Malcolm Blair-Robinson's Blog, page 76

Interest Rates: This Farce Must End

Interest rates are the tiller of an economy. They steer the course set by the democratic government tasked with guiding the national financial well being. The helm was handed to the Bank of England twenty years ago. For a while it steered a steady course with rises and falls according to need, guided only by the beacon of the inflation rate. The fact that there is a lot more to charting the right course than  the inflation rate was overlooked by the Brown led Treasury and the Blair led government. So when the credit crunch came the economy hit the rocks. It is still bumping about in the shallows at growth rates previously thought of as flat lining.

The Bank of England offers a constant narrative of pending or deferred decisions to raise rates, but it never happens. It has not happened for so long that there is no certainty what will happen if the tiller once more is brought into action. Will the mechanism fail and the ship drift to disaster? Will households and businesses face ruin because they have no margin for higher payments? Nobody knows. Least of all the procrastinating Bank.

This is how the system is supposed to work. Interest rates rise to choke off inflation pressures and especially asset inflation. The return on savings and investment for wealth creation increases. The productive economy starts to grow creating new wealth, while the asset inflating economy shrinks. Stirling rises potentially sucking in imports. This is offset printing more of it, not for use by markets, but to fund an economic reboot of the productive workforce. A combination of printing and interest rates creates enough money supply to oil the economy, while at the same time positioning sterling’s value within a market trading profile which discourages asset inflation and boosts wealth creation, i.e. a real boost to GDP. That increases the tax flow to the Treasury, reducing the deficit and providing for properly funded public services. That increases popular spending power, which further grows the economy.

It is not that difficult. But the decisions are political. That is why they should never have been given to the Bank of England to make. And why now they must be taken back to government, whatever shape of Brexit, or even if Exit Brexit.

Boris: What’s His Game?

In a word mischief. He still imagines that he can somehow wind up leader of the Tory party and Prime Minister. Had he kept out of May’s cabinet he might very well have done so. But he took on the job of Foreign Secretary and blew whatever reputation he had, depending on your perspective of the great political showman.

He has been a disaster at the foreign office. Most of the time he is clueless and talks in slogans. Several times he has dissolved under forensic questioning by tough political commentators. He is distrusted in Washington, Paris and Berlin. The Americans consider him a clown and a liar, the French ignore him and the behind the scenes German opinion of him is best left unsaid here. British influence on the world stage has perhaps never been lower; only in Libya, which has several governments, did he make an impact with one.

So to boost his credentials he has once again pedalled the proven falsehood that leaving the EU will free up £350 million per week to go straight into the NHS. Either he is even worse than we thought at paying attention to detail and reading briefing papers, or he knows very well this is untrue. Some angry Tories have demanded May sack him. She does not need to. He is self-destructing.

Kim Jon Un: Game and Set: Match Too?

North Korea’s declaration that it only wants military equilibrium with the USA and a peace treaty with the South, so as to guarantee the survival of their country, is a game changer from the blood curdling threats of annihilation of American cities of recent times. Already there are signs that both Russia and China, while very much opposed to the notion of a nuclear armed neighbour, now see the US as both the cause of NK’s nuclear programme and the responsible party in finding a solution. Sanctions are clearly a waste of everybody’s time and only talking will now resolve the issue.

There is no military solution short of nuking North Korea with such a cascade of warheads that it would be unable to respond at all. The fallout would make much of the Korean peninsular uninhabitable for decades. It would also cast a pall of shame over the United States from which it would be unlikely ever to recover. Gone would be the notion of world leadership. Every American would be scarred. The alternative of targeting conventional strikes at NK nuclear facilities would result in such an onslaught on South Korea that hundreds of thousands, even millions, of casualties would be suffered even if the whole thing were over in a day.

There was a time when America could have brought North Korea to it senses and had it not been the author of its calamitous programme of regime change and never ending wars it might have succeeded. But sadly, while the blunt force of the Cold War confrontation was played with extraordinary restraint and skill, the subtle diplomacy and military pressures demanded of the post 9/11 era has proved beyond US political structures to deliver. This is a pity and the whole world will pay a price. One part of that may end up as learning to live with a nuclear armed North Korea. That would indeed be game set and match for Kim Jon Un.

However there is an odd coincidence that may yet hold the key. If Kim Jon Un is hard to read, Donald Trump, the first citizen president of the United States, the non-politician who does things his way, is even harder. The mixed messages coming from the White House, often out of step with  either the State Department, or the Pentagon or both, or even its own view the day before, has proved  confusing to its enemies and perplexing to its friends. But the North Korean crisis provides a golden opportunity for Trump the deal maker to fix an historic settlement with the young and much underestimated leader in Pyongyang. They both have much to gain. And if they fail, everything to lose.

