Fragility of the Western Economy, further thoughts outside the box. (Quantative Easing)
We have suffered a drawn out recession, enormous Government borrowings, putting future generations in debt for many years with electoral promises of booms that will not happen, without describing roads that are breaking up, an NHS system that is suddenly exposed as failing worse than it has been for years and much more.
The EU, the massive weight round our economic necks is teetering on disaster, Greece the shaky, politically precarious country, is causing the EU to panic along with others.
The EU has allegedly been pouring plane loads of quantative easing into the country to keep them in the EU, rather than letting them float with the drachma and suffer whatever problems arise, which there would be many, causing massive cracks in the EU’s skin deep united front.
Every affected country has been printing money individually and achieved absolutely nothing, we are no better off despite the politicians hollow claims, now is the time to get all these countries round the table, stop borrowing money we can’t afford to pay back to the people and companies that caused the initial problem.
Russia is now in serious financial trouble for a variety of reasons and falling oil prices, they represent a serious threat to world stability and cannot be ignored.
There has to be a balanced, united policy of quantative easing between all our trading partners to resolve the economic problems of the Western Economies and others, the politicians that have encouraged massive borrowings will be voted out and their successors will spend five years decrying their predecessors incompetence and achieve absolutely nothing and the same farce will be repeated.
Read on, this was written several years or more ago.
The whole of the western world and a number of aligned trading partners are all in a deep recession or negative or near negative growth.
The root cause is lack of money, without money the whole system closes down with disastrous results for ordinary people, it doesn’t touch the people with millions, their money has long gone from any financial risks, most in off shore safe tax havens.
This failure started with the sub prime mortgage swindle in the USA.
As with any scam it was based on selling millions of mortgages to people that may not be able to maintain their payments, but in so doing the property values were escalated with little consideration to the possibility of rising interest rates and that all economies tend to be cyclical, fluctuating between the extremes of “Boom and Bust”, depending on the controls imposed by their politicians.
The mortgages were bundled into groups and sold on to banks and major investment companies worldwide, with a few solid mortgages on the top and the high risks buried in the paperwork.
Virtually the same scam used to bring the Lloyds Insurance Industry to its knees, selling on high risk policies with some solid ones on the top, smart guys in Lloyds taking them on, easy money until the dross falls out and many Lloyds names lost everything and a number of underwriters quit the country and retired to sunnier climes where the law could not reach them.
You would think these City Whizz Kids would learn from history, sadly “No”, they’ve rediscovered the financial wheel, pass the parcel and skim something at every handling, it’s easy money until the parcel falls open and it is the next best thing to worthless.
Panic, more number crunching and suddenly the domino effect takes place, the big names in the U.S. “Fiddled whilst Rome Burned”, they have no idea how to handle it and we have the effects shaking all the financial institutions world wide, banks failing, they in turn have dodged retaining sufficient cash to cover their loan commitments and they are having to screw their customers, causing an even greater reduction of available money.
Without mobility of money we do not function.
We have two further risks, the emerging or Tiger Economies, lead by China, India, Brazil etc. are justifiably exporting to the West with very cheap products, far cheaper than we can manufacture them, they are stock piling the cash with massive trading surpluses.
They are not buying our products in sufficient quantities to maintain a balance, but occasionally investing in our key businesses, which in the long term puts them in an even more dominant position.
The Wests Economy has always been able to contain a new Tiger Economy, but the Chinese Economy is far greater than any by far, they have an almost endless source of cheap labour and in turn can undercut almost anything that the West can produce, we have the knowledge, but we struggle to compete, many national companies now manufacture in China and the other Tiger Economies for obvious financial reasons.
In addition they are buying the worlds raw materials at all costs, to keep their powerhouse operating.
Scrap Cars in the UK, you could barely give away or paid to remove them, to-day they are £90.00 per ton, where do they go? India or China, they vie for steel.
