Is MoneyWeek’s “End of Britain” just fearmongering? What about US debt default? Is socialist revolution on the cards?

end-of-britain

[EDIT 24/3/14: This blog entry’s comments now include a short debate with financial expert and ex-banker Frances Coppola and myself, and information about a new blog entry of mine containing my critique of a new, much more serious, argument by MoneyWeek entitled “What Osborne didn’t tell Parliament“, which was actually written by financial experts and aimed at serious investors. In contrast, “The End of Britain” was  written by MoneyWeek’s advertising department, leading to it being widely criticised by economists and others who have not been fooled by biased graphs and a huge dose of propaganda. I strongly recommend reading #Budget2014 What Osborne didn’t tell Parliament: critique of new MoneyWeek End of Britain argument – need revolution! which is currently being censored by Google due to the importance of the arguments.]

The financial magazine MoneyWeek is continuing its slick advertising campaign, with its prediction of “The End Of Britain” (inevitable social and economic chaos in the UK), with a video (viewed preferably on YouTube since the video on their website doesn’t allow rewinding or fast-forwarding, a sign of untrustworthiness) or in text form (with graphs) as a “letter” at http://moneyweek.com/endofbritain/. I argue below that, while some of their arguments are false or biased, socialists should recognise the validity of some of their other arguments and be prepared for the opportunities that will open up.

Two critiques in January, by the ex-banker Frances Coppola at http://coppolacomment.blogspot.co.uk/2013/01/the-end-of-britain-not-yet.html and a socialist called Tom Clark at http://anotherangryvoice.blogspot.co.uk/2013/01/moneyweek-and-their-end-of-britain.html, demolish some of MoneyWeek’s arguments and show its dishonesty (perhaps due to it being written by MoneyWeek’s marketing department to sell their magazine), in particular measuring debt in billions of pounds (rather than in real terms, taking inflation into account). The bias in blaming the welfare state for the debt problem, rather than tax avoidance by the rich (something they encourage), is predictable and unremarkable.

[I particularly recommend reading Tom Clark’s blog post, because all but one of the graphs on Frances Coppola’s blog are now failing to load on my computer, and due to him making some good points about the Icelandic people refusing to pay the debts of its banks when they collapsed (something that scares investors of course) and warning that if investors follow MoneyWeek’s advice and invest money in tax havens, they may not be able to access that money if the chaos they warn about comes to pass.]

The national debt has been far higher as a percentage of gross domestic product (GDP) – 240% in the mid-1940s (according to Tom’s blog) than the June 2013 level of 75% (according to http://www.cityam.com/blog/uk-has-joint-seventh-highest-national-debt-gdp-ratio-eu-spain). If that figure is correct, the graph on yet another “End of Britain” advert showing the ratio at 90.7% for 2013 is a lie (at http://www.tradingeconomics.com/united-kingdom/government-debt-to-gdp).

The very high level of combined debt (government, financial sector, corporate and personal) of 900% of GDP quoted by MoneyWeek is misleading due to it counting future public sector pension liabilities (306.3%) as part of the debt – but the 238.9% financial sector debt (the assets they hold to offset the debt is strangely ignored) and financial sector interventions, presumably bailing out the banks in the 2007-8 credit crunch, at 71.1%, are very significant.

With very low interest rates, the government can easily afford to keep going (and indeed, invest in the infrastructure, taking advantage of such rates, rather than wasting money on keeping people languishing on the dole which takes money out of the economy). However, I do think that MoneyWeek’s assertion that if interest rates go up significantly (they say to 5%) the country will go bust, is basically correct. The main reason this hasn’t happened already is the massive use of quantitative easing (QE, “printing money”) by the Bank of England, keeping interest rates low and hurting savers and pension funds.

The Fleet Street Letter, which is linked to MoneyWeek, is predicting “The biggest financial bubble in British history is about to burst” (entailing “a brutal FTSE 100 correction”, “House prices set to drop £60,000”, “private pensions to fall 40%”). The bursting of the house price bubble is a prediction shared by many analysts, contributed to by the coalition government’s “Help to Buy” scheme, whereby they guarantee 15% of the 20% deposit people need to get on the housing ladder. It made much more sense when just applied to new homes, as a way of encouraging home building, but this is a very reckless way to buy votes and could considerably add to the national debt as well as plunge homeowners into the perils of negative equity. [The argument that the banks pay the government to cover the risk is disingenuous since it’s only 1.5% of the total property price.]

