Wednesday, January 14, 2009

What if Simon Jenkins is wrong?

Let's try to sort out this mess. The UK economy is not looking good. Unemployment rising, firms going bust, pound falling on the money markets, exports falling despite weak pound, huge and rising public debt, and banks not lending, so no new money for businesses to expand, so firms go bust, unemployment rises, and so on in an egregiously vicious spiral of downward economic plummeting.

Banks are not lending because they fear that the firms they lend to will go bankrupt and they will lose their money, and because they cannot get money, firms go bankrupt. Banks also will get little profit from these high risk loans because interest rates are so low. If banks do not make profits, people will not buy shares in them, and they will go down with the rest of the stinking ship. So Govt is talking of further bank bail outs, which will increase the public debt still further.

The word "unravelling" springs to mind. On the other hand, Simon Jenkins in the Guardian opines that this is all a storm in a teacup, and we should all stop worrying and learn to enjoy life. We should all hope that Jenkins is right, but at the same time, we should inspect what may happen if he is wrong, because he is in a bit of a minority, since a global poll today shows that Mr and Mrs A. Britton is least likely of all the people in the world to trust politicians, bankers or markets.

Underlying all the above-mentioned worries is the fact that the UK economy is more heavily dependent than most on the financial markets, and those markets are the sickest part of the present fiscal stickness. We should look carefully at what happens in Iceland, because where they go, we may follow. In fact last month there were pronouncements that Iceland was looking as if it had bottomed out, so Jenkins may be right. On the other hand, the fat lady has not yet sung. She has not even begun to lace up her corsets (or should that be unlace? Can fat ladies sing in corsets? Are we allowed to say fat ladies in the context of a theatrical cliche'? But i digress).

What I am getting at is that the UK may eventually end up bankrupt. Bust. Empty pockets. Nothing in the bank. No credit. Sterling without any value. There is a limit to all things, even the ability of the State to prop up an intrinsically rotten and irrational financial system. I worry that NuLabour has got the bit in its teeth, and is ready to fire money wherever it seems to be needed. The loan guarantee scheme seems reasonable, (oddly, the Tories agree, and want to put even more taxpayers' money at risk than NuLabour) but discussion of further bank bailouts bring the words "pit" and "bottomless" to mind...

Complete financial meltdown may not happen, but we do need to have a Plan B ready in case it does. The place to start is to spend time watching this video, in order to have a basic understanding of what money is.

Then we need to start reading up about Monetary Reform, to understand that money does not have to be created solely by private corporations in pursuit of profit; it can also be created by communities and the State as a service to oil the wheels of the real economy.

What is the real economy? Energy, food, water, shelter, and waste disposal. This is where the money would do most good. Energy - Green New Deal. Water - big infrastructure works on leaking water mains. Shelter - the Right to Rent. Waste disposal: create a true economic framework for recycling, which requires a tax on the virgin materials with which recycled products have to compete.

In all of this, safe, effective local communities needs to be created, by creation of neighbourhood leaders and community spaces.

At the moment, Government is firing money at the economy as we now know it. This may not work. If the current economy does go up in flames, we need to have a clear idea of what kind shape the Green Economy that rises from the ashes must take.

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