The amount of the trading surpluses must amount to Trillions of Euros, Dollars and Pounds, this might be manageable in the long term with the natural fluctuation of currencies.
Put together with the over valuing of financial packages and their subsequent failures, we have a massive shortfall of mobile money in all the Western economies, most of the financial packages had high face values but were worth nothing, the monetary value was pure fiction.
Yet a number of bankers or investors walked away with billions to be salted away off shore, never to be seen again, the whole thing was very akin to a Ponzi Scheme or Pyramid Selling, whatever it was the result was the same.
I was invited to the RICS (Royal Institution of Chartered Surveyors) with some other colleagues, to discuss the over renting and over valuing of pubs, following the changes that had been made to their Valuation Guidelines some years ago, by the committee at that time, resulting in the removal of the Chairman.
There are two accepted values for commercial property, viability or bricks and mortar for an alternative use.
The rental value creates an investment value to the property for a landlord, it also establishes a rateable value for the Inland revenue based on the rent.
Under the deposed Chairman the brakes based on viability were removed, allowing massive increases in rent with no justification and enhanced freehold values used to raise further funding to hoover up even more pubs and commercial property, the rents were and are still unsustainable, including the rates.
The result being thousands of pubs struggling and failing at a massive rate, empty commercial property, in every town, with freehold values that defy belief, with the recession, these values in the main are now worth 40% of their book value.
The Pub Co’s have massive debt mountains, their share values are minimal and we have one sector of the economy failing steadily, whereas it has always been a steady rock to rely on.
The RICS (Royal Institution of Chartered Surveyors) said that they were concerned about the over valuation of commercial property, the banks were complaining that the mortgages they were holding exceeded the values of the properties, yet the banks in many cases were complicit in this valuation, by insisting that to obtain a mortgage the rent had to be much higher.
The Commercial Agents were delighted to raise rents, since justification was not needed any more, only a spurious statement that the demand was there, also a stream of enthusiastic lessees who had no idea about viability, in many cases the rental levels were dictated by large corporations whose buying power and profitability far exceeded individuals.
At the slightest whiff of a recession many commercial premises are empty and the dizzy valuations are nothing now except a massive vacuum of theoretical money, major companies, High Street names are teetering and many have failed, Woolworths being one, to add to the sub prime and other disasters.
The Government, rightly so insisted on an austerity programme, probably with little thought as to the true extent and enormity of the depth of this recession and its ultimate far reaching effects.
Europe and the Euro are in turmoil, the debts of a number of EU countries could bring the whole Euro economy to its knees, again there is insufficient money in circulation and obtaining national loans is getting very questionable from the usual sources.
The men with the money will not lend to a country in serious risk of defaulting, in fact the domiciled people with serious money have moved their money off shore and moved to more stable countries, causing even more problems for the countries in trouble.
The French have just elected a new president who is supposedly turning his back on austerity to create jobs, a sure fire vote winner, get the economy going, how?
Greece have just elected a new leader who is rejecting the austerity programme and all the constraints, his country had been put under by the euro Bank and the IMF, there is total confusion in the Greek Government and another election threatened, what will they do?
Cyprus has joined the casuality list with another Eastern Europen country, they are small almost insignificant, but the shockwaves could destroy the Euro, the Eurozone is like a leaky balloon, every hole is patched to be replaced by another tear opening like a ripe banana, the egotistical commanders of the Eurozone have absolutely no idea what to do, the farce goes on.
Euros are being withdrawn from Greek banks, causing the banks to be at serious risk, the opinion is that Greece will be forced out of the Euro and revert to the Drachma, which will be dramatically devalued, making imports prohibitive, their export market and manufacturing is minimal, if any have survived the austerity programme, their mainstay has always been tourism and olive oil, this may be a seasonal saviour with a low value to the Drachma, but the opinion is that there will be serious civil unrest for some considerable time and not a place for foreign tourists.
Greece will not only have the logistical problem of printing trillions of Drachma in a very short space of time, this may not be possible without foreign assistance.