It seems to me that the sort of economic and social chaos predicted by MoneyWeek (and implied by the Fleet Street Letter) would be most likely to happen as a result of a global capitalist crisis, particularly by the USA defaulting on its debt, or perhaps due to a further crisis in the eurozone where individual countries cannot use QE, rather than a crisis confined to the UK. [QE is probably the main reason the US economy has sustained itself for so long, but it has to end sooner or later.] The outcome could be relatively worse for capitalism in this country, due to the importance of the City of London for the economy (and the small leverage ratio between liabilities and assets of 3% required by banks which have caused the Co-op and Barclays financial problems will surely not be enough).

I am writing this shortly after the US Congress came within an hour of defaulting on its debt. The Republican Party tried to wreck Obamacare despite the fact that it had already been voted into law (how cruel to try to deny the poor access to healthcare in order to deny Barack Obama any sort of positive legacy). The markets knew that the politicians of both US parties would come to some sort of agreement to avoid an “End of Britain”-type scenario around the world (as they showed by being very stable)! However, decisions on the unsustainable debt have only been put off until the new year.

So should revolutionary socialists welcome the US agreement to avert economic catastrophe? The reality, here in Britain, is that the far left (those in parties to the left of the Labour Party plus a small number of revolutionaries within Labour) are too weak and divided at the moment to take advantage of the opportunities that would have arisen if the US did default this week, and there is a big danger that the far right (including UKIP) would have gained instead. in Greece, both the far left (in Syriza) and the far right (in Golden Dawn) have made gains (although the latter has lost a lot of support after one of their members/supporters murdered a Greek rapper; they had previously restricted assaults and murder to immigrants and the police let them get away with it). I am a member of Left Unity, which will have its founding conference on 30 November – and a broad socialist party that reflects revolutionary as well as reformist views is essential (as I argue for in this blog entry). Socialist revolution in an advanced capitalist country could quickly spread around the world (particularly if we reduce immigration controls or perhaps open the borders completely as I argue for in this blog entry, encouraging foreigners to experience socialism and later return to their own countries to launch revolutions there).

DISCLAIMER: The above arguments are largely speculative – I don’t claim to be an expert on economics of either Marxist or capitalist varieties, and certainly wouldn’t recommend my advice to be used in financial speculation. However, perspectives for the British and world economy are important for socialists to discuss, and this is a contribution to this discussion. I have also set up a Facebook page “End of Britain?” – comments are welcome here or on that page.

13 thoughts on “Is MoneyWeek’s “End of Britain” just fearmongering? What about US debt default? Is socialist revolution on the cards?

  1. Defaulting on the National Debt by the UK (or the US) would be completely unnecessary. The Debt does not take the form of actual, or even of digital, money. It takes the form of trading credits that the lender receives as a payment, allowing them to purchase goods available on the British Market. The lender CANNOT cash these credits in. The best everyday parallel would be an M&S gift voucher. You can use it to purchase goods available to buy in M&S, but you can’t use the voucher anywhere else, and you can’t exchange it for the monetary value.

    The National Debt is an issue, but it is not a problem or crisis. It will only become a serious complication for the British Government when its major goods-providers, such as Communist China, introduce a very substantial minimum wage for their own workers.

    http://thegreatcritique.wordpress.com/2013/09/26/britain-a-self-harming-economy/

  2. I have previously raised (at a Manchester People’s Assembly meeting and in a couple of newsletters, e.g. http://www.revolutionaryplatformofleftunity.org/news/6.html) the argument that a socialist state should not pay bondholders back after a revolution (like the Bosheviks refused to pay the debt accumulated by Tsarist Russia after the October 1917 revolution).

    You have just replied to my blog entry at [link to this page]. I don’t buy your argument that defaulting on the (US or UK) debt wouldn’t make any difference. Currencies can be traded, at a Bureau de Change, a Bank or (for serious speculators) on international money markets. Credit rating agencies, despite their ridiculous AAA ratings for sub-prime mortgages, still make a difference to interest rates. After the 2007-8 credit crunch, speculators realised the Greek economy was in dire straits, and interest rates shot up exponentially.

