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The New Capitalism

Robert Peston | 22:00 UK time, Monday, 8 December 2008

The contraction of the world's developed economies that we're witnessing represents the end of an era. Taxpayers have been forced to support the banking system and the real economy on a scale we've never seen before.

For many years to come, what's happening will affect the relationship between business and government, between taxpayers and the private sector, between employers and employees, between investors and companies.

A new capitalism will emerge from the rubble.

Please click here [pdf] for my thoughts on how we got into this mess and what the re-made economy will look like.

UPDATE 06:41AM, 9 Dec: As edwddprice noted, the £9bn on page 6 was a typo. It should have read £9trn or £9000bn. It has now been fixed in the pdf.

UPDATE 10:18, 3 Jan: There's another typo on page 2 of the pdf. The word "current" should have been "currency" (goodness knows how I failed to spot that). So the correct phrase should be "the gross foreign currency liabilities of our banks".

Comments

Page 1 of 6

  • Comment number 1.

    Still no mention of derivatives?

    You could have hidden that in the pdf...

  • Comment number 2.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 3.

    I assume the 9bn on page 6 is a typo otherwise an interesting piece.

  • Comment number 4.

    China is also in a bind. If it asks for its borrowed money back it just damages the economies it hopes to keep selling into. Without checking the figures it is unlikely that taxation in China is as high as in the West as there is virtually no welfare provision, so individual savings are likely to be higher as they are in part pension provision. The fact saving rates are higher in China is not a like for like comparison. It is not clear what the impact will be on China, or India, due to this mess but it could be considerable and very negative.

    The desire to prop up large inflexible companies who cannot produce goods that consumers want and who indulge in oversupply is a problem. It may be expedient for a government(s) that wants to avoid immediate rises in unemployment but it could be very detrimental downstream. There is a difference between loaning money to a bank to stop a confidence collapse with the prospect of short term repayment and propping up a business which makes products it cannot sell and which is probably in longterm decline. Part of the climate issue is related to overconsumption and built-in obsolecence, something which is beloved by many of the large businesses which are likely to be in trouble. Therefore simply preserving them in their current form has other implications also.

  • Comment number 5.

    Robert,

    Very well written piece - would have liked to have seen something about the other derivatives and the CDS bubble. I think it is too simplistic to blame sub-prime mortgage holders who only hold a tiny proportion of the toxic rubbish that sits waiting to crush us.

  • Comment number 6.

    New Capitalism? I think not!

    What we are living through is a return to value, and the world of values that Captain Mainwaring would recognise.

    First came the undermining of the system of values, then of value itself.

    The rot started with Thatcher with all that talk of deregulation and BIG BANGS in the City. At the same time she destroyed the industrial base of this country.

    What Thatcher started Blair/Brown finished.

    Now that the Thatcher/Blair model of "New Capitalism" is dead,
    WHERE TO NOW FOR THE UK ECONOMY?

  • Comment number 7.

    Came in the bank with a tank, fired a blank
    But I didn't take nothing (Thanks!)
    My pockets got a shortage
    Everything I wanna buy I can't afford it

  • Comment number 8.

    WHATS that you say??

    There'll be a formal recession in most developed economies, and the economic contraction is highly likely to be more
    severe in the UK than almost anywhere else.



    I think youll find Mr Brown does not agree Sir.

    Funny that Eh?






  • Comment number 9.

    Oh dear. Someone has been reading our comments.

    Credit deflation and why the inflationary solution will not work. Thank you for the admission.

    See you on the other side of the singularity.

  • Comment number 10.

    I hope people watched "The Ascent of Money" tonight..

    Perhaps we will realise the effects of a bloated and desperate big (and truly global) welfarist system, based on fiat money, coming to the end of existence... inflation, printing of money (or "Fiscal easing")..

    The only solutions are to take the medicine, and cut government spending massively..

    Lord Mandy calls it "Smart" government, but it is just desperate spin.. and we are doomed to a decade of stagflation as a result.

  • Comment number 11.

    Robert - you suggest that the taxpayers are likely to have to bail out the banks again in the near future. This in order to maintain lending to companies.
    If the millions that you predict hit the dole queues then that burden will fall upon less taxpayers who in turn will tighten whatever tey have left to tighten.
    In other words the slide downhill will be accelerated into possibly the full blown depression that we all fear.
    Surely the key has to be to prevent companies laying off staff, in order to maintain tax revenues, by spending in far bigger style that so far has been the case, on infrastructure and solid assets and to restrict financial assistance to those companies maintaining or creating employment. The conservatives had that part right at least.

  • Comment number 12.

    It is easier for a camel to squeeze through the eye of a needle than for a rich person to get into the kingdom of God.

    And it is easier to get sent to jail than it is to get out, (unless you have a Get Out of Jail Free card)

  • Comment number 13.

    Robert,

    Basically OK but a bit optimistic I feel,

  • Comment number 14.

    Robert

    I have read your pdf.

    I am curious what you see as 'recovery'.

    I do not believe that 'recovery' can be defined in returning to the bubble economies of the last decade, then what will 'recovery' be?

    My thesis is that 'recovery' will be when borrowers pay a reasonable price for their loans and savers and investors get a reasonable fair return for their investment.

    It is really quite important to define what is defined by 'recovery' for otherwise we will not know how to achieve it nor will we know when it has been achieved.

    The Bank of England's near absolute silence on the matter I find most disturbing, but absolutely typical!

  • Comment number 15.

    Reading that reminds me of when I was at Napier University in Edinburgh in 1993. We had a talk from a banker (Bank of Scotland) explaining how we (the public) would become holden to the bankers. I never could reconcile how it would be sustained and for a while of course we were captured by our love of debt. However, it appears that a decade or so the table has turned.

  • Comment number 16.

    Robert, i agree with the majority of your article. However, I believe that the retreat to fortress positions is the only way that we in Europe can survive the coming catastrophe.

    If during 2009 we reach a 3 million plus unemployment rate then we will see an equivalent rise in the "can't pay -won't pay" households. That will be far more than the banks, building societies and credit card companies could stand. The economy, or what remains of it will be destroyed. The situation may appear worse in the UK but the same ramifications will hold true across Europe. Therefore if we are to avoid social and economic meltdown then we have to combine our efforts with our EU partners and pull up the drawbridge.

    yes we will have to default on our debts. But if we do that on a Eurpean basis, the rest of the world will come to terms with it. If we try and do the same thing as the UK we will get slaughtered.

    So the Middle East and China hold loads of our paper. But what good is that to them? it does not sell one more tv or another barrel of oil. To maintain their own existances they will deal. But they will only deal with entities that have future strength - and that is Europe.

    If you don't think that isolationism is not already staring to look attractive to the US then you are deluding yourself. Their bottom line will be that they can clothe, feed and defend themselves. Alone the UK cannot do that. But we do have this capacity as the EU.

    You argue that a new capitalism will emerge and I agree. But let it be a European cooperative one.

  • Comment number 17.

    Surely the Global GDP is more than £36 Billion. Do you not mean £9 Trillion is a quarter of global GDP.

  • Comment number 18.

    The New Capitalism is an excellent start to what should be a continuously developing subject. More on the governance of UK financial institutions eg Bank, FSA and HMT would be good. Something wrong with world GDP figures. Please check.