May’s Florence Speech: A Game Changer?

There is a lot of trailing for the scheduled speech from Theresa May in Florence next week. She is planning to say things about Brexit and the stalled negotiations which, so it is said, will change the game. Well perhaps, but since the contents are not yet agreed either with May or the Brexiteers in her Cabinet, it is a little early to comment. What we can say is this event is necessary because the Lancaster House speech, delivered with such drama and sycophantic acclaim, is now dead. It is dead because the aspirations were a pipe dream which bore no relation to what was practical in terms of getting the EU to agree and dead because the threats to walk away from negotiations if we did not get our way were economically suicidal and politically impossible.

So now we await Florence. Supposedly it will contain proposals which will be anathema to hard-core Brexiteers, but will be acceptable to France and the Benelux countries, shattering the unity of the twenty-seven and opening up a gap through which triumphant Theresa will charge. Unfortunately this sickly scenario, laced with a thick layers of wishful thinking and reality denial, accepts that Germany will not approve. And that is where it all begins and ends. If Germany says no, even if the other twenty-six say yes, no it will be.

For the hard facts are these. Brexit offers our economic future as a hostage to fortune. But it cements in Germany’s grip absolute political and economic power in Europe unknown since its victorious hegemony of 1940.

Rohingya Agony: Aung Suu Kyi?

A question mark now hangs over the revered leader of the democratic segment of Myanmar’s government. Once lauded worldwide, her lack of condemnation of the military cleansing operation, driving hundreds of thousands of Rohingyas to flee into Bangladesh, has caused shock across the world and brought down upon her serious questions about how good a person she actually is. I have never admired her on anything like the scale of most. I cannot explain it, but I saw something about her that worried me. It may have had to do with her abandonment of her children in favour of her political ambitions. It may have been because instinctively I just did not trust her.

So this Blog does not see a fallen idol. It sees a ruthless politician who, having struck a deal with a military dictatorship which gives her power of sorts, but no authority over the military and its grip upon a good deal of the normal functions of government, has no option but to mutter unconvincingly about ‘terrorists’ and stay away from the annual meeting of the UN. If she were to say the kind of stuff expected of a Nobel laureate, the Buddhist majority of her country would rise up in protest and the military would seize upon the opportunity to slap her back into house arrest, and go back to its old ways.

There are no saints in politics. Only politicians. And as we know, one businessman. But he is quite another story.

Economic Problems Remain Unsolved

So great is the preoccupation with the almost hopeless muddle which Brexit has become, with its scale and complexity far beyond the comprehension of its promoters, that other potentially more threatening economic problems are going on unheeded. The daily diet of bad news, today it is a rise in homelessness, has become the accepted norm, like a burger junkie en route to a health crisis with each bite and every meal.

For the plain fact is that our economy is a mess. It will become a worse mess because of Brexit, but even if nobody ever thought of Brexit, it would still be a mess. The government is trapped in austerity without enough income from an over complicated tax code to meet its obligations, giving us such diverse symptoms as a rise in homelessness and vast new aircraft carriers without any planes or enough escorts to protect them on a hostile sea.

The reason is productivity is far too low because the economy survives on asset inflation rather than wealth creation. Simply put our GDP is about 20% smaller than it should be. Government policy, such as subsidising excessive rents charged by private landlords with public cash, make matters worse, as do schemes which make unaffordable homes affordable through public subsidy.

Add to that a vast industry of private corporations running public services making a profit at taxpayer’s expense, plus the seeming inability of the Bank of England to restore interest rates to their rightful place as a quick response tool of economic management and you have a toxic mix leading to a circular decline in the standards and prospects of the many, in favour of the gluttonous enrichment of the few. You arrive at a point where correction becomes impossible and only collapse and a reboot can effect positive change.

We are not there yet, but we are very close. There are now prospects of serious disruption from strikes across the public sector and a renewed banking crisis if Brexit turns nasty. What is needed is a programme of huge government led investment in housing, infrastructure renewal, home production of manufactures and food, re-configuring of the currency so that it puts the UK on the leading edge of competitive world trade, and the restoration of the levers of economic control to democratic institutions. Dynamic Quantitative Easing will have to be used to fire up the base of the economy at least to the magnitude QE was used to stabilize the financial sector.

Do not hold your breath. No political party has the measure of all of this. Labour is nearest, but what the hour demands is a political revolution which changes the economic map at least on the scale of 1945 or 1979.

Pay Cap: It Is Over Now

The government had a late night and will be breathing a bleary eyed sigh of relief today after it managed to drive the second reading of its withdrawal bill through the Commons. It may prove a false dawn because many of its own backbenchers  are determined to curb the executive powers built in to this badly drafted piece of legislation and will do so during the committee stages, supported by all the opposition parties.

