Ryeview – October 2008

How your economy turned crazy

John Clark writes…

First published: October 2008 – Gazette & Herald

Heads they win. Tails we lose. How the financial system works is clear. If it makes vast amounts of money it is in private hands and the market will control it. If it is collapsing it is put into public ownership (aka Nationalization) and guess who will pay the bill. The USA has become the new public ownership centre of the world. Ken Clarke, the ex Tory Chancellor, said after the recent series of collapses “I weep for the ‘American Taxpayer’”

On the other side of the political coin, Gordon Brown said “We are a pro-business, pro-market government” and “We have sorted out the instability in the economy”.

Let us look at how the UK got into this mess.

  • The Tories under Mrs Thatcher removed regulations and control of the market.
  • The Tories privatised public areas from gas through to council houses.
  • Building Societies and many insurance companies were ‘mutual’ – i.e. owned by their investors and couldn’t be attacked by speculators. They were ‘floated’ on the market.

Once the above started it was like an avalanche. The ‘free’, ‘unregulated’ economy gathered momentum throughout the Blair years. The present size and shape of the avalanche is almost unbelievable. News bulletins and economists describe the British economy as being built on growth; personal credit; house prices and consumer spending.

The economy of a country cannot continue to grow indefinitely. It is not possible in terms of resources or the environment. Personal Credit is only a way of buying goods with future earnings. Driving this by house prices is so ludicrous it barely warrants the ink to question it. How does the value of a house increase because it is lived in? The occupier owns the same house after the increase as they did before the increase. If the ‘value’ has increased and money is borrowed on the strength of it the money still needs to be paid back. Those who gain are those selling their large house and buying a smaller one. This is exactly balanced by first time buyers needing that same amount more to get on the housing ladder. The country still has the same housing stock – the total worth is the same.

The total picture is therefore an increase in personal debt by borrowing on the artificial increase in house prices. ‘Growth’ in the UK economy comes from consumer spending. Vast quantities of this spending is on imports from China. The majority of this money is lost to the British economy.

It is not surprising that this has gone wrong. What is surprising is that it has taken so long.

In the mid 1970s I predicted that the party that got elected towards the end of the decade would be in government for over a decade. North Sea Oil would pay the bills.

I now predict that whoever wins at the next election will be elected for one term only. For many years into the future the British Taxpayer will be paying off the debts created by these crazy economics.

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