  • Comment number 19.

    The problem... Fundamentally, our monetary system... Fractional Reserve Banking... Without debt there is no money. The more loans there are the more money there is.

    To understand why we need reform there are various links here:
    http://moneyredeemer.webs.com/links.html

    And to petition for reform:
    http://petitions.number10.gov.uk/frb-reform/


    --- "There were twin connected bubbles in assets
    and credit."

    Yuhuh... Read Rothbard, Mises etc.

    --- "A couple of questions follow. Who's to blame?"

    Well... Who profits most when lending? The lenders. 30% profits as long as the Ponzi pyramid continues growing.

    But you know what? That Fractional Reserve Banking system is still there and the banks are being bailed out to the tune of hundreds of billions. Who's to blame for that? Who is to blame for not removing the people who continue to allow it to operate? For not replacing it with a better more equitable monetary system.

    Well? ... Who elect our leaders?

  • Comment number 20.

    you don't have a global computer system to keep track of the global economic system, just a bunch of banks brokers, agents, counterparties, intermediaries etc sending each other messages trading and settling.
    But then trades volumes grew and grew and grew

  • Comment number 21.

    I will raise a glass to you this Christmas, Robert, you surprised me with your honesty today. Do mention next time though, that not all taxpayer funding will be repaid. The government has chosen to pick winners and losers and this will not be without cost.

  • Comment number 22.

    I hope I'm right in saying that 4 of the last 5 recessions followed a heavy spike in oil prices. Until the origins of the recent spike are assessed, and its consequent impacts considered, any forward planning is frivolous.

    The spike to $147/bbl was entirely exceptional - not only in its scale, but also in its somewhat obscure origins.

    Very senior knowledgeable people wrote of the inability of crude oil supply to keep pace with demand after 2005,
    leading to an increasingly"tight" market
    (that is one lacking a cushion of a rolling surplus capacity to offset sudden outages by weather impacts, strife, accidents, etc., which led in turn to escalating prices.

    An officiously cheerful lobby derides these observations, claiming that the entire spike was merely an artifice of speculators.

    Given that the spike was unprecedented, it seems worth asking why, if speculation caused that spike,
    it had never achieved any such thing in the past ?

    If it was actually caused by society reaching practical limits to increasing global oil supply, (due to both geology & politics) then our route out of economic recession is uncharted.
    Once general demand started to pick up globally, and oil demand, and prices, once again rise, we'd again meet those limits on supply, and see a new price spike choking off the recovery.

    In fact, with the oil price crash, oil field development is being slashed, meaning that we'll have less new capacity coming on stream to offset old fields' depeletion - i.e. the supply limits are tightening.

    The sole route out of this awful decline, is simply to end our ruinous dependence on liquid fossil fuels.

    So when will the BBC find the courage, as a public service corporation, to inform the public of these prospects ?

    Regards,

    LewisC





  • Comment number 23.

    Very interesting piece of work.

    I write a monthly column on energy issues (technology, economics, biz devt and other stuff) for a well know Scottish publication and about two years ago I had a real go at the private equity industry for its abject failure to create anything new. The number of start-ups and spin-outs in this sector whether in so called renewables or conventional energy is pathetically low and of course now is almost non existent unless VC cash can be pulled in from overseas.

    I was harangued by the PE boys up here but I knew darn well I was right... Now of course we all know that those of us who took this stance were absolutely right.. In fact, we probably understated the damage these companies were actually doing whilst - we must remember - Crash Gordon looked on in admiration !

    Good on you Robert..

  • Comment number 24.

    Sounds like a suicide note.
    Unfortunately I thinks it's a pretty accurate assessment.

  • Comment number 25.

    Your future plan sounds a bit like decorating a house before it gets repossessed.. you may as well have one big final party, last one out locks the door

  • Comment number 26.

    looks like rain dear

    never mind luv

    draw the curtains

    poke the fire

    and tommorrow we'll book two weeks in spain for july

    it'll all be sorted by then

    alistar sez:


    time for 60,000,000 heads to be put right me thinks,

    who's going to do that then?

  • Comment number 27.

    #2 gracethecollie wrote: "you are a liar"

    He all but admits we are about to enter a depression and the certainties you had are gone. What is dishonest about that?

  • Comment number 28.

    Is there no limit to the brilliance of Robert Peston's analysis of this historic economic catastrophe?

  • Comment number 29.

    Your solution - a global institution to monitor risks etc. Sounds a lot like the IMF.

    Many will remember the number of times the IMF warned the government of the risks in the UK housing market and debt levels and many will remember the government ignoring them and claiming to have rid us of boom and bust.

    Strikes me, if we are going to build a globalisation watchdog, it has to have teeth of some sort, some sort of guarantee that politicians will listen and act when they are warned. Maybe the media should have done this but they didn't (too busy chasing stroies about the latest non-entity to have become famous the day before). The political opposition should have done it but I don't blame them because the public at large would simply have ignored them and accused them of being cassandras.

    Something that also occurs to me is that it is not possible that bankers etc. didn't realise betting on the American housing market was not a one way bet. A cursory glance at history or a basic knowledge of economics would have told you that eventually it was going to go wrong.

    I believe that bankers and regulators knew a retrenchment was on the way but asssumed the recession would be 'normal' in size and scope and after a few years, they could start all over again.

  • Comment number 30.

    How about writing about the New Capitalism if your going to upload a 6 page pdf entitled as such? I'd love to hear your ideas on a new national/international world order...or is some original thought and conjecture too much effort compared to critiquing past events?

  • Comment number 31.


    Your thoughts are very instructive Robert but I haven't quite been able to see what your New Capitalism is going to look like, Socialist bureaucracy looks probable to me.

    'When it's gone - it's gone!'

    The next tasks are to get accustomed to our poverty, share the pain in an acceptable way, and learn to make an honest living in world markets to pay for the essentials.

  • Comment number 32.

    Please can we have crass, half-witted slanderous statements like "You are a liar" witheld from the comments section. Totally unsubstantiated insults infect the reader, if only temporarily with the turgid state of mind of the contributer.
    Why does decency continuously have to be thrown on the sacrificial alter of 'freedom of speech'? You censure Jonathan Ross for using offensive language, cant you at least censor this oaf.

  • Comment number 33.

    “small companies, …the unsung heroes of our tale of monumental financial folly: even today, the aggregated savings of small companies exceed their debt” .

    New small companies create employment and significant tax revenue. They will now be even more reliant on equity finance as bank lending to start-ups will be negligible.

    Unfortunately the sector was recently betrayed by the UK Government which after promising the tax break for almost 10 years withdrew the world class incentive of a long term 10% CGT rate to punish private equity abuse of taper relief, an unrelated issue.

    Investment incentives need to be restored, urgently, to maximise investment in small companies. Long term this will be of more benefit than bailing out large "dinosaur" companies

  • Comment number 34.

    It's interesting that the recent USNIC report on Global Trends to 2025 highlighted the possibility of many developing states viewing the "China" model of greater state controls operating within a "free" market economy as more attractive than the models we have been operating here in the West.
    Looks like we may be heading that way ourselves and when viewed from the perspectives of climate change, risk management and global wealth distribution it may not be a bad thing.

