Iceland: The foremost poster child of power house to poor house

When confidence in your economy wanes, fortunes change significantly.

Iceland was one of the hottest of go-to countries when it came to finance not so long ago. I think I recall they had the highest GDP per capita on earth at their peak a couple of years ago. Then along comes a credit contraction, and they find themselves on their knees begging their neighbours to lend them money and bail them out, and their currency halves in value, as Tommy Cooper would say, just like that. Suddenly everything that you don't make or grow domestically becomes cripplingly expensive so most of the population cannot afford what they previously considered the basics.

It has come to the point in Iceland now where you can no longer get a burger at McDonald's, because Ronald can't make a profit since he has to import all the ingredients from Europe to ensure quality is maintained. Of course, many would argue this is just one of the positives to be found in a bad situation...

But seriously now what I'm thinking is... wow, look at where all the stuff in the shops here comes from, because I think perhaps potatoes, carrots and milk are locally sourced, but really not much else is made in the good old U of K these days if my eyes do not deceive me. Well, of course there are those innovative but toxic financial instruments, yes clearly we are the the dominant provider of those and people have bought those hand over fist for the last decade or so. I wonder how long people will continue to want those?

So Gordon thinks he knows banking better than Mervyn eh?

Funny -- I didn't know he was a banking specialist. (In fact, I thought that he was clueless on just about every subject but quite happy to dabble in them all and force the experts to bend to his iron will -- it seems that I stand corrected!)

I am fairly confident that Mervyn King is something of a banking expert though...

Just to let you know where I stand on this, Mervyn is dead right that retail banking should be firewalled from investment banking. This would prevent the risk that failed speculations by the investment banking community will impact on the life savings of the man on the street. This separation of function is exactly what the Glass-Steagall Act of 1933 was all about, put in place for the exact same reason after the last similar credit implosion that caused the Great Depression. It is interesting to note that we didn't have any serious credit implosions since Glass-Steagall's 1933 inception, until it was repealed in 1999 -- since when we have had a couple of beauties so far this millennium, and I think it is safe to say there will be more as things stand right now.

Let the investment banks grow as large as they wish, there is no problem with "too big"; only with "too big to fail". The real issue is investment banks grow fat by risking money that is rightfully yours and mine, as depositors, not their own -- so when their speculative bets turn bad and they take massive losses, the money they lose is yours and mine not theirs, and so to prevent public outcry the government are forced to step in and cover those losses in order that you will be able nip down to the bank and draw out your money when you want to, and you won't turn up on either Threadneedle Street or Parliament Square, carrying placards and pitchforks demanding that the bums all be thrown out on the street so you can hang them from lamp posts where they belong. Let them make bets and profits as large and ridiculous as they like, but remove the requirement that they will be bailed out with our taxes when it happens. Disallow them from putting the money of depositors at risk.

As Merv says, some people say it is impractical. But I would point you at the Glass-Steagall Act of 1933, just one more time in this missive, and point you once again to the fact there were no massive credit blow-ups while it was in place until 1999, to demonstrate that it is entirely possible and in fact it would appear highly desirable.

So, how could Gordon think otherwise? Perhaps he has a few friends that benefit from the status quo, eh..?

Fiddling while Rome burns again

Does it really matter whether the public sector consumes 50% or 40% of the economy?

The politicians argue about and attempt to score points off each other regarding ridiculous details, as they attempt to defend themselves by saying they are no worse than each other. This is true; they are all bad!

Factor in that "official" statistics are always, ALWAYS skewed from reality so that they make the government appear better than warranted, without exception, and suddenly you realise you can be pretty confident that both 40% and 50% are very likely to be short of reality.

But even beyond the fact that government statistics are always and without fail fabrications, taking their most conservative argument that the public sector comprises "only" 40% of GDP, you still run the math very quickly indeed and come automatically to the conclusion that even that level is totally unsustainable. How can 40% of the economy be paid for by the remaining 60%, and everyone be happy with the arrangement? Especially when a large (and growing) slice of the economy is formed by people who are neither in the public or private sector, collecting their unemployment benefit every week?

These are lies (sorry, "statistics") of last year too -- surely anyone out here in the real world knows with certainty that there are a lot more people who have lost their jobs since those statistics, so the numbers are even more out of balance than reported.

No, this all adds up to a monstrously over-inflated and wholely unsustainable bubble in public sector employment over the last decade or so, which necessarily will now burst because it is impossible to sustain any longer.

So much for Prudence, Gordon. Thank you so much for your great stewardship of this economy. If you really wanted to "save the world", you would resign and let someone with a brain have a go on the levers behind the curtain for a while. And take your books on Keynes with you when you leave, please.

A national stress-related suicides problem?

Can it really be true that in France - the country where by law it is almost impossible for anybody to be given the sack but when they are they have a massively generous payoff, everybody has a fully-defined remit of tasks they are allowed to perform in their job and certainly they are not allowed to be asked to do any other task they do not wish to perform, and nobody is allowed to work more than 35 hours a week - there is a significant national problem with suicides relating to workplace-stress?

My eyes must be deceiving me, surely?

Unless these are the people who can add up and have realised that all of these luxuries they have collectively awarded themselves come at a high price, and it means that they cannot compete effectively in a globalised marketplace. OK, maybe if that is the case then I can understand why they might wish to end it all now, before the wheels eventually really come off their society and it decends into chaos...