Tuesday 22 December 2009

As I said before, reinstate Glass-Steagall to avoid the same problems in future

I am now in very good company in saying this, with not only Mervyn King of the BoE calling for it, but Paul Volker and John McCain also saying the same thing as of last week. The Banksters will fight it tooth and nail, because they all kinda like getting the profits and bonuses of hedge funds, rather than the boring old commercial banks they're thought to still be by their depositors, but its the only thing that will prevent these massive banking failures again in future.

Glass-Steagall was instated in the US as a result of the last widespread set of bank failures, the Great Depression. Its function was to prevent commercial banks from speculating with your deposited money. It was repealed just before the end of the last century and the banks took the fullest advantage of their newfound freedom to set themselves up for yet another spectacular failure. A spectacular failure that you and I and everyone else, including our offspring, get to pay for papering over (but note, it is still not "fixed" by this papering over with newly printed money).

No other country's bankers will agree to similar restrictions unless and until the US banks are forced into agreeing to this limitation again, because they naturally want a level playing field like anyone else would. The US necessarily have to take the lead again, just because they are still in the position of dominance over everyone else. Everyone else will then fall into line behind them.

Monday 21 December 2009

People talk about the problems in Greece and Ireland

But if you look at this graph you'll see that compared to Greece we in the UK have a bigger budget deficit, albeit with a significantly smaller debt-to-GDP ratio. The reaction of the Greeks is to strike, riot and generally not accept that they're all collectively working the system to their own advantage and not the common good of their nation, and they continue to choose voting for whoever will butter their own personal bread the thickest even though their kids and grandchildren will pay for all of it. Perhaps they will get a surprise and find that in the longer term they get to pay too because the wheels fall off sooner than they hope.

Compare the UK to Ireland and you'll see that we have bigger budget deficit ratio as well as higher overall debt-to-GDP ratio. The Irish reaction is that they must seriously cut public services and public sector pay rates in order to reduce their budget deficit, hopefully there is a chance they can stay solvent in the longer term. This is pragmatic and there is hope that their economy will be able to recover as a result of accepting these steps are necessary.

And yet everyone thinks "it can't happen here"? I don't understand why, personally. Here nobody is willing to accept that we can't afford those wonderful frontline public services that are so sacred to Labour (or more to the point, to the unions -- those large blocks of loyal voters are really all that is cherished by Labour if truth be stated). Nobody (yet) accepts that those cuts must and will be made, and the longer we delay them the worse they will have to be.

Wednesday 16 December 2009

Moodys warns of social unrest

Late as ever, the rating agency Moodys announces that social unrest should be anticipated. You could see this coming down the pike for a long time. Still, better late than never.


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