Last week we briefly mentioned how Britain was now “actually insolvent” compared to being “technically insolvent” when it went begging to the International Monetary Fund (IMF) in 1976.
As we explained:
“In 1976, the UK government went begging to the International Monetary Fund (IMF) for £2.3 billion. In today’s money that’s the equivalent of around £12.4 billion. At the time it was labeled as an embarrassment for the UK, with claims it made the UK technically insolvent. Well, in practical terms apart from the much bigger number, there is little difference between the £2.3 billion bailout in 1976 and yesterday’s announcement that the Bank of England will increase its money printing programme to £200 billion.”
You’d think that would be enough to get the financial markets concerned with what’s happening in the UK and global markets.
Wouldn’t you think that if a nation is unable to pay its bills with free cash flow that the alarm bells would start ringing?
I mean, stop and think about it.
When you strip away the fancy terminology the banks like to use – quantitative easing – what you’re left with is money printing. Or to be precise, clicking a mouse and suddenly £200 billion appears.
In other words, the UK government has spent all of its tax receipts, and it has spent all of the money it has from selling government bonds…
The cupboards are bare.
It does not have one single dollar of spare cash left.
And so to remedy that, what does it do? It does exactly what every ‘good’ government should do, it opts for Plan B.
It knows increasing taxes is never a good look, especially when the next election is just round the corner.
And of course it’s worried about increasing the amount of debt on the market. Plus the government wants to ‘inject’ cash into the economy so that it’s spent rather than invested.
So the only option is to do what only a government and central bank can do. It prints money.
If anyone else came up with the same idea it would be called counterfeiting and you’d get hauled off to jail.
But that’s not the case with governments and central bankers. They can get away with almost anything.
And they’re helped by the hopeless analysis of the mainstream press. As evidenced by these comments from BBC economics editor, Stephanie Flanders:
“By voting to inject a further £25bn into the economy, the Bank’s policy makers have signalled that they do not think the economy is out of the woods yet. But they have halved the rate at which that money is being spent. In the first five months of QE, the bank was spending £25bn a month. Since August, the monthly purchases have fallen to about £17bn. Now the MPC plans to spend three months purchasing assets of £25bn – a monthly average of about £8bn. If the economy behaves more or less as the MPC expects, you could say they have put themselves on a path to put an end to QE at their February meeting, or at least put the policy on hold.”
Got that? At least it now only plans to spend £8 billion per month. Which is down from £25 billion per month.
But can we really believe the Bank of England will stop printing money next February?
We wouldn’t have thought so.
The interesting point about all this is that we could be witnessing firsthand the death of an economy.
Seriously. It’s something the UK has come close to experiencing several times in the last hundred years. Each time it’s either been bailed out by another economy or by a group of economies.
The United States helped it out of trouble after the first world war and second world war. The IMF bailed it out during the 1970s.
And then during the 1980s and 1990s, the growth in the global economy and the increase in financial market sophistication helped bail out the UK economy.
But who will bail it out this time?
Well, the US doesn’t have any money left. It can barely take care of itself let alone throw a few bones to the partner in its ’special relationship.’
The European Union (EU) is hardly likely to bail out an economy that’s scoffed at it from the sidelines for the last twenty years. And besides, the EU is nothing more than an imperialist oligarchy anyway.
There would certainly be nothing to gain by Britain falling further into the clutches of the Europe. The phrase, “out of the frying pan, into the fire” springs to mind.
But then again, things could get so bad for the UK that it has no other choice.
Is there a chance the new superpowers of Asia and the Middle East will come to the rescue? Again, we don’t see this as being very likely either.
The main reason is, why would they want or need to?
You know, we’re struggling on that one. We’re struggling to figure out just what China, Japan, South Korea, Dubai or Bahrain would get out of propping up the UK economy.
Besides, they seem more interested in just buying up the Premier League football teams than anything else.
Quite frankly, it’s very hard to see how Britain can get itself out of the current pickle without causing itself and its citizens a massive amount of pain.
With the billions of pounds of debt and the billions of pounds spent each year on unaffordable and bankruptcy-inducing social programmes (such as the National Health Service) there is absolutely no way it can get itself out of the mire without doing something drastic.
It can’t merely hoped for an economic recovery. After all, where is the economic growth going to come from?
It’s rested on the laurels of growth in the financial sector since the 1980s. Even if global financial markets do recover and even if they do start flogging more fancy products, the odds are London won’t be the centre of the action anymore.
Its natural resources from the North Sea are coming to an end, and thanks to the heavy hand of regulation and social engineering, its manufacturing industry is virtually dead.
That’s why I believe we are potentially seeing the death of an economy.
The only possible solution for Britain is to default on its obligations directly or indirectly. It can do this openly by defaulting on its debt, or it can do it by continuing the programme of quantitative easing.