  • Comment number 35.

    sometimes I think you have much clearer understanding of the problems and issues then the people put in charge of dealing with them.

    However now that we know the problem and what caused it, what is the solution? Most commentators are lamenting the problem possibly too long. But smart brains like yours should now be suggesting possible solutions - however drastic they sound.

  • Comment number 36.

    Great article as usual, Robert. I do wish, however, that you would not say that we are all to blame for this situation. I do not see how I am to blame in any way. Like many other ordinary people, I've played by the rules, worked hard all my life, haven't taken on any debts that I could not repay, and now I find that my tax contributions and savings are being depleted to prop up and pay for other people's irresponsibilities. I for one, will certainly be looking forward to a new, more responsible, citizen-orientated form of capitalism.

  • Comment number 37.

    I think BBC is not a commercial media? Would not be appealled by the TV advertisement money?

  • Comment number 38.

    "Households borrowed too much. Businesses borrowed too much."

    Where's the mention of "Government borrowed too much"?

  • Comment number 39.

    Your views on the new capitalism are interesting, but of course regardless of the commodity type our exports are another countries imports, just as their exports are our imports. It is clear now therefore that every country depends on all of the other nations of the world in some way or another.

    The problem will not go away, all countries now recognise that the system must be audited by honest responsible people who have the knowledge to complete that audit. Why? Because we now understand that the word honest has a different meaning to many people, and many people do not even know what the word means.

    Perhaps we should start world wide with a course in definitions? The main problem arose because financial institutions packaged so called rubbish and sold it on as something other than that which they represented it to be. Once trust disappears so does everything else.

  • Comment number 40.

    The pdf was an interesting read. I was wondering: one of the areas of debt that will have increased massively in recent years will be that of student debt, e.g. I have a student loan that is approx. £16,000. It's still increasing as I am now doing a PhD, so am not earning enough to begin paying it off. Since the interest on student loans is linked to the value of the pound, is there the possibility that inflation could ruin me?

    (Don't worry, I'm not losing any sleep over it, but I thought it was a worthy question!)

    Also, buried in the small print of the new (as in post top-up fees) student loan system, is that if after 25 years of employment you haven't paid off your student loan, the balance is wiped. Isn't this just another big funding gap, especially if the prospect of increased unemployment becomes a reality?

  • Comment number 41.

    Good summary.

    I would like to see you come down harder on Globilisation. In my mind it is bad for jobs and for the countries the global corporations sometimes control (with none of the responsibilities of government). Global corporations seem to be good only for a handful of already wealthy individuals and a nightmare for everyone else.

    There is a film called "The Corporation" which explains some of the problems.

  • Comment number 42.

    Many recent articles (yours and others) mention debt levels. What about the asset/wealth base of Western economies.

    A short google uncovered this: http://news.bbc.co.uk/1/hi/business/7018253.stm which reads as farcical now, showing how dramatically net UK personal wealth had grown thanks to rising house prices. Are there any good current estimates of the wealth base, for comparison against debts.

    How far are we from collective negative equity, or, how much further would house prices need to fall for us to get there.

  • Comment number 43.

    Dear Robert,

    You said that the Government will either devalue the currency or presumably increase interest rates. But you didn't make a call one way or the other. Could you at least make an educated guess. Much Obliged, Michael.

  • Comment number 44.

    This article is fine as far as it goes but there are a few more points. What we have seen in the last decade or two has been a very large reduction in production costs as manufacturing has moved east which has created high levels of profit. This has created the problem that in order to sell what has been made a proportion of these profits has had to be lent to western consumers to fund their purchases. Part of this has obviously gone into asset investment but a proportion has had the effect of supporting consumer prices. This is a virtuous circle from the point of view of profit maximisation of course. Exporting profits as well as goods to the west has the effect of stimulating demand resulting in both a higher volume and higher prices than would otherwise be achieved. This process has ground to a halt and we are at the beginning of a deflation of consumer prices as well as asset prices the extent of which is difficult to gauge. Prices of comuter screens have apparently collapsed by 50% in China in a few months and it is hard to see how western governments are going to be able to isolate their countries from this process.

  • Comment number 45.

    Debt, like addictions and corruption, takes two to tango. There are pushers and takers.
    Politicians and financial insitutions always blame the victims for the causes and emphasize the victims' action. It is a cloak, a calculated spin, and a very cynical shift of most of responsibilities to those with the smallest influcences, least able to defend itself, and, in mortgages, no alternative to borrow less.

    Yes, collectively we borrowed too much and we have been lend too much. Small businesses may look like the unsung heros but it is proably because lenders are much tougher and prudent when lending to small businesses.

    But hidden from most of us, who are pushing credit to retail banks and trapping them with debts to pass on to us?

    Nick Mathiason, business correspondent of The Guardian, reported on 6th Decemeber that pope Benedict attacks tax havens for robbing poor and contriuting to international financial crisis. The Pope points to estimate that the global fiscal deficit caused by offshore activities cold amount to US$255bn.

    Ther amount coudl be many $trillions with the power of compounding over the years.

    Responsibilities must be proportional to rewards and power. And now, we must adjust the rewards and power of those who are not able or willing to take those responsibilities which have been used as excuses and false justifications for making fortunes and grabbing powers.

  • Comment number 46.

    A very good summary!

    As Robert notes, the short term decision for the government is do they want the 1930s or the 1970s?

    Or to put it another way, shaft mortgage-payers with deflation or shaft their retiring parents with inflation.

    My guess is that they will opt for the 70s, but either way there will be a lot of worried and angry people in the next 10 years.

    The long term decision for the government is how to build a society with reducing dependence on oil.

    Not easy.

  • Comment number 47.

    Robert, I am confused. I was under the impression that China's huge economic expansion over the last 10-15 years came as the result of an export orientated manufacturing base relying on free access to US and European markets (rather like the original post war Japanese model)

    If there wasn't a massive trade imbalance, how would they have been able to achieve the massive growth that has increased their living standards so much?

    If you don't think it is zero sum game, what exactly were we supposed to have been selling back to them?

    To turn your argument around, we have massively indebted ourselves simply to provide the engine for China's economic growth. We have given them the leg up, not the other way around.

    The chinese eventually spotted (a good 30+ years after Japan) that the western achilles heel is its near religious belief in free trade, unregulated markets etc etc. The chinese are pretty good at strategy when they get around to it.

  • Comment number 48.

    #10 I too watched The Ascent of Money.

    Nothing is worse than intelligent people deliberately distorting the truth. Ferguson is supposed to be a Historian, but did a hatchet job on Allende, and a whitewash on Pinochet. His playing down and apology for murder and torture was disgusting. If it had ever happened to anyone in his family, he might not have been so blase.

    Much of the rest of the programme was flawed too, or just wrong. Certainly, the "welfare state" was not the sole ore even the main cause of Chile's problems. Friedmanite economics was just a fig-leaf used to justify the repression of the poor in what was a race and class conflict, aggravated by much meddling from the outside, especially by the CIA. Something similar may be brewing now in Bolivia. The divisions and hatreds in these societies go back to the conquistadors.

    Some of Ferguson's more general points may well have been partly valid, but his highly selective presentation of alleged facts means that I wouldn't trust any of his analyses even if I agreed with the conclusions.

