Action Now
We are told that Alistair Darling is considering further action to end the recession - to be included in his budget statement in March. Why wait until March? It is obvious that people need help, and jobs are needed, NOW.
There is no case for delay. There is much uncertainty about: one certainty is that it is impossible to give too much help to struggling people, or to create too many jobs.
The Banks
In dealing with the banking crisis the government has done only half a job. We all agree we need a banking system. But we need a system which serves the people, not bankers and shareholders.
The banks owned by the taxpayer – Bradford and Bingley, Northern Rock, Royal Bank of Scotland (along with the Post Office) must be converted to a People’s banking system.
Instead of state control through nationalisation, which the government does not like, these banks should be established as Mutual Societies. They would then be owned by their members, which was the position of Bradford and Bingley and Northern Rock before the stupid Thatcher policy allowed them to convert to banks.
In the re-organisation, the commercial bits of RBS should be separated from the domestic bits. It could then operate as a separate company to take the lead in implementing government policies for the commercial sector.
The message from anyone (which appears to include government ministers) opposed to these proposals is that such matters are best left to the capitalist financial markets: this position is obviously out of touch with reality.
Action on Unemployment and Poverty
Some government ministers have made vague noises about measures taken creating a fairer society, as well as ending the recession. This is not true in any significant sense of the measures taken so far. Vague statements about the borrowing being repaid from ‘government receipts in the upturn’ are not good enough.
The vagueness gives some creditability to the Tory’s claim that the borrowing is irresponsible. It is not the borrowing, so essential to ending the recession, that is irresponsible but the vagueness on repayment.
A package to stimulate the economy at the same time (now) as President Obama’s will be much more effective than waiting until March. It should be more ambitious than the November £20 Billion: a £100 Billion, at least, but with a convincing strategy on repayment.
The priorities for the £100 Billion are to:
(i) take at least one million out of income tax brackets and increase allowances, including pensions;
(ii) provide finance for local authorities to support families unable to pay their mortgages (either by offering easier mortgage repayments, or renting arrangements);
(iii) create jobs, especially in the sphere of green energy.
Repayment of the £100 Billion Borrowing
A convincing repayment strategy, over a 5 year period, is aim to acquire the finance from:
(i) cuts in defence expenditure, where £50 Billion could be found (including £20 Billion from abandoning Trident);
(ii) Progressively higher tax rates for incomes over £80,000, and measures to prevent tax avoidance;
(iii) Windfall taxes on excessive company profits and, again, steps to prevent tax avoidance.
It is only with a strategy along these lines that movement towards a fairer society will be convincing. Until such a strategy is launched voters will continue to believe that government is on the side of bankers, not the people.
Tuesday 27 January 2009
Monday 19 January 2009
The UK Banks and the Wider Economy
Banks With No Money
The UK government’s £200 Billion package, announced 20 January 2009, follows worries about the banks. Their shares appear to be in freefall. However, the Prime Minister, and the Chancellor, insist that the purpose of the package is not to bale out the banks, but to support the wider economy - by increasing lending to companies and individuals who need mortgages.
Is this convincing? Companies and people who need mortgages have been pleading for help for months, yet the action was not taken until it became clear that the banks were in difficulty. Even more important, will the £ Billions made available end the recession?
There will obviously be some easing in the lending market as a result of the terms which accompany the £ Billions provided for the banks. This will apply especially to the government controlled Northern Rock (which is nationalised), and the Royal Bank of Scotland (where the government has a majority shareholding).
It remains to be seen how far the other banks will keep their promises. Although they have an incentive to increase lending, because they need new profitable business, they will weigh this against other considerations (such as how to maintain their dividends).
A More Radical Approach
The fundamental problem is that the government fails to recognise that the old free market system has collapsed. This would have been more obvious if the banks had collapsed, which would have happened in November if taxpayers’ money had not saved them.
Using our money in this way is justified only if it is seen as an interim measure while a new system is created. There is, sadly, no sign of the intention to build a new system. The government appears to believe that, given Billions of £s, the old system will be restored to health.
Yet, every day, it becomes increasingly evident that this will not occur. The obvious message from the past 18 months is that economies cannot be left at the mercy of the financial markets. If governments had not stepped in, especially in the USA and the UK, unemployment would be even higher than the dreadful figures reported almost daily.
Obama and the World Economy
The most promising development is the election of Barack Obama as American President, with his commitment to take urgent action to save the economy. Unlike his predecessor, he is not reluctant about government intervention. He has promised over $800 Billion to create jobs, support householders, and move towards a more equal society.
Although economic recovery in the USA is the most important single factor, the challenges are global. Ending the recession requires other countries, especially in Western Europe, to follow the new President’s lead. And the importance of the involvement of Russia, China and India in economic recovery action must also be recognised.
Where Next For The UK?