    If you are going to seriously argue that bonds/gilts are still deposited with the Bank of England after they expire (rather than them having to be paid back so that the lender can use the money elsewhere), you will need to provide evidence. Some hyperlinks would be useful! Some mainstream economic commentators predicted a global recession if the US did default on its debt. The Republican Party realised it would hit them and the big businesspeople they represent in the pocket, if the US defaulted, hence they had no choice but to capitulate (bearing in mind Obama would not sacrifice his healthcare programme which was already in law and will probably be his only real positive legacy).

    I have just posted the above comment to your blog.

    PS As is self-evident from the economic policies carried out by the Chinese government and companies in that country, China is capitalist not “communist” (with a small or capital C), despite being a on-party state in which that party is called the “Communist Party”. I argue that it never really was communist (a moneyless stateless society, see http://en.wikipedia.org/wiki/From_each_according_to_his_ability,_to_each_according_to_his_need) but was Stalinist, due to essentially copying the Russian dictatorship.

    PPS Do you advocate a minimum wage in China, comparable with the one in the UK? I do.

  3. “a socialist state should not pay bondholders back after a revolution”
    I’m not sure what you’re responding to with that sentence. I’ve not discussed revolutions in the essay or in my comment at all.

    “I don’t buy your argument that defaulting on the (US or UK) debt wouldn’t make any difference.”
    Well no, I don’t buy that either, but then I never said it. I said that defaulting would be completely unnecessary.

    As for the evidence, I recommend you read “Seven Deadly Innocent Frauds Of Economic Policy” by Warren Mosler. You should be able to find a free PDF of it online if you search for it in Google.

    ‘China is capitalist not “communist” (with a small or capital C), despite being a on-party state in which that party is called the “Communist Party”’
    I know, but it’s still the common international name for it, that and ‘People’s Republic of China’ (which is also patently absurd). Historically, the names dictatorships have given themselves have always been unashamed doublethink e.g. ‘Democratic Republic of Germany’, ‘Democratic People’s Republic of Korea’ etc, but if that’s the name, that’s the name.

    ‘Do you advocate a minimum wage in China, comparable with the one in the UK? I do.’
    No. I advocate a minimum wage in China substantially *higher* than the one in the UK. For that matter, I also advocate a minimum wage in the UK substantially higher than the present one.

  4. I think Moneyweeks article is unashamed propaganda to sell its product.
    Statistics are an abomination so corrupt they should be left well alone. The results will always be in line with the outcome desired by the proponent. The ONS is a joke and not independent.
    I am interested in where the QE money is spent. Apparently it is used to buy govt debt. This means we owe ourselves the money so how can we default? QE is also at least the
    PSBR for the last two years so we haven’t had to sell govt debt to anyone other than ourselves?

  5. hstorm, I have read enough of “Seven Deadly Innocent Frauds Of Economic Policy” by Warren Mosler (the first two “deadly innocent frauds”), to persuade me that that particular book is itself a fraud (or perhaps I should say “probably a fraud” since he’s got a lot of money he could use to sue me with!). The lack of a single reference, apart from a list of other publications by Mosler himself, within that entire PDF does not help its credibility!

    As I stated above, currencies can be traded on international money markets (the official title is “Foreign Exchange Market” or “Forex Market” for short). This includes central banks, as stated in http://en.wikipedia.org/wiki/Foreign_exchange_market, as well as regular High Street Banks, companies, hedge funds and other financial speculators. A bit of searching has found the following page http://www.newyorkfed.org/markets/quar_reports.html which contains reports explaining why the US Federal Reserve (Fed) has not intervened in the Forex market since the end of 1998 (no data before that). The clear implication is that it could have intervened if it wanted to!

    Trying to apply facts or speculation about the Fed to the Bank of England (BoE), or indeed the European Central Bank, is problematic since currency exchanges have very different effects. Many other countries peg their currencies to the dollar (Scottish banks can issue banknotes which is the only parallel with the BoE), which I think is for stability purposes, and this probably partly explains the reluctance of the Fed to dabble in the markets (as well as the possible panic it would provoke on Wall Street).

    I note (from http://en.wikipedia.org/wiki/Warren_Mosler) that Mosler stood to be President of the US for the Democrats in 2012. It is my view that this was a trap for the (not very) left – his arguments have so many holes in them that they would have been exposed by the media and given the Republicans a run-away victory if he had been selected!