  • Comment number 49.

    Robert

    A very good analysis. How on earth the government sorts out the public sector is beyond me.

    Most folk I have come across in the public sector live in a different universe. They expect to sail on with minimal job losses and fancy pay rises. [nothing personal but compare BBC with ITV]

    The other big problem for Government is the currency. The Pound is sinking slowly but surely. Will it still be worth more than a Euro by Christmas? No one is focussing on the old problem - balance of payments. We have to stop spending and start saving otherwise the Pound will continue to do a Titanic.

    I suspect if we were to attempt to join the Euro the ECB would tell us to sort out the public finances,

    So we have three choices -
    1) fix our finances ourselves
    2) get Brussels to fix them for us
    3) get the Chinese to tell us what to do (good idea re the Olympics!)

    Of course the British Empire Loyalists will continue to bury their heads in the sand. As for foreign adventurism in the Middle East we should forget it. Playing at big power politics is way beyond our budget. Indeed we can't even keep the runway at Stansted clear.

  • Comment number 50.

    Yes, yes, Robert, you and your Common Purpose bots are slavering at the prospect of the New World Order that your leader Brown has been promising for years, fingers steepled to show he means it.

    Tough luck for you, old chap: Brown is a busted flush, and you don't yet have enough initiates on the ground to steal an election. Come 2010, you're out of here.

  • Comment number 51.

    i wanna know what plans hes makin

  • Comment number 52.

    Time for a change.
    Why have none of the Banks boards not been charged with fraud; for despite the dangers posed by the US mortgages and other financial things being reported up to 2 years previously on the BBC and Channel Four all of the board failed to mention their exposure to these things at share holders meetings or in company reports. Presumably, because they wanted to get their bonuses. Not knowing about them is no excuse as they have a duty to know.
    I actually think that their greed and mismanagement is on such a scale that it has potentially put the realm at risk, that’s treason. I further believe that as a consequence they must all be barred from holding board positions and that all their assets including pensions must be seized, this will amount to over 200m and could be used for much better use else where in the community.

    I think it’s about the right time at this stage of development of society that company rules where change so that the enrichment of the share holders is no longer the prime concern of the board. I would suggest that helping society at large / the environment should be the first duty (i.e. make certain that their actions or inactions did not result in direct or indirect hardship to persons or damage to the environment). Secondly; that the welfare, fair remuneration and training of the employees must be made a statuary duty, including paid sick leave. That directory remuneration should be capped at some multiple of employee’s salary below management level and that the boards should be pacifically band from paying themselves share options, they can buy them the same as any other employee or profit sharing. Then the share holder, increase in share value, capital appreciation, must be considered as equating to a dividend. Paying back dept must take priority over any dividend paid as must the two duties above.

    Politicians says they want a farer society, I sceptically await.

  • Comment number 53.

    You see? We warned you all along this market economy idea was going to end in tears.

    Now you're ending up nationalising the lot AND having enough debt to make your head spin.

    Reap what you sow, capitalism. Unfortunately it will take me down with you. Damn.


    A. Socialist

  • Comment number 54.

    Thank you very much for the clarity with which you explain economic facts to all of us.

    One of your conclusions is that common decency is what perhaps should result.

    Antisocial behaviour as supposed to cooperative behaviour is the core problem in time memorial.

    What we lack is the courage to pin it down in good time and fight it. If I may be bold Robert, I would like to challenge you and indeed your collegues to draw attention to role models that we need to compare ourselves, to adapt ourselves, theory alone will not do.

    And if there is one unhelpful word that you have written here it is the word "new". It is a very persuasive word, but a very dangerous word and it is a politician's word. Striving into the new, the unknown, leads us again into making mistakes, the same unnecessary mistakes.

    What we may need from wordsmiths like yourselves are words, a new word for "printing money" for instance. Since this is what we have been experiencing, the printing of money in different ways. Then you must, as a journalist "point your pencil" at the printer of the stuff. At that beauty, at that lass called Prudence who for all her pretence lowered her nickers but goes on as if nothing had happened and tries to teach us virtue.

    Regards



  • Comment number 55.

    Yes, it will be a new age and about time too...

    4000 BC - sun in Taurus - Egyptians bull worship

    2000 BC - sun in Aries - Old Testament lamb of God

    0 AD - sun in Pisces - New Testamanet fishers of men

    2000 AD - sun in Aquarius - the great leveller

    As one age collides with the next the established hang onto the excesses of the previous age and butt against the visionaries of the new age.

    Also, the ancient Mayan calendar has it that 2012 is the start of a new age.

    I've recently left the UK for South Africa because that's where my family is now and I want to spend more time with them.

    Unfortunately I also believe that the UK is now facing severe financial stress as the economy (was) based on the financial sector as manufacturing had already been brought to its knees. There is also a huge pensions crisis to come and I also believe that there will be a conflict in the next 5 years (probably with Russia) over energy supplies.

    My house in Surrey is now basically worthless and I'm handing back the keys to the bank and starting over again in South Africa. Good luck to everyone left behind.

  • Comment number 56.

    Thanks for the essay, Robert. I plan to share it with friends.

    I think your vision of the future is a bit too optimistic, in that it doesn't factor in human frailty and depravity, which got us into this mess to begin with.

    Still, all in all, a very worthy piece of writing, and well worth reading.

    Keep up the good work.

    (And for a more homespun version of basically the same analysis, I refer you to www.fredpac.org, where you can view Senator Thompson's more humorous musings.)

  • Comment number 57.

    Robert, superb piece

    #16 foredeckdave

    While a European solution would be the preferred option, unfortunately I suspect the response from the rest off Europe would end in "off". The UK and Spain are the two countries which have binged the most and those countries which were relatively well behaved are unlikely to want to ruin the Euro on our behalf. Four years ago German banks were still insisting on a 30% deposit and no more than 3 times salary for a mortgage. What problems thay have now are imported and not a result of a domestic credit/housing binge as in the UK. Most European countries also have a far stronger manufacturing base to pull themselves through whereas the UK based it's economy on financial services.

    I think the UK is headed for a long period of low/negative growth, high inflation and/or high taxes. I can remember the early 70s (just) and the winter of discontent. I see the UK headed the same way again, even down to the power cuts if we are to believe the energy companies. I can only hope that the government comes up with a more sustainable exit strategy this time - one based upon manufacturing rather than financial services.

    Still, to look on the bright side, in the mid 80s I picked up a whole load of undated war bonds at a 15% yield. The best long term investment I ever made. Perhaps I'll get another chance.......

  • Comment number 58.

    As lucid an explanation of the difficulties in which we now find ourselves.

    For those of us who always doubted the wisdom and equity of neo-liberal capitalism, it is the end of 30 years wait for vindication.

    Unfortunately with vindication will come years of hardship to put matters right. It will need political leadership and international cooperation on a scale not seen since WW2, when the so-called Bretton Woods system was put in place.

    Our children and grandchildren have a huge challenge before them!

  • Comment number 59.

    Robert I am answering your concept before reading your paper and I will respond again after reading it just for personal comparison.