For the UK, it is essential to match (in comparative terms) Obama’s job creation and householder support measures. As I have argued in an earlier Blog, there is no danger that too many jobs would be saved, or created.
However, fundamental to success is a co-ordinated approach to the government’s involvement in the economy. It will not be possible to end the recession unless the availability of finance (for companies and mortgages) is ensured.
This will occur only if the government determines that relevant financial support is available: this cannot be left to market forces. The obvious solution is to co-ordinate the state controlled entities so that they function as a state bank. A co-ordinated operation through the Royal Bank of Scotland, Northern Rock, Bradford and Bingley, The Post Office should lead the way.
With the prospect of competition from state controlled lenders, the other banks would be more likely to co-operate. To do business, and make profits, they would have to focus on consumer need, rather than dividends and bonuses.
A New Financial World
The reality is that financial systems are now inevitably global. The UK and other West European countries must work with the new USA President to restore order and lead economic recovery.
Policy must be determined by governments working together, not by market forces. Stability is essential for greater prosperity in developing countries, as well as for the wealthier nations.
The UK government’s £200 Billion package, announced 20 January 2009, follows worries about the banks. Their shares appear to be in freefall. However, the Prime Minister, and the Chancellor, insist that the purpose of the package is not to bale out the banks, but to support the wider economy - by increasing lending to companies and individuals who need mortgages.
Is this convincing? Companies and people who need mortgages have been pleading for help for months, yet the action was not taken until it became clear that the banks were in difficulty. Even more important, will the £ Billions made available end the recession?
There will obviously be some easing in the lending market as a result of the terms which accompany the £ Billions provided for the banks. This will apply especially to the government controlled Northern Rock (which is nationalised), and the Royal Bank of Scotland (where the government has a majority shareholding).
It remains to be seen how far the other banks will keep their promises. Although they have an incentive to increase lending, because they need new profitable business, they will weigh this against other considerations (such as how to maintain their dividends).
A More Radical Approach
The fundamental problem is that the government fails to recognise that the old free market system has collapsed. This would have been more obvious if the banks had collapsed, which would have happened in November if taxpayers’ money had not saved them.
Using our money in this way is justified only if it is seen as an interim measure while a new system is created. There is, sadly, no sign of the intention to build a new system. The government appears to believe that, given Billions of £s, the old system will be restored to health.
Yet, every day, it becomes increasingly evident that this will not occur. The obvious message from the past 18 months is that economies cannot be left at the mercy of the financial markets. If governments had not stepped in, especially in the USA and the UK, unemployment would be even higher than the dreadful figures reported almost daily.
Obama and the World Economy
The most promising development is the election of Barack Obama as American President, with his commitment to take urgent action to save the economy. Unlike his predecessor, he is not reluctant about government intervention. He has promised over $800 Billion to create jobs, support householders, and move towards a more equal society.
Although economic recovery in the USA is the most important single factor, the challenges are global. Ending the recession requires other countries, especially in Western Europe, to follow the new President’s lead. And the importance of the involvement of Russia, China and India in economic recovery action must also be recognised.
Where Next For The UK?
For the UK, it is essential to match (in comparative terms) Obama’s job creation and householder support measures. As I have argued in an earlier Blog, there is no danger that too many jobs would be saved, or created.
However, fundamental to success is a co-ordinated approach to the government’s involvement in the economy. It will not be possible to end the recession unless the availability of finance (for companies and mortgages) is ensured.
This will occur only if the government determines that relevant financial support is available: this cannot be left to market forces. The obvious solution is to co-ordinate the state controlled entities so that they function as a state bank. A co-ordinated operation through the Royal Bank of Scotland, Northern Rock, Bradford and Bingley, The Post Office should lead the way.
With the prospect of competition from state controlled lenders, the other banks would be more likely to co-operate. To do business, and make profits, they would have to focus on consumer need, rather than dividends and bonuses.
A New Financial World
The reality is that financial systems are now inevitably global. The UK and other West European countries must work with the new USA President to restore order and lead economic recovery.
Policy must be determined by governments working together, not by market forces. Stability is essential for greater prosperity in developing countries, as well as for the wealthier nations.
Wednesday 14 January 2009
The Brown Government Must Govern
Help for Small Businesses
The help for small businesses announced today (14/1/09) must be welcomed, mainly because it will keep a few workers in jobs. But, regretably, it is a much smaller step than is needed.
While it would be a mistake to rely on the gloom and doom predictions of experts (almost all of whom got it wrong last year), unless we have government action on a much larger scale it is clear that thousands more will lose their jobs this year.
In my last Blog (Who Runs the Country?) I argued that the government, not bankers or financiers, must be seen to govern. The Brown government must get ahead of events and take action on a much larger scale. There is no danger whatever that too many jobs would be saved or created.
