Saturday, February 14, 2015

Understanding is vital to saving the real economy

Instead of Austerity, the Green Party wants to do lots of nice things for people, things like NHS, education and Basic Income.

It is quite reasonable for critics and commentators to ask how these nice things will be paid for.
Will it be from more borrowing? If so, what about the budgetary deficit?

The short answer is, no, not from borrowing. It will come from taxation applied to the 1%, and by accurate understanding of how money is created.

First, the deficit, the difference between the Government's income and expenditure. We have been told that it is very serious and that we are very nearly on the edge of bankruptcy, that the only  way is to cut spending, mainly through cutting welfare because they are all scroungers who deserve to suffer etc. We are told that the deficit is a HUGE TERRIFYING NUMBER and that Osborne must make "tough decisions" to bring it down.

In fact, he has borrowed more in 5 years than Labour did in 13.

Of course, this was due to the crash of 2009, which was caused by the banks, but since banks payroll the Tory Party, the blame is heaped instead on Labour for borrowing too much.

However, Labour did not in fact borrow all that much. Here is a record going back to 1977. Blue line = Tory Govt, red line = Labour. 0.0 line means budget is balanced. Above the line we are in surplus, below the line we are in deficit. Mainly we are in deficit. Note that Labour's surplus moments under Gordon are bigger  than Tories surplus moments.

We are being given porkie pies. The weird thing is that Labour do not defend their record. 

Note above that the debt after 2009 is £60 billion before intervention to save the banks, but £150bn with the £90 bn needed to save the banksters' sorry assets.

Note also that Gordon was taming the deficit, prior to 2009. In the figure above, the deficit is anything above the line. Much less under Gordon Brown than back in 1993 under the Tories.

In fact the deficit is getting worse over the years. Look at this
Going back to 1948, there is a definite trend towards a greater deficit. Why? Because the Government has to borrow money from the banks. 

To borrow requires payment of interest. One loan of £10,000 at 5% over 10 years requires payment of an additional £2,728 to the bank in addition to the original £10,000. 

So we are in a vicious cycle. The more we borrow, the more we owe, and the more we have to pay to the banks.

But when the banks foul up, the Government has to bale them out to the tune of £100s of billions, so that the banks are in a position to lend to Government again. Our Government loaned them £90 billion to save them in the crash of 2009, and gave them a further  £375billion in Quantitative Easing. £475billion given to the banks in all. Nearly half a trillion pounds, mostly created by the State, given to the banks to save them, and then we have to go to them, cap in hand and borrow that same money back, as an interest bearing loan, on condition that we flog the poor with austerity while the banksters pay themselves bonuses with the money that we, the people, created through our agent, the Bank of England.

This is, quite simply, a mad situation, and it would be laughable if its impacts on our lives were not so serious.

It is vital for us to understand this madness if we are to save our reality, that is, our society and  environment. 


Unknown said...

I am afraid this is only part of the story. Deregulation of the banking system and the free for all encouraged by New labour was the root cause of the banking crash. In fact it is hard to blame the banks in any way.They were operating in an environment that was created for them. Pre war economy. It has being on since Roman times.The truth is they did not know any better.

DocRichard said...

Stuart, your presentation suggests that deregulation was imposed on the innocent, reluctant banks by guilty politicians. But the relationship is more ecological, more interconnected, than that. Neo-liberal ideology, or free-market fundamentalism, demands deregulation. Politicians and financiers have been equally swayed by this ideology. If we must have a single cause, it is this pernicious ideology that puts the free market above all else, including the physical and biological processes that support life on earth. It is neo-liberalism that argues, "If climate change is happening, we would have to regulate the market with carbon taxes etc. The market must not be regulated. Therefore climate change is not happening".

DocRichard said...

I'm interested in your "pre war economy". Expand please.