    We have already over the decades had many systems of capitalism - knowledge capitalism, military capitalism, religious capitalism, feudal capitalism, exploration capitalism, artistic capitalism, industrial capitalism, philanthropic capitalism, political capitalism, technical capitalism, market capitalism, being the main one and you could slip in several dozen more. - [dozen old money measure for when we worked in real numbers pre decimal devaluation].

    The other reality is that while one may prevail in the mind at one time the fact is that most have some relevance all the time like mini conflicts to the favoured one

    Problem is capitalism is a truly self levelling force if you let it run its full cycle.

    Problem is some times its to scary to let it run its full course.

    Example artistic capitalism one time all artist were very poor their work barely kept them fed slowly but surly we have see more artists become extremely wealthy in their own life time

    Market economy our great current and so far the fairest is useful while somebody has something that someone else wants and a great leveller in that the rich buy from the poor artisan who becomes wealth and buys the land of the wealthy who become poor and make things that the wealth buy from them and they all swap round again.

    It is sort of rags to riches and back again and again. Problem is every time you get a new wealthy group they want to hang on to what they’ve got and not give every one else a turn.

    It’s not that capitalism doesn’t work its human nature wont let it because when some get the money they wont give the others a turn even though there are no pockets in shrouds.

    Now don’t even think about it its competitor communism cant work without horrendous repression of the masses. (Just work it through)

    Reality is competition only works when everyone gets a turn if they don’t you get Anarchy (talk to the Greeks they’ve don it all before many times over even BC [that’s before Christ not before capitalism]. [looks like they are at it again].

    There is an answer that in the next few hundred years we will eventually reach. The instruments to do it are in place the drivers are in place, the enlightened are aware. Problem is human nature will ensure it takes decade if not centuries to reach global cooperative capitalism.

    That is not the type started in Rochdale though the pioneers had some pointers [tough call though this change especially for policy makers].

    Right enough said I am away to read your thesis on a new capitalism but I will be back.

  • Comment number 60.

    I don't think that capitalism is broken; at least not irrevocably.
    Back to basics? Meaning proper oversight, prudence, responsible lending - yes, that all goes without saying.
    But to really fix things now we need free trade. Free movement of goods, services and PEOPLE. The Doha round has got to be resurrected: protectionism won't save anyone. And, incidentally Robert, neither will "savings". Take a look at Japan, a very conservative culture (as far as personal debt goes) now falling into a huge recession - having barely grown in 10 years. Even China is fearing social unrest from the downturn.
    Free up the markets, but strengthen regulation - the only way.

  • Comment number 61.

    Well, some fairly vague generalities and figures, aired before, wrapped up in a pdf to give it extra Peston-style importance. There is nothing visionary in this at all.

    Why don't you just concentrate on journalism? We pay your salary so that you can do that. If you want to be a consultant, do that, or, if you want to be chancellor, stand for parliament.

    [Pre-moderated by the BBC]

  • Comment number 62.

    So, a bad case of over endulgence then? I thought I was going to read much, much worse.
    Well, like the Plane Stupid lot who blame their forefathers for all that is wrong today, so I too should blame the Thatchers, Blairs, the Browns and... who was it that said we've "never had it so good"?
    Capitalism will be with us always, even when we won't have a penny left. There will always be those that manipulate, like whoever it was that pushed oil to $140 a barrel - no-one's speaking about that and they all know who it is!
    Nope, we never knew the value of what we really had and even if we had, we would not have known how to preserve it anyway.
    The successful capitalist is the clever man, anyone else is just 'educated'.

  • Comment number 63.

    A good and useful essay: would that more of the Beeb's pundits wrote as thoughtfully as Peston (and Mason)

    You have documented the dereliction of duty by ministers et al, but finally allocate the main blame to "bankers – because they systematically failed to do what they were handsomely remunerated to do, which was to properly assess the risks"

    Maybe they should have been - but they weren't ! Self-evidently, the formulae in their extraordinary bonus schemes were completely devoid of such objectives. They, and other industrialists, are more concerned about quick bucks and lobbying.

    No, the regulators cannot dodge the primary blame, and the politicians - Brown well to the fore - created the climate which positively encouraged them to ignore what was happening.

    Meanwhile, the dominos continue to fall, one by one.

  • Comment number 64.

    Dear Robert
    You are right this is a period in time that hopefully will never happen again, Banks being bailed out by the tax payer, --------Absolute rubbish,

    This economic down turn, inspired by the Banks Greed, and designed to boost Capitalism and Globalisation, has been the plan all along.
    Only the developed countries have suffered the Economic Down Turn as Politicians muster a Global excuse on which to unite behind.

    The Banks are getting exactly what they were Promised, "re finance, "
    enabling them to recoup their losses on the back of the tax payer, who now suffers at their hands.

    Sub prime was the Trigger, and then Developed countries followed suit, Government Economists Knew that the credit availabilty could not be maintained so they collapsed the markets to prevent even larger losses at a later stage.

    THIS ENTIRE ECONOMIC DOWN TURN HAS B3EEN STAGE MANAGED TO GET THE TAX PAYER TO BAIL OUT THE FINANCIERS AND THE BANKS.

  • Comment number 65.

    Robert, you omitted one other critical relationship: that between government (or politicians) and the taxpayer.

    One aspect of this unholy and unprecedented mess that receives scant attention is the potential for social breakdown and even civil unrest as things go from bad to worse. I don't know about others, but I am furious at the abject failure of this government to lead and administer our country competently.

    On the contrary, the "Labour Project" (a sinister term in any case) has been a monumental and costly exercise in political cynicism, led initially by that arch thespian Blair who secured power on the back of his ability to play to the gallery. Brown, sneaking about behind Blair, has screwed the British economy for a generation on the back of his own perverse notions of social justice. We are where we are today precisely because of the performance of that dangerous duo.

    As all this unwinds - and goodness knows who's going to repair it, because the Tories don't seem to have a clue - the relationship between our dismal political "elite" and the ordinary citizen is going to become very strained indeed.

  • Comment number 66.

    Thanks very much Robert for that insightful analysis.

    I'm also confused re the Chinese. Aren't they just as badly off now that the demand for their goods have lessened? Won't the lack of demand from the West translate to job losses and a similar downward spiral in that part of the world? It would seem to me that the Arab states are the ones who are really well off, as their economies don't rely on cheap goods that westerners can no longer afford; however we are still so reliant on oil. Green, sustainable alternatives to the oil-based anyone? Not just good for the environment anymore.

    Also, regarding the regulation aspect. I find it breathtaking the level of ignorance displayed by the average banker - not just those in the top tiers. Shouldn't a more stringent system be introduced whereby a 'training period' of a few years for every banker and trader is introduced (apprentice like period), in which time they MUST pass exams that ensures proper examination of basic concepts and regulatory rules...and make it HARD so that it isn't easy to pass..it seems only fair since so many jobs require this sort of thing, why should these guys who affect us all so much be so richly (pun intended!) ignorant and cause this mess? If there were a few more well-educated about the - applied and theoretical - economic basics and regulatory rules, this mess would not have occurred.

    pestoblogger

  • Comment number 67.

    As always during these times of change, one good section to invest in is in the war industries. Guns and bullits should be very profitable as change nearly always leads to war. Oh happy days.

  • Comment number 68.