Tackle Inequality
There are claims by ministers that the action being taken aims to create a stronger economy and a fairer society. But, as I pointed out in an earlier Blog (Gloom and Doom: Kick It Out), there is a reluctance to tackle the unfairness issue.
A great deal more government spending (and, in the short term, borrowing) is required. However, the Conservative Opposition must not be allowed to get away with their 'saddling of future generations with debt' argument. The scale of national debt (incidentally a much lower % than other G7 countries) is the result of allowing the wealthy to keep too much money in their pockets or boardroom coffers.
The answer is to take action to demonstrate that the repayment will be from policies which (i) create a much fairer society and (ii) end damaging military intervention across the world. In other words, the money must come from wealthy individuals (eg the bonus gang); companies with excessive profits; drastic cuts in expenditure on so-called defence.
Intervention in, for example, Iraq and Afghanistan, and investment in Trident, have nothing to do with defence. They are to do with illusions on our world role, and individuals' world leader aspirations.
World Leadership
The £ Billions saved from the defence budget could not only repay debt but also make a major contribution to eradication of world poverty. This is where we should aspire to world leadership.
The help for small businesses announced today (14/1/09) must be welcomed, mainly because it will keep a few workers in jobs. But, regretably, it is a much smaller step than is needed.
While it would be a mistake to rely on the gloom and doom predictions of experts (almost all of whom got it wrong last year), unless we have government action on a much larger scale it is clear that thousands more will lose their jobs this year.
In my last Blog (Who Runs the Country?) I argued that the government, not bankers or financiers, must be seen to govern. The Brown government must get ahead of events and take action on a much larger scale. There is no danger whatever that too many jobs would be saved or created.
Tackle Inequality
There are claims by ministers that the action being taken aims to create a stronger economy and a fairer society. But, as I pointed out in an earlier Blog (Gloom and Doom: Kick It Out), there is a reluctance to tackle the unfairness issue.
A great deal more government spending (and, in the short term, borrowing) is required. However, the Conservative Opposition must not be allowed to get away with their 'saddling of future generations with debt' argument. The scale of national debt (incidentally a much lower % than other G7 countries) is the result of allowing the wealthy to keep too much money in their pockets or boardroom coffers.
The answer is to take action to demonstrate that the repayment will be from policies which (i) create a much fairer society and (ii) end damaging military intervention across the world. In other words, the money must come from wealthy individuals (eg the bonus gang); companies with excessive profits; drastic cuts in expenditure on so-called defence.
Intervention in, for example, Iraq and Afghanistan, and investment in Trident, have nothing to do with defence. They are to do with illusions on our world role, and individuals' world leader aspirations.
World Leadership
The £ Billions saved from the defence budget could not only repay debt but also make a major contribution to eradication of world poverty. This is where we should aspire to world leadership.
Friday 9 January 2009
WHO RUNS THE COUNTRY?
We must address this question because the message from the media is that control of events is with the Bank of England, the City of London, the High Street Banks and, a poor fourth, the government.
The Brown government must assert itself and take urgent action to address the challenges we face. This must include, if necessary, taking control of institutions to ensure that government policies are implemented.
For months it has been recognised that the crucial issue is lending - to householders and companies. Despite the £ Billions of support from the government, the banks are not lending at the rate anticipated when they received the £37 Billion for re-financing.
There are genuine reasons for the drying up of lending - for example, that the Bank of Ireland has retreated from the market, and that Northern Rock is reducing its mortgage loan book as part of its recovery plan. The other banks are either unable, or because of their strategy, unwilling, to fill this gap.
The government acted with commendable speed when the banks were in danger of collapse.
But they have not shown the same urgency in addressing the dearth of credit which is resulting in loss of jobs and difficulties in the housing market.
The Bank of England's .5% reduction of interest rates will have only a very marginal effect, and this is likely to be true of any further reductions. There are rumours that the government is likely to announce measures to address the credit crisis 'in weeks'.
However, the action will be effective only if the requirements of the banks are supported by legislation, which could include nationalisation - a step which, it is noted, was not ruled out by the Governor of the Bank of England when questioned last year.
As an alternative to further nationalisation, the government could arrange the necessary lending through the institutions it already controls - Northern Rock, Bradford and Bingley, the Royal Bank of Scotland, the Post Office.
There is a proposal to use the Post Office as a State Bank in John McFall's article in the Guardian today (9/1/09). It must be clear to all (with the exception of the Conservative leadership) that current problems cannot be solved without a great deal more state involvement.
The government must overcome its reluctance about this.
The Brown government must assert itself and take urgent action to address the challenges we face. This must include, if necessary, taking control of institutions to ensure that government policies are implemented.
For months it has been recognised that the crucial issue is lending - to householders and companies. Despite the £ Billions of support from the government, the banks are not lending at the rate anticipated when they received the £37 Billion for re-financing.