    On to your (hstorm’s) other points,

    I said “a socialist state should not pay bondholders back after a revolution”
    You replied “I’m not sure what you’re responding to with that sentence. I’ve not discussed revolutions in the essay or in my comment at all.”

    I’m giving this as a vital part of the jigsaw for socialists if/when we have a socialist revolution in the UK. Perhaps the idea of cancelling the debt could be implemented in the short or medium term, before a revolution, but it is naive to expect any of the mainstream parties to carry out this policy because they are wedded to “free market” capitalism and it would massively destabilise the markets.

    I said “I don’t buy your argument that defaulting on the (US or UK) debt wouldn’t make any difference.”
    You replied “Well no, I don’t buy that either, but then I never said it. I said that defaulting would be completely unnecessary.”

    OK, fair enough. Even Mosler says “This, however, does NOT mean that the government can spend all it wants without consequence. Over-spending can drive up prices and fuel inflation.” It can also lower the value of the pound relative to other currencies, traded on the Forex Market, affecting the prices of imports and exports and making it more expensive to go on a foreign holiday.

    I asked “Do you advocate a minimum wage in China, comparable with the one in the UK? I do.”
    You replied “No. I advocate a minimum wage in China substantially *higher* than the one in the UK. For that matter, I also advocate a minimum wage in the UK substantially higher than the present one.”

    The idea that China can overtake the West (while the capitalist economic system continues) in terms of wages is ridiculously naive (much as I too would welcome a vastly improved minimum wage in China) – its whole competitive advantage is based on low wages. I also advocate an increased minimum wage in the UK, to at least the “living wage” or preferably the “European Decency Threshold”.

  6. You (hstorm) didn’t bother posting your latest reply to my blog, perhaps because you realised you are losing the argument. Below, I quote from a comment on http://thegreatcritique.wordpress.com/2013/09/26/britain-a-self-harming-economy

    I wrote: “I have read enough of “Seven Deadly Innocent Frauds Of Economic Policy” by Warren Mosler (the first two “deadly innocent frauds”), to persuade me that that particular book is itself a fraud (or perhaps I should say “probably a fraud” since he’s got a lot of money he could use to sue me with!). The lack of a single reference, apart from a list of other publications by Mosler himself, within that entire PDF does not help its credibility!”
    You replied: “You haven’t actually stated why any of his assertions are wrong.”

    I made arguments against his assertions later in my comment.

    I wrote: “As I stated above, currencies can be traded on international money markets (the official title is “Foreign Exchange Market” or “Forex Market” for short). This includes central banks, as stated in http://en.wikipedia.org/wiki/Foreign_exchange_market, as well as regular High Street Banks, companies, hedge funds and other financial speculators. A bit of searching has found the following page http://www.newyorkfed.org/markets/quar_reports.html which contains reports explaining why the US Federal Reserve (Fed) has not intervened in the Forex market since the end of 1998 (no data before that). The clear implication is that it could have intervened if it wanted to!”
    You replied: “Yes, currencies can be traded on the International Market, I never said otherwise. It’s why you can exchange money at airports when you travel to another country. This is largely irrelevant to the National Debt, which is about trading of goods and services.”

    Mosler took 18 pages to explain “Deadly Innocent Fraud #1”, repeating himself a lot, yet he never provided any evidence why money deposited by a bondholder (e.g. from China), due to the bond maturing, in a “checking account” with the Fed (or any other central bank) cannot be withdrawn and traded on the Forex market. In fact “Forex” or “foreign exchange” isn’t even used once within the whole PDF! If you (or he) wants to justify such a counterintuitive assertion, then some real evidence (preferably a hyperlink to information provided by somebody other than just one lone “unorthodox” economist) is necessary. And, even if the rules of the Fed have been constructed around such a con, that of course does not mean that every other central bank (including the Bank of England) is constituted in the same way. Why would any investor/speculator lend money to the BoE by buying a bond (also called “gilt” due to them being gilt-edged and supposedly guaranteed to be repaid – but that won’t happen under socialism!) if, when they do mature, they don’t get their money plus interest back?