But while all eyes are on the Brexit drama many other problems are building up, among them the collapse of the consensus which has held together the 1% pay cap on public sector incomes. Today it was announced that the police and prison officers are to receive marginally better treatment. That is good news but with a further rise in the rate of inflation also announced today, it is going to become politically impossible to continue with a ridiculous policy for so long.

Like austerity, pay curbs and freezes are all well and good for short periods of crisis, but they cannot become the norm. They hit hardest those least able to bear the burden, yet upon whom society utterly depends. We could manage without footballers if we had to, but not without nurses, teachers and other critical public servants. Moreover if their incomes continuously lose purchasing power, the economy suffers and productivity falls.

Time for a re-think at the Treasury. Thinking has never been that institution’s strongest point. But it is never too late to change.

 

 

 

 

 

 

 

 

 

The Repeal Bill

The government has issued a warning to MPs not to vote against the Repeal Bill, because that would lead to a chaotic Brexit and people did not vote for that. This is a ridiculous argument.

First of all people did not vote for anything like the reality of what Brexit is and means. They voted for leaving a club they were tired of because it was the source of unwanted immigration and if we left there would be loads of money to spend on the NHS. People would actually be better off and a new dawn of some mythical global Britain would lead to golden times. Many of the leading pedlars of this drivel are now ministers in a cabinet split on almost everything but its own survival at any price.

That price does not and must not include handing executive power to the government to amend, jettison or revise what will become current law after Brexit, without proper parliamentary scrutiny.   That is all. It would not have been difficult to draft this Bill to provide for parliamentary oversight and it was an error of judgement, one of many, not to do so. Opposition parties are right to oppose it. If it scrapes through on the back of the DUP’s votes bought at great cost and without scruple, it must be subject to the most vigorous programme of amendment as it struggles forward to the Statute Book.

 

May and the Hurricane Crisis: Late Again

The historical links of the Caribbean result in several  nations having ties with the islands, providing a ready source of aid in the current devastation caused by Irma. France and Holland assembled assets and personnel on the islands falling within their jurisdiction in advance of the storm, knowing full well the severity of the forecast.

But not the British. Oh dear me no. The government was far too busy arguing internally about Brexit to worry about external threats to British dependencies from hurricanes. So we were on familiar ground when a clip of a flustered May appeared on the news telling us that the government had acted swiftly to respond to the devastation when everybody knows this is plainly not the case. Moreover the tardy performance of HMG compares very badly to the timely action of the French and the Dutch.

We have been here before in the dreadful aftermath of Grenfell Tower. It underscores a fundamental lack of judgement and a chronic incompetence which infests May’s administration. The only thing we can be sure of is that there will be more of it. The excuse circulating that it is necessary to wait until the islands are flattened in order to assess what is needed is plainly ridiculous. The answer, as the authorities very well know and prepare for, is everything. It is the people giving the orders at the top who need shaming.

Brexit Troubles Build: A Tory Threat

The government has a lot more challenges to contend with than who actually leads it. The Brexit negotiations are clearly not going well. There was a fundamental misunderstanding in the Leave camp about the way Europeans think and act and what their response would be. So when the EU negotiators step forward with an agreed strategy built into an agenda set down by the EU Council, supported by nine detailed and specific position papers, the Brexit Ministry, the Overseas Trade department and the Foreign Office were completely unprepared, not least because the government itself has no agreement within it about the objectives, beyond the mantra of carrying out the will of the people. But the will to do what?

The answer is obviously to leave the EU. But you cannot leave something which is part of you any more than you can leave your right leg. Britain has been part of the structure and its laws have been part of the legal code of the EU since its formation as the successor to the Common Market. So the process to be followed is to disentangle yourself from yourself. This is proving much more complicated than expected. Every time this hapless government steps forward with a plan there are howls of derision not just from the EU, or from Remain forces in Westminster, but also from almost every trade, academic, medical, scientific, industrial educational, professional and worker focused institution or pressure group.

Because this project will in the short, medium and perhaps even the long term, seriously damage the economic and social interests of our country at almost every level and at every turn. Like a gathering storm the currents of discontent, anger and impatience are beginning to stir. Mostly at the moment they are at the level of options. but soon they will rise up as hard consequences and brutal facts.  Then a new political verity will prevail. Brexit will be toxic and whichever political combination owns it will be doomed. The smart move for the Tories would be to ditch the troublesome DUP, face a vote of No Confidence and go down fighting. They would have lost the battle but could survive to win  the war. If they carry on clinging to office with the DUP, they look set to lose both.