Cassandra on the greatest illusion!
¯This week on Facebook: The ascendancy of unconstrained finance has always been a feature of wealth and poverty, exacerbated in 1981 (and since) by the cost of a social welfare programme. With deficit financing used to increase the inevitable shortfall in government budgets and the cost being borne by a fiscal policy that is an increasing burden on the taxpayer already burdened with government financial errors.
State prediction of economic growth have not been realised and the general public have, of recent years, mostly been subjected to austerity. This austerity is created by debts encouraged by The City and low incomes encouraged by State fiscal policy.
While Gordon Brown and New Labour may have entered into a Faustian bargain with city financiers to avoid austerity by the use of quantitative easing and private finance initiatives, no public administration since has sought to rectify this or other Off-Balance Sheet Financing in a fiscal policy¹. Neither has any political party in the UK attempted to change the UK’s manufacturing decline, coincident with the rise of financiers banking and private debt.
Rather like the public administration under New Labour, successive State fiscal policy has relied on the financial services sector to fund expansive GDP policies. The UK State is now reliant on City of London financiers for its GDP and remains as subservient to its financial creditors as do private debtors². Any growth in the UK’s GDP (certainly in the short term) being dependant on financial services provided by the City of London.
The decline in manufacturing had commenced much earlier, but the unconstrained ascendance of finance began in 1981. This was the date on which Britain started to become a fully owned subsidiary of the City of London. This growth in debt gave The City immense power over the rest of the country, in a Faustian bargain that delivered ever growing demand from credit (which is equal in magnitude to the annual increase in private debt) in return for an ever-growing claim by The City on the assets and incomes of the rest of the country. UK as a subsidiary of ‘The City’
The State’s need to maintain at least some semblance of a social welfare programme, when coupled with constantly failing GDP predictions that always leads to deficit financing. However, having boxed itself into this corner, the State chose to bail out the banks and impose austerity measures that ran contrary to any social welfare programme.
One sneering metropolitan pundit recently wrote that go-ahead London was “shackled to a corpse”—the rest of the country. The disdainful suggestion was that we should pronounce the funeral rites over once-proud provinces, and bury the body out of sight. London is not shackled to a corpse; the rest of the country is shackled to a shark. How to save Britain from London
The following video claims to expose the truth on the financial systems of banks controlled by The City of London. The video point’s out the ‘money trap of consumer debt‘ and the effect of peak debt. As the article at (4) points out, even the Office of National Statistics reported³ on how UK household finances have changed in the last 30 years. Consumer debt is now a problem for whoever may control the public administration, with household debt becoming an ever growing part of private debt, and which continue to be promoted by city financiers and ‘political acquiescence’.
1. Ten years on — the biggest driver of the 2008 financial crisis has only got worse: Let’s start with the finance industry. The finance industry runs almost entirely on Other People’s Money (OPM). That creates an immediate problem. The finance industry likes to present itself as a steward of OPM, from institutional investors to individuals. Instead, it more often cares about getting as big a chunk of that OPM as it can. The more it has, the more fees it can extract from it. That incentivises the creation of complicated, fee-heavy products. It incentivises the expansion of balance sheets. It incentivises short-term behaviour. And it incentivises careless expansionism, because caution is penalised if you are trying to win business in a “race to the bottom” environment…
2. Reality Check: Has personal debt been growing? Can we afford all this? Household debt including mortgages as a proportion of household income rose from 95% in 1997 to 160% before the financial crisis. It then fell back to about 140% but has now started ticking back up. The Office for Budget Responsibility predicts that it will reach 153% in 2022.
3. The Private Debt Crisis∗: Even though government debt grabs all the headlines, private debt is larger than government debt and has more impact on economic outcomes. In the United States, total nonfinancial private debt is $27 trillion and public debt is $19 trillion. More telling, since 1950, USA private debt has almost tripled from 55 percent of GDP to 150 percent of GDP, and most other major economies have shown a similar trend. Since GDP is largely the sum of all the spending, and thus income, of households and businesses in an economy, if aggregate private debt to GDP has tripled, that means that average businesses and households have three times more debt in relation to their income.
4. Household debt in UK ‘worse than at any time on record’: Researchers at the ONS said the situation was worse than at any time on record after the £25 billion deficit last year surpassed the £300m deficit recorded in 1988. British household finances also slumped from being among the most solvent in the 1990s to being among the most indebted compared with households in other major western countries.
5. How City of London finance is making us poorer∗: A new report reveals the UK’s oversized financial sector has cost the economy £4.5 trillion in lost economic output between 1995 and 2015 – equivalent to £67,500 for every person in the UK. The report finds that the UK economy would likely have performed much better in overall growth terms if its finance sector was smaller, and if finance was more focused on supporting other productive areas of the economy.
Referenced Articles Books & Definitions:
- A bold text subscript above and preceding a title below (¹·²·³), refers to a book, pdf, podcast, video, slide show and a download that is usually free.
- Brackets containing a number e.g. (1) reference a particular article (1-5).
- A superscript in bold¹ is used for a reference included below.
- Links (without superscript) reference a source.
- Links may include a superscript to indicate the word used’s (context¹).
- A long read url* is followed by a superscript asterisk.
- Occasionally Open University (OU) free courses are cited.
- JSTOR lets you set up a free account allowing you to have 6 (interchangeable) books stored that you can read online.
¹Accounting Devices and Fiscal Illusions (url/pdf): Types of creative accounting covered includes, for instance, currency swaps to hide a debt build-up (as in Greece in 2001–07), sale and leaseback of government property (for example, in the United States), assumption of long-term pension obligations in exchange for short-term revenue (Argentina, Hungary, and other Eastern European countries), use of public-private partnerships to defer the recognition of investment spending (for instance, Portugal), and reliance on non-cash compensation (such as pension rights) to reduce measured wage bills (in the United States, United Kingdom, etc.)
²The impact of private debt on economic growth (pdf): Both theoretical and empirical evidence show that recessions are steeper in countries with high levels of private debt and/or credit booms. But do these negative effects carry over to the period where the recession is over and the economy recovers from the crisis?
³Making ends meet: are households living beyond their means (url/pdf)? UK households have seen their outgoings surpass their income for the first time in nearly 30 year. On average, each UK household spent or invested around £900 more than they received in income in 2017; amounting to almost £25 billion. Households’ outgoings last outstripped their income for a whole year in 1988, although the shortfall was much smaller at just £0.3 billion. Even in the run-up to the financial crisis of 2008 and 2009, when 100% (and more) mortgages were offered to home buyers without a deposit, the country did not reach a point where the average household was a net borrower.
2017 2018 @ A.P. Herbert AI Albert Haddock Banks blog book books budget budget deficit C.S. Lewis censorship China Civil Service constitution Crime CRT cryptocurrency CWG debt deficit democracy economics ethics EU euro fiat money Film France freedom of expression gdp government history human-rights internet J M Keynes language Law Ludwig Von Mises Margaret Thatcher Matt morality music Musical national debt New Labour NHS opinion parody PFI police Police & Crime Commissioners politics Quantitative Easing research school Screwtape Sir Ethelred Rutt K.C. social-media Social Media Social Welfare statistics T.E. Utley taxation terrorism Thatcher The Telegraph UK Unemployment USA Victor Hugo war war on terror
© Peter Barnett and Aasof’s Relections. Unauthorised use and/or duplication of this material without express and written permission from this site’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Aasof and Aasof’s reflections with appropriate and specific direction to the original content.