    Capitalism/Communism, whatever system you like actually.

    They all fail if CORRUPTION is allowed to take hold and they all make the assumption that REPONSIBLE people are in the positions of power...

    That's the biggest lesson the world needs to learn.

    What system we follow, is largely academic, in my view...

  • Comment number 69.

    The current contraction of world economies is only the beginning of a fundamental restructuring. Co2 is only one of the ecological drivers that will force us to decentralise, to build in multiple redundancy, to localise production and consumption, towards less technology not more, towards Small is Beautiful, towards localised resources and accountability, towards sustainability. The planet is getting tired of consumpton, people are getting tired of consumption, people are demanding freedom, states are losing power, global mass communication is shifting the ancient hierarchies of state and personal organisation towards being meaningless. We are becoming global citizens at the same time as the planet is saying 'go home, make community, live lightly, and stop building cities!'

    Sustainability means a completely different way of doing things. At the global level it demands governmental cooperation - war is the wrong answer since the effects will turn and bite us all rapidly. At the local level it means more self-reliant communities developing innovative ways to capitalise on their own (social, ecological) resources - trade and the current extended diversity of economic function will be secondary considerations which will most likely contract to pre industrial revolution levels.

    The Great Civilisation experiment needs to take this 90 degree turn or it will burn out in a cloud of its own making.

  • Comment number 70.

    Oh dear Mr Preston you always seem to have excellent sources that you "over embellish" by the use of tabloid adjectives etc.

    There will be a return to the former style of banking quite soon. What went wrong was that the the new management failed to operate within sound banking principles. You have not highlighted the fact that the real culprits in this debacle were the artificial banks created by the building societies. These told their new masters that they could lend with abandon and without fear or favour and to help this along the US market, principally, created the securitised mortgage product. Over there home lending is almost always based on "loan to value" whereas here with most sensible lenders it is a combination of "L/V" and "ability to pay". As a retired banker of the old school I could see it all coming. A simple reversion to the old principle of "only lend to those who do not really need to borrow" works. Coupled to this you have top management in the banks who had not come up the conventional banking route but had been part of the crazy 80s and 90s boom.
    As soon as the "Buy to let" fraternity came along, coupled to Gordon Brown stripping 5 billion pounds from the pension funds per annum and so-called pundits saying property was better than a pension, disaster was inevitable. I would like to see all the amateur "buy-to-let merchants burn their fingers. Unfortunately their tenants will suffer too. If you are going to rent alwys determine if the owner is a professional "buy-tolet" investing company. If not do not rent from them.

  • Comment number 71.

    2012: The three Horseman of the Apocolypse are due, according to Nostradamus, allegedly, if you believe that sort of thing...

    Drought, Famine & War...

    Hmmmm. It is not entirely inconceivable, in the current global situation, economically, politically and environmentally, is it ?

    Might as well go and spend what little cash I've got left on importing a big gas-guzzling V8 American Motor, as I can't take it with me and I'm getting no interest worthy of the name these days ... !

  • Comment number 72.

    The inevitable consequences of an unregulated financial and banking system, and a free/global market are coming home to roost, as in the 1930s.
    Exporting jobs to countries where salaries are a tiny fraction of western salaries means less real money circulating in those western economies due to higher levels of unemployment and a falling of salaries in real terms for the majority of consumers.
    The lack of regulation in the banking system has made borrowing ridiculously large amounts of money in relation to income, to offset the effects of the disappearance of jobs and the diminishing of salaries, too easy.
    Hence the higher levels of personal debt and the lower levels of personal savings.
    What is the point of exporting jobs to make goods cheaper if the result is fewer people able to sustain a reasonable standard of living, to be able to buy the basics, without resorting to debt?

  • Comment number 73.

    I am back [always wanted to say that see my earlier post 59]

    Robert very good analysis of where we are and how we got here and although they are tucked in there some where I think there are three points that I feel need pointing out more

    Firstly the West is unlikely to dictate the timing of the recovery and certainly will not decide it without the cooperation of the East.

    Next the bankers mainly built the false economy [financial bubble] by exploiting the vagaries in language of a 600 year old accounting system and their and our greed

    Finally the speed of the technology age [now irreversible} has compressed time cycles to a point that is self defeating to human life cycles.

    As I wrote elsewhere back in 2000 the internet age allows for the return of the smiths. So the economic, natural resource, climate and social solution will rely on the smiths to bring about a new order. A world where only information knowledge and caring is the essential world traveller and everything else is local supply and consumption.

    The role of government and big business will cease to be the creators and they will become the facilitators and stabilisers maintaining a balanced world in which the cooperation of the smiths provide the drivers and satisfy the needs of society.

    While this is way to big a concept to debate even outline here I hope some people, some commentators and others will begin to start to debate the look and shape of a sustainable global social economic future rather than condemn the past mistakes all of which were reached through ignorance and greed. Because if we have a future it has to be built on knowledge and sharing.

    Now that is going to scare an awful lot of people but its time to stop condemning the past and debate a solution for the future that is tested at every line of its concept with the question why.

    Regrettably I would not mind betting that the rest of this blog will be more posts moaning about others [bankers, politicians] past short comings and the wrong political alliances of other views with little if any suggestion as to a universally acceptable solution to improve all our lives.

  • Comment number 74.

    One other observation on your article Robert. You seem to sit in the same trap as other commentators on this subject. Namely, the trap called "endless cheap energy" (fuelling infinite, global economic growth). You talk rather glibly, if I may say, about globalisation and imply that we shall forever go on flying strawberries from Bolivia to Waitrose in Marlow under the banner of "unfettered movement of capital, goods and services".

    It would be great if a journalist of your calibre would take a long, hard look at the prospects for mankind as cheap energy declines (rapidly over the next 5 - 10 years), "globalisation" fades into a nonsense term and "localisation" becomes the way forward.

    It's this perspective that scares me, because the idea that we're somehow going to recover that financial support for the global financial system (at one quarter of the earth's GDP) is predicated on, er, the application and exploitation of endless cheap energy.

    Back to my earlier point at # 65: social breakdown and civil unrest must surely be a risk as we enter into the next decade mired in debt, with diminishing prospects for ever repaying it. How does that work?

  • Comment number 75.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 76.

    Dear Robert

    What a thoughtfull and informative piece.Thank you.

    It seems to me that the whole thing started with cheap money which not only allowed everyone to borrow like mad and push up asset values but also allowed companies and Hedge funds/Management buyouts to borrow to fund their activities rather than raise equity from shareholders.

    Borrowing from money lenders is essentially borrowing short and using it to buy companies or invest in capital assets is lending long. Very dangerous to do without a large spread of investments.

    Raising equity on the other hand is borrowing as long as you can get.

    The effect of this type of funding was to allow management to do what they liked with the companies they managed. There was no need to keep the shareholders on side because they never needed to ask them for more capital.Better borrow it from the East.

    This of course led to the explosion in management salaries to the ridiculous levels we see today, plus the public sector saying "me too" because it is the going rate.

    So up goes the cost of running public services as well.

    Now the money lenders want their money back and they want it at the same time as the potential lenders in the shape of shareholders are feeling the pinch.

    So businesses are being forced to go to HMG for cash. The banks being the first example of this.