    I wrote: “The idea that China can overtake the West (while the capitalist economic system continues) in terms of wages is ridiculously naive (much as I too would welcome a vastly improved minimum wage in China) – its whole competitive advantage is based on low wages. I also advocate an increased minimum wage in the UK, to at least the “living wage” or preferably the “European Decency Threshold”.”
    You replied: “Well, firstly I wasn’t saying it should overtake the West in terms of wages, I was saying it would be in the economic interests of both countries (indeed of most countries in the world) to introduce a much-heightened minimum wage in order to increase domestic demand.”

    There is no such thing as a country’s “national interest”. There is the interest of big business and the interest of an ordinary worker (most socialists talk about the interest of “the working class” but I prefer the Occupy movement’s 99% versus 1% idea). It would make a lot of sense, however, from a capitalist government’s point of view to increase the minimum wage to the level of the “living wage” (at least) since it reduces benefits that are basically subsidies to the bosses. Similarly, cutting welfare, as the ConDem coalition government in the UK is obsessed with doing is counterproductive since less money is spent on goods and services.

    You also write: “But also, this ‘competitiveness’ (euphemism for ‘product-of-slavery’) isn’t really an advantage. Because the Chinese can’t sell to their own population, they are locked into repeatedly sending vast quantities of goods – effectively for free – to other countries in order to keep their industries ticking over. Otherwise, the goods they have will simply sit in China unsold, causing their price to descend to way below their production value, because nobody can buy them. Eventually the industries would have to stop producing because there will be nowhere for the goods to go, resulting in mass unemployment and causing an economic depression. And of course the current balance is also unsustainable in the longer term, as the Chinese can’t afford to keep sending resources away, effectively for free, indefinitely.”

    You have identified one of the contradictions of capitalism.

    You go on: “The real reason the Chinese Government is reluctant to improve the lot of the masses is that they realise that prosperity for all means greater education for all, and therefore the workforce will become empowered and more likely to push for more.”

    Maybe Chinese workers will form strong trade unions, capable of going on strike and winning concessions – or even having general strikes with the possibility of bringing down the regime and introducing genuine socialism!

  7. I have reread Martin Odoni’s (hstorm’s) post on his own website (http://thegreatcritique.wordpress.com/2013/09/26/britain-a-self-harming-economy/) and realised, when just coming to the end of composing a comment about it, that he is essentially correct! I strongly recommend reading that page and then my comment below!

    I have just followed the link to another blog post by Martin Odoni in the first paragraph – “accusations of public sector self-indulgence that I and many others have debunked elsewhere”. It actually contains good left-wing arguments, but does admit that he has a “fairly basic understanding of economics”. Martin is obviously well-intentioned, but he does agree with (at least most of) the ideas of an “unorthodox post-Keynesian” economist Warren Mosler who thinks so much of himself that he stood to be President of the USA!

    I admit to also having a fairly basic understanding of economics, but when I had my brainwave of not paying back the national debt (after a socialist revolution), I realised I needed to find out who is actually lending the money. I found out that governments (or central banks) issue “bonds” (http://en.wikipedia.org/wiki/Government_bond) “of limited term to maturity” via a “bond market”. In the UK, bonds are generally referred to as “gilts” (http://en.wikipedia.org/wiki/Gilt-edged_securities). According to that page: “The data collected by the British Office for National Statistics reveal that about two-thirds of all UK gilts are held by insurance companies and pension funds. Since 2009 large quantities of gilts have been created and repurchased by the Bank of England under its policy of quantitative easing.”

    According to http://en.wikipedia.org/wiki/United_Kingdom_national_debt, “The British Government finances its debt by issuing Gilts, or Government securities. These securities are the simplest form of government bond and make up the largest share of British Government debt. A conventional gilt is a bond issued by the British Government which pays the holder a fixed cash payment (or coupon) every six months until maturity, at which point the holder receives their final coupon payment and the return of the principal.” Note that the principal is returned when the gilt matures, rather than being placed into an account with the Bank of England that can only be used for certain purposes, which would be a massive disincentive for anyone (or any company/financial institution) to invest in them.

    Warren Mosler, who Martin Odoni relies upon for much of his economic knowledge, said, in “Seven Deadly Innocent Frauds of Economic Policy” (http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf), “Right now, China is holding some $2 trillion of U.S. Treasury securities. So what do we do when they mature and it’s time to pay China back? We remove those dollars from their savings account at the Fed and add them to their checking account at the Fed, and wait for them to say what, if anything, they might want to do next.”