The Domino effect of this fall out will shake Spain, Portugal and Italy.
The obvious thing is to print more money, the old school say that it will devalue the currency of the country doing it, absolutely right, but theses countries have no option, they have to get money circulating, Spain, Italy and Portugal are all teetering, the Irish are on an austerity programme that many Irish feel is destroying their living standards.
In fact the old yardstick was that you could not have any more money in circulation than your gold reserves, Gordon Brown sold our gold reserves at a fraction of the gold value now, not a good move by a Chancellor of the Exchequer and subsequent Prime Minister.
However, Quantitative Easing is being introduced, another name for printing money, we desperately need the money in the economy, but doing it individually will be a financial disaster.
The devaluation of a countries currency will make its exports cheap, if they can avoid importing and become almost totally self contained, they could win, but again a big question mark.
Every country that has been seriously damaged by lack of money, could or should work together and collectively print sufficient money and inject it into all their individual economies, it has to be done collectively, not just Europe and the UK, the USA, Japan and any other of our long term trading partners who are suffering.
The collective result to our individual currencies will hardly be noticeable or even negligible, the only ones to suffer will be the likes of China, India, Brazil etc. who have, in some cases, massive trading surpluses with us.
Their currencies may well go up, but to keep trading with us they will have to devalue or accept that our manufacturing, as it is, will start to become competitive, whereas previously we could not compete.
The very serious problem that exists with countries with large trading surpluses is that they are in a strong position to take over our ailing major companies and in many cases move the manufacturing to their own countries, putting an already fragile economy at greater risk, or our major corporations are no longer under our control.
If every affected country borrows more money individually as a country to combat the recession, the amounts needed are beyond the IMF and other sources, the payback period will in all probability be forty years, a massive debt to leave our children and grandchildren, for what reason, a number of business sharks and banks lost billions of theoretical money, a large amount in real terms was vastly over valued, a lot of people skimmed the real money away in off shore accounts for tax avoidance, with no consideration for the damage to their countries real economy.
Or do we go cap in hand to China and all the other Tiger Economies saying please can we borrow our money back to pay our bills, a very dangerous strategy, which leaves all the Western Economies in a very precarious situation with that sort of dependence for forty years plus.
At the end of the second World War, the German economy had nothing and they gave every citizen so many marks to get them and the economy going again, we need to consider this solution now, not individually but collectively with all the other countries worldwide in trouble.
The Germans have been feeding trillions of Euros into the Easy German economy with spectacular success, the East Germans standard of living has gone up dramatically, whilst the West German standards of living have remained static since unification.
Which surely indicates that a collective controlled quantitative easing gets an economy going and austerity will and does create long term limitations in a countries development.
Have the Germans forgotten the massive quantitative easing at the end of the war to get their economy going, surely the theoretical quantitative easing of East Germany by the donations made by West Germany, it may not be printed money, but money donated to an economy with little or no money of value amounts to the same.
The Germans have a terrific work ethic towards their countries common good, which barely exists in many of the Southern Euro Countries, which makes some of them intolerant to their short comings.
The Euro countries are in trouble because of the scramble to get the Euro as a common currency, ignoring basic fiscal controls on countries where taxation avoidance was and is a game played by all.
These countries have to be separated from the Euro, until they totally conform to a common fiscal policy for Euro using companies, many will revert to their old currencies given the opportunity.
The possible solution, which many conventional thinkers will argue as inflationary, but if carried out by all the affected countries, and there are many, need not be inflationary if done collectively is a massive co-ordinated Quantitative Easing, sufficient money has to be distributed to the population to get spending going over the next five years and sufficient money produced to allow the Governments to substantially pay off their national debts.
The sums involved are eye watering, but in terms of money extracted from the system by trading excesses and the fictional over valuing of what is now non existent money and removed money to off shore tax havens, these sums are equally eye watering.