    Can I suggest that it would be better for everyone if HMG used taxation or rather tax relief to make investing in companies more attractive than it is at present so that the population will be encouraged to invest in UK industry.People will invest when the reward risk ratio looks right.

    Governments are really not good at funding businesses because political considerations get in the way of business ones. See the muddle over the banks at present.(It also spawns more expensive and intrusive civil servants and we really have enough of them.)

    This will help replace borrowing and strengthen all company balance sheets.It will start to replace the money shortfall that we are going to see because overseas lenders will not want to lend to us; and it will start to build a savings base which we desparately need.

    If company boards have to go to shareholders for money they will have to modify their behaviour which should stop the obscene salary and benefit packages which make it difficult for capitalists like me to support the system.

  • Comment number 77.

    Before we all capitulate and seccumb to collective mass depression and economic suicide, it may be worth considering the following:

    Retail sales have barely moved, year on year - so it appears there is no mass desertion of the High St. this Christmas (good news for the Chinese).

    People are generally earning the same salaries as 12 months ago but their outgoings are progressively reducing in the form of cheaper mortgages, petrol, food etc. This trend will continue in the short and medium term.

    Borrowing costs are decreasing and interest rates will continue to fall.

    Housing costs are down and will stay that way, at least in the short term, though buyers are beginning to return to the market in increasing numbers.

    Very little new house building is occuring, including in the so-called "affordable" sector (housing associations, like everyone else, cannot get funding). Therefore supply is constrained creating the build up of future demand.

    In short, lighten up dudes....keep working, keep spending and keep the entreprenuerial flag flying. Don't do a Peston; bury your heads in the sand and adopt a bunker mentality as this will simply make the whole mess worse.

    Think and act positive and you will be able to read Peston's pdf this time next year and laugh!

  • Comment number 78.

    Robert
    Interesting article just one point or error, you wrote:
    "then our banks and private-sector companies will have to work much harder to sustain the goodwill of those who are keeping them alive: millions and millions of taxpayers."

    The goodwill will not be the "millions and millions of taxpayers" but the people who are funding the government deficit until such time as they get their finances into surplus. That is something that on historical and current evidence is beyond the capability of Gordon Brown and his bunch of spinners.
    His big problem is that he still considers himself the "best chancellor in the history of Britain" , has wasted the last 10 years but is never going to admit it.
    Arrogance and ineptitude in equal measure, in reality he is unfit for government.

  • Comment number 79.

    Very interesting viewpoint. I'm interested in the angle which you alluded to but skipped over, which is the sustainable size of the British banking system at the end of this crunch. I suspect that the sustainable size of the city will be something like the size in the early 90s - which will have profound impacts on the south east housing market, the tax income of the government and the amount of available credit in the country.

    I suspect that in the long term this will be a good thing, but the semi managed economic process to get the end state is going to be very painful as you state - as traumatic as the fall of communism.

    I suspect that the end state of capitalism won't be determined by moralising at this stage; although I agree 100% with your sentiments I'm more pragmatic and cynical. My take is that a combination of regulation and expedience will shape the new face of banking here and abroad, and it will be based on a culture of what can we get away with under the scrutiny of the regulatory rules and media rather than some road to damascus style conversion to compassionate capitalism.

  • Comment number 80.

    We are indeed in dark times and the awful thing to me is that this Government's answer is still tinged with 1960's class hate. The planned tax changes produce some appalling results. Marginal tax rates of up to 61.5% and parts of the pay scale where to get £3,500 into an employee's pocket could cost an employer more than £10,000. I know a very bright chap, very hard worker, someone who is british but has worked all round the world. he is here at the moment in London but when I explained what was coming, he said he'd go back to America when the new tax regime arrived. So we'll get a high % of nothing from him. Well done Brown and Darling.

  • Comment number 81.

    What's the difference between a bubble and a pyramid (except one pops and the collapses)? Why not call the unsustainable practices of our govts and financial sectors what they really are and use the law to sort it out.

    The point about what the recovery actually should be is spot on. It seems to me we are trying to recreate the same system that spectacularly failed, to quote Einstein 'you cannot solve a problem with the same thinking that caused the problem'.

    Maybe it's time we faced up to the fact that permanent, exponential gdp growth is a dream (or speaking as a self proclaimed environmentalist, a nightmare) and tried to build a sustainable economic system that our children will thank us for.

  • Comment number 82.

    good analysis Robert, you obviously do read our contributions!
    At last you pin the blame on Gordon Brown.......(interestingly according to today's Times poll, he is still seen by the majority as the best person to handle the economy!) By the way we are not all to blame, many of us are not in debt, we have been saving only to be punished now for the greed of the others!

    Actually there is nothing wrong with the old capitalism as long as the population isnt lead astray by profligate governments....just start paying off debt and start to live within our means. Stop using houses as a savings scheme, sensible house prices and sensible affordable mortgages, the way they used to be......when i bought my first house the building society would not even take my wifes considerable salary into account....."you will be starting a family soon".....

    Cut the credits cards in half and only buy what you can afford, and what you need not what you would like...I recently visited my daughter in England, in a household of two adults and two teenage children , i counted four computers, five televisions, numerous playstations and mp3 players, two cars, three dvd players....and she complains because she cant afford to have four holidays a year...I hate to think how much debt they have.
    So the message for the new capitalism for both governments and the population is "live within your means"

  • Comment number 83.

    So what you are saying is we need a new scam to exploit the population and take their wealth.
    Paper stocks, bricks, mortar, income tax, cash savings, diamonds and gold are losing value.
    Its good timing anyway, because, we had reached the limits to growth and have depleted the world's resources.
    (get rid of the FSA - investors in people logo)

  • Comment number 84.

    An exert from your next book Robert?

  • Comment number 85.

    #74

    "Back to my earlier point at # 65: social breakdown and civil unrest must surely be a risk as we enter into the next decade mired in debt, with diminishing prospects for ever repaying it. How does that work?"

    Perhaps in the artificially imposed scheme of things, it wasn't meant to.

    Ok, we're all to blame, even those of us with savings and no debt. Yet, the style and substance of the current crisis did emanate from the USA and from all accounts it's going to be a "Doozie".

    Remember the weird religious component of the recent military exploits of the US lead coalition? At it's most fervant peak, there was much talk and expression of "The End Of Days"

  • Comment number 86.

    Global inflation

    For a number of years I have been mystified by the ability of the city to pay out huge bonuses and fund massive companies. How could banks produce investment returns for customers while extracting huge amounts of revenue for themselves? Someone some where must be losing money. Well the reality is now clear, money was not transferred from one player to another, the market simply created more money to play with. Every one’s a winner. It’s simply called economic growth or expansion. If this occurred in a single country the international currency markets would have identified this activity as inflation and crucified the currency of the offender. The global banking system has escaped the boundaries and controls of the nation state. There are no brakes on inflation – anything that stands up to mild scrutiny can be added to the trading system and traded. There are few guaranteed assets in the real world - oil, gold, land, property, and if any of these can be linked to an tradable instrument they will hold value. We are suckers for any market with a limit. Peak oil, geographically restricted property markets, limited gold supply. Add these certainties to an ever expanding global “asset” pool and you have the ingredients for a massive bubble.