    Well, I’ve read (and searched in case I missed it) the above Wikipedia pages, plus http://en.wikipedia.org/wiki/United_States_Treasury_security, http://en.wikipedia.org/wiki/Bond_market and http://en.wikipedia.org/wiki/United_States_public_debt, and there are no uses of “current account”, “savings account” or “checking account” (which is presumably the US term for current account) apart from the unrelated “current-account [trade] deficits” in the latter page.

    * HANG ON A MINUTE: I’VE JUST SPOTTED THIS, HIDDEN AWAY IN WARREN MOSLER’S BOOK *

    “If it wants anything else – cars, boats, real estate, other currencies – it has to buy them at market prices from a willing seller who wants dollar deposits in return.”

    It is all crystal clear now: when the bondholder’s bond/gilt matures, he/she can trade it on the decentralised Forex (foreign exchange) market for other currencies! [Maybe Martin missed this detail of Warren’s analysis, rather than goods or services.] All it requires is a buyer for dollars. So Martin and Warren are correct that the national debt of the US, UK or actually any other country can keep increasing indefinitely without ever needing to be paid back! There may of course be inflation and a change in currency exchange rates, though, of course.

    Martin got it wrong above in saying that the pound is “a non-convertible currency”. According to http://financial-dictionary.thefreedictionary.com/Non-Convertible+Currency, a nonconvertible currency means:

    “A currency that may not be converted into another currency on the foreign exchange market, or that may be converted only in limited amounts. Some countries limit convertibility to prevent citizens from making bad investment decisions in, say, a country experiencing hyperinflation, while a few communist countries issue nonconvertible currencies to protect their citizens from capitalist influences. A nonconvertible currency is generally traded only on the black market. It is also called a blocked currency or an inconvertible currency.”

  8. I have reread Warren Mosler’s book (reading about all of the “seven deadly innocent frauds” – it then goes on to self-promotion in his election campaign which I haven’t bothered with) and done further research into others’ opinions of it, and it is clear that it has a massive flaw in not taking inflation seriously. There is also the slight of hand in suggesting that there is no way an investor can take money out of the US Federal Reserve (Fed) when he/she can, as long as he/she can find someone to swap with on the markets, and this includes foreign currencies (the words “foreign exchange” and its abbreviation “Forex” are omitted from the entire book, as a search of the PDF file reveals, probably deliberately to imply investors are stuck with dollars).

    The dollar being the world’s reserve currency, with some other countries’ currencies “pegged” to it, may make it less susceptible to fluctuations in inflation and exchange rates than with other currencies.

    Additionally, Martin Odoni (hstorm) assumed that the Bank of England behaves precisely the same way the Federal Reserve does. According to http://en.wikipedia.org/wiki/Federal_Reserve_System, “The Federal Reserve System has both private and public components, and was designed to serve the interests of both the general public and private bankers. The result is a structure that is considered unique among central banks. It is also unusual in that an entity outside of the central bank, namely the United States Department of the Treasury, creates the currency used.”

    I’m not an expert in either capitalist (bourgeois) or Marxist economics. Even though I did regard myself as a Marxist in my time in the Militant Tendency/Militant Labour/Socialist Party from 1990-98, I only read two Marxist texts on the subject – “Wage Labour and Capital” and “Wages, Price and Profit” – I have all three volumes of “Capital” (“Das Kapital” in German) but never had the time or inclination to try to read them. The first of these made a lot of sense, but seemed to be out-of-date in not considering advertising and brand loyalty. I couldn’t get my head round the second at all. Oh, I did read Lenin’s “Imperialism, the highest stage of capitalism”, which predicted the tendency towards monopolisation, which ironically Thatcher’s advertising guru Maurice Saatchi recently announced on Newsnight that he agreed with Marxists as far as this was concerned (talking about the Big Six energy companies), but that his Centre for Policy Studies would try to come up with one big idea to get David Cameron re-elected as prime minister.

    There are still arguments today about whether the key Marxist prediction of “the tendency for the rate of profit to fall” is actually correct, but it is clear that that was not the cause of the 2007/8 credit crunch. It was due to bankers creating AAA-rated complex “derivatives” that very few people understood but were based on US “subprime” mortgages that poor people couldn’t afford – and when the house prices crashed, there was a massive crisis.