The second option is of course the coward’s way.
By continuing with this programme, the government and central bank are in the process of unleashing the cruel fate of rampant inflation and the destruction of any wealth its citizens have left.
Until that happens, the hapless economic analysis from mainstream economists and the mainstream press will continue to idolize the efforts of the Bank of England to drag the UK economy out of trouble.
The reality is the Bank of England is dragging it further into trouble.
Cheers.
Kris.
60-Second Market Round Up
by Shae Smith
The S&P/ASX200 closed up by 86 points on Friday, finishing at 4,594. The strong close from the US and positive news regarding growth and inflation from the RBA helped the ASX200.
On Wall Street the Dow Jones Industrial Average ended the trading week at 10,023.42, a small gain of 17 points.
Overall, the Dow posted a 3% increase for the week.
In Europe the FTSE100 finished up by 0.33% to 5,142.72
The Nikkei rose 71 points, or 0.74% to 9,789.35
Gold has again reached a new record high of USD$1,101.42, but it did drop back slightly at the close.
Currently, the price of gold in Australian dollars is trading at $1,194.90, while in US Dollars it is trading at $1,097.00. And the price of silver in Aussie dollars is $18.94 and in US Dollars it is $17.39.
The Aussie dollar has remained well above the 90 cent mark.
The Aussie dollar versus the US dollar is trading at USD$0.9218, and against the Japanese Yen JPY82.85.
Crude oil closed overnight at USD$79.70
For the biggest movers on the market yesterday click here…
{ 25 comments… read them below or add one }
Sad – Is it getting near time to start sending food hampers?
hasnt the queen, ponzi charles ,beckham & mr.bean got more than enough dough to bail UK out ????????????????????????
forgot to ask………..
“”"”"The only possible solution for Britain is to default on its obligations directly or indirectly. It can do this openly by defaulting on its debt, or it can do it by continuing the programme of quantitative easing.”"”"”"”"”"”
what happens if england decides to ,option one,default ????????????????
There would seem to be another alternative, namely selling off assets.
After all that is what QLD is having to do.
Maybe not as bad as it sounds. The debt has been incurred by the population via the government acting as their agent. The debt can be paid by raising tax and cutting services. Alternatively the assets held by the government on behalf of the people could be sold – to stave of rampant inflation.
Articles like this scare the crap out of me.
We are selling up and moving to the UK early-mid next year and taking our hard earned AU Dollars with us…..oh dear.
Any advice? lol
There is option 3 which becomes open after the election. Raise taxes which are very low, raise interest rates which are very low and cut public spending which is unbelievably high. Easy but not if you want to win an election, or at least pretend to want to.
Dubai is not a country, it is an Emirate which makes up the UAE. Referring to it in the context of the article alongside Bahrain for example suggests that it is. Secondly, Dubai also has its financial difficulties and will need to rely heavily on UAE capital Abu Dhabi in the years to come.
The American economist Lyndon Larouche predicted this happening not only to England but to the whole world. With all this worthless money floating around the next pain is hyperinflation!
Eric – they can only sell them once. Qld has just gone through a period of strong economic performance, yet the state government has seriously mismanaged the economy and has no reserves when it really should have. Alas Qld is not the only poorly managed state.
We need governments who are less concerned with popularity polls, and voters who give more thought to the value of their vote, rather than a short term “what is in it for me”.
PF You’re description of state government ineptitude in Queensland has a strangely familiar ring to ours in NSW. It’s no coincidence perhaps that both are classic examples of governments that are tired, corrupted and bereft of the guts to make hard and unpopular decisions. And who can blame them when the popularity of St. Kevin the Stimulator relies on a regular handout of bread and circuses (all with borrowed money mind – but don’t worry, we’ll fix that up later). This is not meant as a political statement against Labor. John Howard and the coalition eventually lost support for much the same reasons. It certainly makes a plausible case to ask the burning question ‘what real benefits does Australia gain from persisting with an outdated and bloated system of governance at local, state and federal levels? I can seriously think of no positives – just many, many negatives. Perhaps St. Kevin would assemble the knowledgeable and learned peoples of our nation to another taxpayer funded gabfest so that voluminous reports would be assembled to sit on some dusty bureaucratic shelving system for decades to come?
Listen up; while you are mostly correct about Britain’s problems, you have simply forgotten the blindingly obvious:
And then during the 1980s and 1990s, the growth in the global economy and the increase in financial market sophistication helped bail out the UK economy.
NO – it was North Sea Oil that bailed Britain out in the 1980’s and 1990’s. Margaret Thatcher bullied the Oil companies (who didn’t need much persuading) to over-use the North Sea Oil, as a result the Oil field structure is now critically damaged. So much so, 60% of that North Sea Oil cannot be extracted.