    The bad news for us is that from now on we can only spend what we can earn. If you mortgage is greater than three times your salary you are stuffed!

    Enjoy you bonuses bankers of the world!

  • Comment number 87.

    thank you for you pdf long explanation. most enlightening.

  • Comment number 88.

    Your article is interesting, Robert, but very narrow-band in that it assesses the future from largely a global banking and stock market perspective. And possibly also from the perspective of the new rich who made far too much money from the financial services bubble.

    The financial markets are but one of a large range of influences on how we live now and in the future. For example, the accelerating rise of technology, its impact on reducing the price of products to the consumer, on healthcare, on leisure and so on, will not reverse. This will continue to have a very positive impact on our future standard of living. For example, it is possible to buy a computer this Christmas at less than one tenth of its equivalent cost five years ago. Life enhancing drugs now exist that were unimaginable twenty years ago.

    A greater awareness of the importance of global resource management and climate management (if the latter is not too late) will also have a fundamental impact on our attitudes to what is important in life and our lifestyles.

    So it has long been a challenge to find a measure of "lifestyle" that is not solely based on simplistic economic indicators. The problem at the moment is that there is too much emphasis on financial doom and gloom in the media and not enough understanding as to how this really relates to the man on the Clapham Omnuibus and their day to day existence. I think that probably, for most, the answer is that the impact of a financial glitch will be minimal and laregly irrelevant in the overall scheme of things.



  • Comment number 89.

    Wake up people!! This is NOT a recession. We are on the edge of a SLUMP.

    This slump will be totally global and no individual economy will stand against it. No political philosophy will stand against it. The old reality will fall.

    This is the time to look for partners with common interests in survival. The little Britainer's will not like it but for the UK this means Europe.

    Society has changed radically since the 1920/30's. Society will not accept hunger marches and soup kitchens. So it will have to combine in some new economic form for all of our sakes. Plus this social crisis will be as true for us at it will be for France, germany, Italy etc.

  • Comment number 90.

    Alistair Darling told the FT in his first interview as Chancellor that he didn't believe in "economic patriotism".

    I wonder if he's changed his mind yet?

  • Comment number 91.

    Thanks for a very well written although scarey piece. I just hope that Darling-Brown is reading too although I doubt there is the political will to act on the true situation.

    We are certainly in for some pain and it would seem those who have money saved are the target. Still the Baby-boomers will not be around for too many more elections so that may not matter.

    It would be great to have a serious debate about what we should do in this crisis but it all seems to degenerate into spin (with labour being the masters of such - Take a bow Mandy!)

    It is just nice to be able to come to such an oasis of sanity and see a realistic view of the situation. (Not that it helps - but it does prove that sanity is not dead)

    Thanks Robert!

  • Comment number 92.

    I'm normally a pessimist but I'm starting to feel a bit like houseflogger (#77) - yes it's going to be a bumpy ride with a considerable number of people losing thier jobs but as a person in the street my essential costs are coming down - fuel & food already, I'm hoping electricity and gas after Xmas and then in the summer when my fixed-rate expires on the mortgage, I'm expecting a huge drop (which I'll use to overpay and shorten the term).

    Did anyone hear the king of misery and doom Mickey Clarke on Wake up to Money on Friday saying that the media are going too far describing everything as "carnage" and "disaster" - interesting........

  • Comment number 93.

    i dont really think in the short term anything will change,the rich will get richer and the poor will get poorer.in reality theres no differance what so ever in any of the political partys in this regard.long term if people in the uk are educated properly and realise the real value of money ,and that you have to give something ,in return for it,then things may improve.all these things have happened before, its just that ,in effect , its not in our living memory.invest in people invest in things that we can make, skill up our people pay proper wages for proper jobs done....this is the new capatalism.

  • Comment number 94.

    #55
    To which I add Abbot Malachy and knowing pretty much what happened to the article in Revelations 11:19. The downside is absolute, if this is right.

  • Comment number 95.

    Just a general comment. I may have missed it but I think that I am right in stating that nowhere on the BBC have you referred to a recession but only a DOWNTURN. If this is correct then you are certainly in denial and also in the pay of Gordon Brownshirt.

  • Comment number 96.

    #74

    "Back to my earlier point at # 65: social breakdown and civil unrest must surely be a risk as we enter into the next decade mired in debt, with diminishing prospects for ever repaying it. How does that work?"

    Perhaps in the artificially imposed scheme of things, it wasn't meant to.

    Ok, we're all to blame, even those of us with savings and no debt. Yet, the style and substance of the current crisis did emanate from the USA and from all accounts it's going to be a "Doozie".

    Remember the weird religious component of the recent military exploits of the US lead coalition? At it's most fervant peak, there was much talk and expression of "The End Of Days", The Second Coming" and "The Rapture", all associated with specific terminal events due to take place in the Middle East.

    How large a section of the "Powerful" in the US actually believed in that stuff?
    Because if they did, the effects of such belief could easily have been transferred into the financial sectors, encouraging a "Final" destructive binge, with no thought for future.

    This condition was interestingly mentioned by none other than the illustrious Jeremy Clarkson in the video clip of a radio interview he gave recently on the subject of the Motor Industry bail-out in the US.

    Emotive times for Jeremy, which is perhaps why he expressed his view of the situation as an "Economic End Of Days".

    Strange beliefs can shape societies.

  • Comment number 97.

    PS to my 94
    I'm not joking, I've got the Vatican defending its property in this respect, I can supply Mr Moderator with the press articles confirming it - I'm not yet prepared to publish here, so he must contact me privately for the link. I've also got a serious track record at this level, so perhaps its time to get serious about the wheels coming off permanently.

  • Comment number 98.

    I love to sing love songs
    But I have got a war on my hands and I have got to win it
    When I win the war, I will come back and sing you all love songs

    Too much illusion brings on confusion
    Too much confusion brings botheration
    Without food and cash
    A man will get rash

    What will the wicked have to tell Jah say
    On that Judgement day
    Where will they run to
    Where are they going to hide
    They run to the rock and say they want to hide
    but the rock wants a hiding place for itself

    All the crimes committed
    Day by day
    No one tried to stop them
    In any way
    All the peace makers
    Have turned war officers
    Hear what I say

  • Comment number 99.

    #61 Leave Pesto alone! I am quite happy to help pay his salary through the licence fee. I don't always agree with parts of his articles, but so what? He is paid to give views and analyses and he does. (That's a difference between a reporter and a correspondent by the way.)

    Thank you for taking the trouble to do the pdf Robert. However, as the financial services industry is unlikely to recover to its previous strength, the question to as is how we pay our way in the world? We must reduce imports drastically, and/ or find goods/services that we can produce that the rest of the world really wants, and will continue to do so on a sustainable basis.

    One other thought, what is the cost of our military involvement in Iraq and Afghanistan? Especially compared with the other non-US developed nations? If the rest of the "rich" world benefits from our commitment, perhaps they should pay our bills?

  • Comment number 100.

    #92 splendid for you....then what ? what happens wen the interest rates go thro the roof...what happens wen your income tax goes thro the roof? what happens then? your house isnt worth anywhere near what you think its worth! its worth as much as what some one is prepared to pay for it...the days of silly money are over my friend.

 

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