The Government debt for every individual is supposedly approaching £20K, this possibly equates to £50K for every working person and retired person in the UK, excluding their personal debts, credit cards, mortgages, overdrafts etc.
Banks are charging 19% on authorised overdrafts, small businesses are being forced to use credit cards to finance their businesses, if this continues we will have very few developing businesses and more substantial companies will be going bust, banks are hoovering up money at every opportunity with scant regard for their customers.
Government prudence was a correct approach, but with so many external influences and other fragile economies for whatever reason, it needs to step back from conventional thinking.
A possible solution, give every working, genuine UK citizen say £20K, pensioners £20K immediately, the working population £4K per annum for five years, long term unemployed will qualify after having a job for six months, short term unemployed will qualify as working. (The figure now is possibly as high as £30K)
This money can only be spent on UK purchases and investments, it cannot be invested outside the country, though this may be too hard to enforce, also it only applies to genuine UK citizens, any foreign nationals will have to return to their countries of origin to qualify from their own country.
The reason that pensioners should qualify immediately for the whole sum, many are prudent, a substantial amount will go into savings and hopefully get the banks lending sensibly, they may help young people get on the housing ladder etc., but it would give in the main a balanced injection into the economy and make their own remaining years easier, it will also help with retirement home costs, another spiralling issue.
The £4K per annum will help working people and boost the economy immediately.
You might ask why not give tax concessions, tax concessions do put money into the economy, but they take a long time to filter through, we need the circulation of real money, too much has gone out of too many countries economies creating a very fragile bubble that will burst with disastrous consequences.
The Government will provide a similar or suitable sum to write off against their borrowings, there has to be a unilateral agreement with all the other affected countries to take similar action to boost their economies and reduce the government debt, the IMF and the European Bank will have the financial pressure removed from them and sufficient funds to steer any other financial disasters back on track..
The handing of money to working and retired people could be handled very simply by the use of a Government Credit Card, there will be some cases of fraud, but whatever is done there will be abusers.
If we collectively borrow money we create stagnant living standards for years with severe austerity for countries that have a less than a great worth ethic, which many have.
The difference of injecting borrowed money into the economy, is that it becomes a commitment for 40 years and very much at the risk of increasing interest rates, quantitative easing done collectively would be balanced, feeding it to the banks has been a disaster and achieved absolutely nothing, Germany enjoyed and prospered with this method, though their memory lapse would seem convenient.
The Germans lead the Euro community, but if the Euro fails, which it looks to be at serious risk, the German export market and economy will also be at serious risk.
It requires thinking outside the conventional box.
The Tiger Economies may well have to revalue their currencies, the people with offshore accounts could come under IRS scrutiny, should they wish to invest in participating countries.
The alternatives are the Chinese etc. again hoovering up all our major companies, future generations being saddled with massive debts for years, because of trading surpluses and crass stupidity in the financial and property markets, at the moment the UK debt is spiralling almost out of control as the economy falters and more people become unemployed.
The Prime Minister is calling on Europe for drastic measures, we need to correct the problems and then analyse the causes and try and ensure it does not happen again, it will of course, money men have short memories, Ponzi Schemes, Pyramid Selling crop up all too often, call it what you may, it will have another name, but the result will be the same to a greater or lesser degree.
The USA is talking about minting trillion dollar coins to boost the economy, please do it in conjunction with the rest of the struggling economies.
If you agree with these thoughts email a copy to the Prime Minister, Chancellor of the Exchequer or your local MP, whichever country you reside in.
Note:- Since writing this article every country with very few exceptions have been printing money (Quantitative Easing), many denying this fact, the press is now full of this information. It’s a great pity that they did not meet together and agree an international combined strategy, to save all these massive borrowings from many dubious original sources, tying up individual countries debt mountain for many years.
George Osbourne is promising a long period of economic stagnation, for what, to pass massive debts on to our children’s, children because some banking spivs blew a hole through the financial system.
Think about it logically, who is loaning the money, possibly the key players who robbed the system with their banking colleagues.