1999 marked the high point for Britain; in 1999 North Sea Oil peaked in production and has been declining ever since. Last financial year it is said to have dropped by 33%. The economists (HA!) predicted the Oil would decline at a maximum of 3% per annum.
The End Of North Sea Oil is the real reason why Britain is in deep trouble
PF – absolutely agree. The problem with the keysian-style government stimulus is that it assumes accumulation of reserves when the going is good. In the West we have deficit when times are good and catastrophic deficit when times are bad. The airy-fairy assumption is that future surpluses will fix current deficits, but unfortunately today’s stimulus only cannibalises future demand. The elite obviously realises that we are heading toward a disaster but with a 3-year cash-out&retire mindset the care factor is low.
Jared Diamond has described a key pre-cursor to a societal collapse as the complete separation of the interests of the ruling elite to that of the broader population. Worth pondering.
(not that I foresee a societal collapse, I’m fundamentally an optimist but we should beware of the lessons of our past. “History is a race between education and catastrophy”.)
CathastrophE, god damnit..!
N – Re your post at 12. Just a little clarification whilst we are all in an agreeable mood. I am a great admirer of Keynes, but I also believe that governments should squirrel away surplus income during the good times so that they can be used to even out expenditure in times of depression or recession. I also believe that spending should be on projects brought forward that would be spent anyway (in the main) and will build infrastructure that is an investment in the nations future.
Where governments get it wrong is, they have then used that notion as tacit approval to keep running deficits, without providing for the future. What we call Keynsian economics today may well have not received John Maynards seal of approval if he were still around.
I will use our state government as a case in point. I have heard from people I know working in treasury that the QLD labour government has been overspending since the day they were elected. They even squandered the ambulance funds collected by volunteers and then brought in an ambulence levvy to make up for that. They ran down the public utilities, then incorporated them, insisted on a dividend that the utility could not manage, and so utilities such as electricity couldn’t re-invest in new plant and equipment. Ultimately we got caught with an electricity supply that was 20 years behind the times, and the government could blame those they installed to run the organisation, instead of themselves. Qld readers will remember that Don Nissen got blamed for everything, but it was Beatties fiasco really.
Now we don’t have enough dams to provide for the population increase let alone the existing one in times of drought. Bligh is selling off the only profitable part of the railways, but of course she will be long gone by the time QR grinds to a halt from lack of money.
My point is that if our state government had managed the states economy responsibly, instead of seeking popularity, we would now have the surplus’s to invest in that infrastructure. But we do not.
I don’t pretend to know a lot about other state governments, but I have strong suspicions.
Getting back to Keynes, had the powers that be followed his principles with more discipline, we would be in a better position.
Here endeth the lesson………..
Below is a quote from Bloomberg:
“Taiwan stocks rose for the third day after October exports fell the least in 13 months on increased demand for mobile phones, computers and other electronics from China”
If you think about this in the correct light its actually catastrophic!! In October 2008 the world came to a halt, exports collapsed so quickly that politicians panicked. Ships across the globe were parked up as trade vanished. October 2008 was the first month of this collapse and now 12 months later exports are even LOWER.
This just proves that there is no real demand from China, at least not enough to maintain all the global capacity, and the hype about the next boom Australia is going to witness that is going to dwarf the last boom makes no sense!
If we are in a period of REAL global growth then export orders in Nov and Dec, at a minimum, should be positive when compared to last year…
Dean, just a thought: Do you have to go? Why not change plans and stay? Especially if you don’t have jobs lined up it could be tricky. On the other hand, with regular income assured, the rest of the detail will fall into place day by day.
Dean,
It’s no surprise pommy land is whizzing away down the drain of financial doom.
Thatcher started the trend by closing down the mines and ripping the guts out of the northern industrial part of the country. She destroyed coal, the communities who worked the pits and then savaged the manufacturing sector.
The Army was brought in, issued with police uniforms and sent in to beat up the miners, a freelance photographer I know has images of squaddies changing in to cop uniforms and some of same people pulling a heavily pregnant woman through the smashed windscreen of a bus by her hair. The savagery was disgusting the censorship appalling. The police using section 84? psych laws on protestors or sectioned as it became to be known. (if you have been sectioned your ability to vote is removed by law as you are classed as mentally impaired) So if your angry enough, intelligent enough to say hey this is wrong and go protest your dissent will be silenced at the ballot box. The police would walk along and hiss at you they would have you sectioned if you didn’t leave.
That was thatchers way of controlling the youth, those that stood up those that had independent thought.