    So what conclusions can we come to about the stability of British capitalism nowadays? Are we really the seventh richest country in the world (and what about the increasing disparities between rich and poor)? What will happen when quantitative easing ends? [Some economists predicted big rises in inflation/interest rates when it started; some predict similar things when it ends; have they a clue what they are talking about!?] What about the British housing bubble bursting (made more likely by the extension of the ConDems’ “Help to Buy” scheme)? What about impact from the Eurozone (especially if some foreign banks go under that owe British banks money)? What if there is a US debt default? What about the big fines British banks are having to pay to customers/businesses? Would high interest rates (MoneyWeek’s “End of Britain” suggests 5%) mean that UK plc goes bankrupt, with ensuing social and economic chaos and great potential for socialist revolution!?

    I’ll leave these as questions to be considered by others. Feedback would be greatly appreciated – preferably on my new post https://thatcheroftheleft.wordpress.com/2013/10/31/review-of-warren-moslers-the-7-deadly-innocent-frauds-of-economic-policy-and-prospects-for-socialist-revolution/

  9. I’ve corrected the problem with the graphs. They are all loading now, on my computer at least. Let me know if you still can’t load them – it may be your browser.

    Moneyweek’s 5%-interest-rate-disaster scenario isn’t going to happen. If 5% interest rates mean “UK goes bankrupt”, UK interest rates will not reach 5%. To suggest that they will implies that the Bank of England has no control of monetary policy. That is not borne out by the behaviour of markets: the existence of a credible currency-issuing central bank is the only reason why the UK is not paying similar borrowing rates to Spain or Italy. Euro membership aside, economic fundamentals between the UK and those two distressed economies are rather similar.

    On government debt and default: the benefits of government debt are 1) its presumed safety 2) deep and liquid secondary markets 3) coupon income.

    1) is undermined by the prospect of default, so if default is even considered, however briefly, the value of the debt would plummet. We saw this to some extent when the US flirted briefly with political default, though the existence of the Fed limited the damage, since it was presumed that the Fed would stand as buyer of last resort for defaulted debt. In a socialist revolution, though, markets may assume that the independence of the central bank would be threatened. In that case you would be likely to see both debt default and hyperinflation – as happened after the French Revolution. Because government debt is denominated in currency and both are issued by government, default and hyperinflation go together. Severe political instability threatens both the value of the debt and the value of the currency.

    2) means that people do not need to hold debt to maturity to get their money back: they can realise it at any time. This is why government debt is used as liquidity buffers by banks and is preferred collateral in short-term lending markets. Further, as government debt is redeemed in currency, and the central bank (which is an arm of government really, even in the US) has power to issue currency without limit, a currency-issuing sovereign such as the UK can never be forced to default on its debt. Default is a political decision. (Though clearly the monetization of debt could cause inflation. As Weimar shows, for issuers of fiat currency, avoidance of outright default can cause implicit default via inflation.)

    3) means there is an inherent conflict between the desire of government to fund its spending cheaply, and the desire of bond holders to receive high returns. I have argued elsewhere that bond holders are unreasonable to expect positive returns on investments where the government bears the risk of failure. If they take no risk, they should receive no return. But that’s a controversial and unpopular view.

    I guess what I am saying is that although I don’t think there is any risk of Britain collapsing spectacularly in the way MoneyWeek predicts, this is dependent on the political regime remaining stable. A severe political shock, particularly if associated with a severe economic shock, is a game changer. I understand you want to bring about socialist revolution, but do think about the consequences.

  10. Thanks for your considered reply, Frances. The graphs load fine now.

    I will endeavour to answer your points, to the extent that I can given my limited knowledge of capitalist economics, at some point after Christmas. In the meantime, I will point out my two other main influences (excluding the views left from when I considered myself a Marxist) in thinking that the current state of the economy is not as rosy as some commentators (who for example talk about the UK being “the seventh richest country in the world”) would have us believe.

    Firstly, I have fairly often watched The Keiser Report, on Russia Today (RT, Freeview channel 85) with episodes also uploaded to YouTube. Max Keiser and Stacy Herbert have deliberately relocated that TV programme fairly recently to London on the basis that some sort of economic collapse is going to happen here.