There are genuine reasons for the drying up of lending - for example, that the Bank of Ireland has retreated from the market, and that Northern Rock is reducing its mortgage loan book as part of its recovery plan. The other banks are either unable, or because of their strategy, unwilling, to fill this gap.
The government acted with commendable speed when the banks were in danger of collapse.
But they have not shown the same urgency in addressing the dearth of credit which is resulting in loss of jobs and difficulties in the housing market.
The Bank of England's .5% reduction of interest rates will have only a very marginal effect, and this is likely to be true of any further reductions. There are rumours that the government is likely to announce measures to address the credit crisis 'in weeks'.
However, the action will be effective only if the requirements of the banks are supported by legislation, which could include nationalisation - a step which, it is noted, was not ruled out by the Governor of the Bank of England when questioned last year.
As an alternative to further nationalisation, the government could arrange the necessary lending through the institutions it already controls - Northern Rock, Bradford and Bingley, the Royal Bank of Scotland, the Post Office.
There is a proposal to use the Post Office as a State Bank in John McFall's article in the Guardian today (9/1/09). It must be clear to all (with the exception of the Conservative leadership) that current problems cannot be solved without a great deal more state involvement.
The government must overcome its reluctance about this.
Sunday 4 January 2009
Gloom and Doom: Kick It Out
In my last blog (Urgent Action To End Recession) I pointed out that most of the forecasts for 2008 were widely inaccurate. So what notice should we take of what they are predicting for 2009?
It is obvious that we are in a recession and almost all the news is bad: indeed, it sometimes appears that the media has resolved to report only bad news. So the forecasters join in, with most of them predicting that things will get either worse, or much worse.
The underlying belief is that market forces beyond our control will continue to cause havoc and hardship. Governments, most commontators believe, can do very little to end the recession.
When the government takes action, the standard response of the Conservative opposition, and in much of the media, is to claim that it will not work. What they do not explain is what will work.
The impression they give is that they do not believe any government action will work - so do nothing, and leave it all to 'market forces'.
'Doing nothing' cannot be regarded as an acceptable response of politicians who are elected to serve all members of society. It is likely that over 70% of the population will survive the recession largely unscathed: it is for the other 30% that urgent, and radical, action is required.
The relevant criticism of the government is not that it has taken too much action, but too little. What it should do is outlined in my previous blog: Urgent Action To End Recession.
Pessimism will continue to reign if it is believed that government will allow thr recession to take its course. The challenge is that the action required can occur only with radical policy changes; changes which not only stimulate economic recovery, but also create a more fair and equal society.
Although there is no objection to government borrowing in the short term, a convincing strategy for repayment is essential. As I have argued in previous blogs (see The Current Crisis: A Layman's Perspective) , the resources can, and must, be acquired from:
(i) a windfall tax on excessive profits;
(ii) closing tax loopholes used by companies and wealthy individuals;
(iii) progressively higher rates of tax for incomes over £100,000 a year;
(iv) heavy cuts in defence expenditure (including Trident), based on a policy of not getting involved in wars.
This is not only the appropriate and necessary action but it would, I am convinced, receive widespread public support.
It is obvious that we are in a recession and almost all the news is bad: indeed, it sometimes appears that the media has resolved to report only bad news. So the forecasters join in, with most of them predicting that things will get either worse, or much worse.
The underlying belief is that market forces beyond our control will continue to cause havoc and hardship. Governments, most commontators believe, can do very little to end the recession.
When the government takes action, the standard response of the Conservative opposition, and in much of the media, is to claim that it will not work. What they do not explain is what will work.
The impression they give is that they do not believe any government action will work - so do nothing, and leave it all to 'market forces'.
'Doing nothing' cannot be regarded as an acceptable response of politicians who are elected to serve all members of society. It is likely that over 70% of the population will survive the recession largely unscathed: it is for the other 30% that urgent, and radical, action is required.
The relevant criticism of the government is not that it has taken too much action, but too little. What it should do is outlined in my previous blog: Urgent Action To End Recession.
Pessimism will continue to reign if it is believed that government will allow thr recession to take its course. The challenge is that the action required can occur only with radical policy changes; changes which not only stimulate economic recovery, but also create a more fair and equal society.
Although there is no objection to government borrowing in the short term, a convincing strategy for repayment is essential. As I have argued in previous blogs (see The Current Crisis: A Layman's Perspective) , the resources can, and must, be acquired from:
(i) a windfall tax on excessive profits;
(ii) closing tax loopholes used by companies and wealthy individuals;
(iii) progressively higher rates of tax for incomes over £100,000 a year;
(iv) heavy cuts in defence expenditure (including Trident), based on a policy of not getting involved in wars.
This is not only the appropriate and necessary action but it would, I am convinced, receive widespread public support.
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