Once the manufacturing sector had been thoroughly rodgered like the unions she started flogging off just about every money making public asset. Along the way more carnage was created as media laws were thrown out the window so a patently thatcher loving media helped smooth over the cracks as more and more lies were thrown up in such jingoistic clap trap publications like the sun.
Thousands of print workers were thrown out of work again the riots the dissent went on for years the victims now broken and pennyless.
To add insult to injury the Elizabethan sounding poll tax was introduced so an unemplyed family of seven living in squalor in Liverpool could actually end up owing more in tax than some banker living in a 5 bedroom house in surry.
So what you have left is a country that has been raped, it’s infrastructure sold to the highest bidder the engineers and technicians who knew how it all worked fired so profits could be squeezed while slick little chicky babes in sharp suits could sell it to the plebs before it started breaking down due to neglect.
This is now why such a wet and miserable place can be classed as in drought because the privatised for better competition water companies don’t want to spend a single penny more on maintenance than they can possibly get away with while the pipes crumble below the peoples feet.
The electricity grid, Gas, Telephony are all the same sinking ship.
The govt keeps all of the driver licence records in a nuclear bomb proof bunker in Wales and a lot more personal information to boot. The privatised Orwellian CCTV
Police state is in an advanced state of decay the ability to speak up publicly, to gather to protest, the very essence of freedom of speech, freedom to voice dissent has been removed under the veil of the war on terror another reason why Blair, Bush and Howard should hang.
Oh and just as a reminder John Howard had the photos of two women in his office. One was the queen the other was thatcher.
Australia has been raped bent over and thoroughly shagged under howard.
We must do what ever we can to stop the state and federal governments from selling off any more publicly held utilities, manufacturing, railways, infrastructure, education in fact anything they think they can make a quick buck from.
If we don’t we too will be going down the sewer of capitalism and I can assure you it does not differentiate on creed colour or how much personal wealth or how smart you think you are. As the poms are now finding out to their personal horror.
That horror will come here sooner rather than later if we do not stand up and do something before it’s too late.
A good global thermomiter is the Baltic Dry Index.
Or in laymans terms how much it costs to ship a container from say Hong Kong to Copenhagen.
So far it has fallen about 95% from it’s all time high.
Always a good baromiter of how much is being shipped around the world.
If you have a look at web cams in the worlds major ports you should see fleets of container ships moored in the distance.
Up to 70 in ports in pommy land for example.
mick it sounds ugly there ,, its sounds definetly not the place to go for a holiday
Etch,
It is a truly wretched place when you go through immigration you also leave behind your human rights.
Don’t ever bother with the place France is far nicer.
a dedication…………………………………..to “RUNDOWN”
http://www.youtube.com/watch?v=lotkzHsIuoA
Greetings. A bit of a long bow but here goes (closest of the recent stories that I can find to make the connection). Another way out for Britain is to finally start penalising the UBiquitouS organisations that helped lead the world into this GFC in the first place. Indeed as reported by The Associated Press on 5Nov UBS have received an 8mpound fine for sloppy management that meant that 4 of its employees could apparently carry out unauthorised transactions between 2006 and 2007 involving client money. Another great avenue would be doing what the yanks are doing (with UBS “co-operation”) and cracking down on tax cheats. Fascinating to see that an amnesty offered by the US IRS flushed out some 7,500 owners of foreign accounts. According to Kevin McCoy of USA Today (16Oct09):
” Applications (for amnesty) for accounts that held from just over $10,000 to more than $100 million came from more than 70 countries and every continent except Antarctica, Shulman (IRS Commissioner) said”.
The article goes on to state:
“The agency also plans to open new criminal investigation offices in China, Panama and Australia, Shulman said.”
No doubt the printing presses will burn with this news.
Into the Euro here we go. Another small step to World Government, Which will of course incorporate local democracy. Or not? If yes, how?
When the right to vote ceases to have meaningful consequences, then the right to riot has begun. JFK said “When peaceful revolution becomes impossible, violent revolution becomes inevitable”. The pound is being trashed to force Britain into the Euro. Stand up Scotland. Charter a Scottish Community Bank an’ I’ll show yez how tae run it.
JID
Remember dear readers the populace gets what it deserves! Or in another vein he who does not heed the [historical] past is doomed to repeat it.
When asked recently to get more involved with the political struggle I opined: “Cast not thy pearls before swine”. “Collapse is inevitable so put a goodly portion of ones investible assets in physical Gold and Silver coins and bars [of a reputable brand such as the Perth Mint], stored in vault boxes of your own security in major banks, put down a goodly supply of fine reds and await the coming financial collapse without a care in the world”.
History teaches us the masses will not listen until it is too late, so why waste your time and effort. Look after your family and loved ones and put up the “do not disturb sign”.
You will suffer less heart ache this way and keep a lower blood pressure.
Good luck to you all.
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