    Secondly, Paul Mason, until recently the economics editor of Newsnight (and now working for Channel 4 News) has been predicting a “second credit crunch” (something on the scale of or worse than 2007-8, but this time with governments unable to bail out the banks even if they wanted to). [This would obviously be more of a global event than something primarily affecting the UK as with “The End of Britain”.] Unfortunately a blog item of his putting this forward, which seemed to me to be very convincing, is no longer online, presumably because it could spread a massive amount of panic! Any comments from those with further details of Paul Mason’s prediction would be greatly appreciated…

  11. I have just written a review of 2013, with prospects for 2014, concentrating on British economic and political prospects, at https://thatcheroftheleft.wordpress.com/2014/01/02/2014-economic-social-chaos-a-general-strike-in-britain-at-last-prospects-for-left-unity/. I have directed people to this blog entry if they want to debate economic perspectives.

    I have posted the following points there as a reply to what you posted above, Frances. Can you tell me whether you think the UK really is “the seventh richest country in the world” as some claim?

    Tax avoidance by the ultra rich is costing tens of billions of pounds every year (at least), they are getting cuts in corporation tax every year (to compete with other capitalist countries in a race to the bottom) and still very few multinationals pay any tax whatsoever to the UK Treasury! [And of course, there’s (illegal) tax evasion too.]

    There is no obvious way to solve tax avoidance under capitalism, since many countries are in severe economic difficulties, particularly in the Eurozone (hence Ireland insisting on keeping its corporation tax at 15% when it accepted a bailout). There are also many tiny countries whose entire economies are based on them being tax havens.

    The ConDems know that in order to be popular, they cannot just bash immigrants, benefit “scroungers” and violent Muslims, but they must offer some financial incentive to vote for them – hence the LibDems’ (fulfilled) promise to lift those earning under £10,000 a year out of tax altogether (not as fair as it sounds since the poorest workers gain less than the not quite so poor) and the Tories’ pledge not to attack pensioners’ benefits. They have now got so desperate in trying to reduce the size of the deficit that they are considering changing that, but will endeavour to keep that to the other side of the next election (and those so pessimistic to forecast the Tories hanging on should surely ask themselves what sort of policies would enable them to succeed!)

    [Stuff about Paul Mason, essentially the same as what I posted above.] Barclays Bank (as well as the Co-operative) was in difficulty financially in 2013 as I revealed in https://thatcheroftheleft.wordpress.com/2013/08/02/barclays-problems-a-second-credit-crunch-bank-nationalisation-cancelling-national-debt/, a financial email I read said that the Prudential Regulation Authority (PRA) “wants to see a minimum leverage ratio of 3% (equity to assets). This also happens to be the new standard to be introduced globally under the Basel III rulebook.” Barclays slipped to 2.2% according to that email, but the whole idea that a ratio of just 3% would be enough to avert some sort of second credit crunch scenario seems unlikely. Frances Coppola, on my MoneyWeek blog entry, suggests that it could be the threat of not paying the national debt back, rather than inherent problems of capitalism, that lead to financial disaster (including hyperinflation according to her). I was aware that it could lead to markets panicking and that was my point in making the proposal not to pay the money back (rather than being dishonest/naive and falling into the trap of the Tories who claim it’s selfish leaving it to future generations to pay). You can’t make an omelette without breaking eggs and it’s not as if the poor are not suffering (and dying) already due to austerity. I didn’t specifically predict hyperinflation, but when the financial speculators start doing that, it’s time for socialists to launch a bid for power (with perhaps a general strike from below, called a “mass strike” by Rosa Luxemburg). I first proposed not paying bondholders back in July 2013 in Revolutionary Platform News: edition 5.

    What happens when quantitative easing ends, in the UK, in the US, or by the European Central Bank (which appears to be keeping economic problems at bay in the Eurozone)?

  12. I have just written a critique of a much more professional MoneyWeek analysis, clearly largely written by financial experts aimed at serious investors, rather than their advertising departments to sell their magazine to naive people scared by a number of dramatic predictions (some more credible than others) – although there is some advertising in it too.

    This new MoneyWeek “letter” doesn’t have biased graphs, but instead shows figures relative to gross domestic product (GDP), and is entitled “What Osborne didn’t tell Parliament” (in the UK’s 2014 budget).

    For my critique, which also includes some general arguments of mine about that budget including the dramatic pension changes, go to https://thatcheroftheleft.wordpress.com/2014/03/21/budget2014-what-osborne-didnt-tell-parliament-critique-of-new-moneyweek-end-of-britain-argument-need-revolution/

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