unnecessary) levels of detail.

** Poweromics = People using position and power for their own personal gain, based on poor moral values, self interest and greed.

*** 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.

**** Leanomics = People taking responsibility for adding value and continuously improving the situation for others (e.g. customers, communities, overall environment), based upon fundamental values such as trust, honor, responsibility and respect.

Referred to on Stephanie Flanders blog, "QE more to do" (Post 72)