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In the shadow of the volcano

Robert Peston | 08:53 UK time, Monday, 17 January 2011

Last week I gave a presentation to my BBC colleagues on the business, financial and economic outlook for 2011. You can see it, by clicking here.

The central theme was that we shouldn't be gulled by the clear evidence of recovery into thinking it's business as normal again.

There are signs of new bubbles being pumped up - in China, for example. Perhaps more importantly, the structural flaws to the global financial system (banks that are under-capitalised and remain too big to fail, the excessive indebtedness of the West, and so on) have not yet been fixed.

World leaders are trying to move from treating the symptoms of the financial and economic disease to effecting a fundamental cure - but this very process carries dangers for the health of the patient, as we have seen in the form of recent turmoil in the eurozone (where any ministerial talk of transferring the burden of state or bank failure from taxpayers to commercial creditors prompts a flight of capital away from banks or states - such as Ireland or Portugal - perceived to be weak).

Similarly, a premature return to normal monetary conditions and normal rates of interest in the UK could wreak havoc on the finances of British households still struggling to manage record levels of personal indebtedness (a point also stressed in related presentations by Stephanie Flanders and Simon Gompertz).

There are reasons to hope that we will avoid a double dip back into recession. That said, the weight of debt bearing down on our economy raises the prospect that growth will be relatively anaemic for years, that a return to the 3% per annum enjoyed in the UK during the golden years of 1992 to 2008 may prove elusive.

The big point however is that the imbalances which built up in the financial system and global economy over the 15 years or so till 2007 were so huge (bank lending, for example, that grew out of all proportion to the fundamental needs of the economy) that the process of correction will take years. And in those coming years of returning the financial system to some kind of stable equilibrium, we'll be living in the shadow of a live volcano.

Comments

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  • Comment number 1.

    The rest of the world appears to be in an upturn following the global recession - but as you say, nothing is certain.

    However, it is pretty clear that the recovery in the disunited kingdom has been trashed by the ConDems.

    A small section of the economy is doing well - exports. The have a weak pound to help them and the rest of the world to sell to.

    The much larger domestic economy has hit the buffers. Unemployment up, growth down, sales down, inflation up etc etc. All the major forecasters have revised their growth forecasts DOWN as a result of the cuts.

    All we need now is a rise in interest rates and the domestic economy will be back in recession.

    Inherit an upturn, convert it into another downturn. Well done Snooty and Co.

  • Comment number 2.

    Tell us something we don't know...

    The present government are right to re address the massive spending built up via Gordon Brown . However there needs to be more honesty with the public, that existing services will be affected and rightly so , some of the existing services / expenditure of councils etc are not required...

  • Comment number 3.

    The central theme was that we shouldn't be gulled by the clear evidence of recovery into thinking it's business as normal again.


    Just as well we aren't then!

    Robert, what do you mean in that video about being surprised people aren't angrier? The people who aren't hypnotisec by Z-factor, sorry X-factor are absolutely fizzing. Fizzing mad.

    Were you expecting revolution?

  • Comment number 4.

    Reducing the Euro crisis will not be as simple as it is sometimes portrayed in my opinion. Having visited Ireland on regular occasions for more than 30 years, it is apparent that the country has developed an entire lifestyle based on debt. The Celtic Tiger economy erased memories of a comparatively poor, if well educated country. The level of benefit and Government assistance is far more generous than the UK. The rewards and perks for civil servants are amazing. I read one recent statistic which showed Ireland had the highest ownership, per capita of BMWs. That mindset and lifestyle will not be quickly sacrificed. I wonder - is that attitude widespread amongst other Euro neighbours.

  • Comment number 5.

    Yes lots to fix and the coalition is obviously trying, but very difficult in the climate of UK politics/devolution/media/unions etc. [E.g. should we celebrate banks attempts to cope with loose government & international money, + politically driven lending - let's face it a lot of risk to cope with - or just blame them?] And the reality is, even if the aggregate policies are correct some individuals always fair worse than others; perhaps alternatives here is where opposition/union/media/big society should focus.

    Also don't buy the 3% golden years argument - how much was bubble/cheap money/government over spending. Also all of us - electorate/politicians/media are to blame for permitting overspending of governement; even TB was advised in 2005/6 but it all carried on (despite then opposiiton parties' warnings).

    Finally too much from BoE/MPC on excess capacity, if this is so there ought to be a list of what the binding constraints are then.

  • Comment number 6.

    An appropriate blog for the reputed gloomiest day of the year! I am not shocked. In fact I suggest your pitch is optimistic. The volcano of depression is not just live but rumbling and smoking. There is much unfinished business both domestically (self inflicted deflation) and abroad with the Eurozone and even the USA.

  • Comment number 7.

    Oh yes another thing. When will manufacturing, after years of contraction, find recruitment of knowledge, skill and expertise a severe limiting factor in expansion?

  • Comment number 8.

    > the structural flaws to the global financial system (banks that are under-capitalised
    > and remain too big to fail, the excessive indebtedness of the West, and so on)
    > have not yet been fixed.

    That's right. Instead, there is a distinct danger that money to re-capitalise banks could instead flow straight to the bankers' private accounts, in the form of bonuses. This is the greatest danger we face, and we must clamp down on such "outflows" from the system at all costs.

    The bankers must serve us well, or be replaced. There is no middle way.

  • Comment number 9.

    As far as Im concerned the major issue of debt is barely being addressed. Individuals are still being told to 'spend spend spend' and banks are being told to 'lend lend lend' until we stop doing these two things to a sufficient extent the economy will be at risk. However doing so will also have risks. So which is it to be many years of stagnant economy or a few years pain then a new start?

  • Comment number 10.

    MEMBERS OF THE FORMER GOVT THAT WON'T BE AFFECTED BY THE AUSTERITY MEASURES

    For all the city bashing going on last week from the red benches, it seems Gordon’s old lot, especially those advising him on money matters, couldn’t sign up to the financial world soon enough. Working directly for banks or investment firms are:

    • Lord Davies – Former Minister for Trade Promotion and Investment
    • Ruth Kelly – Former Secretary of State Department for Transport
    • Lord Malloch-Brown – Former Minister of State Foreign Office
    • Lord Myners- Former Financial Services Secretary
    • Ian Pearson - Former Economic Secretary HM Treasury
    • Jacqui Smith – Former Home Secretary
    • Baroness Vadera – Former Under-Secretary of State Enterprise
    • Admiral West – Former Under-Secretary of State Counter-terrorism

    Funny there hasn’t been a big job offer for Brown yet, no bank wants that curse. But there is no problem for those who were around him when he drove the nation’s finances into a brick wall. Underwhelming in government, this lot have not been lapped up for the skills they clearly didn’t display in power, but for their contact books and access. The banker bashing from Labour doesn’t quite ring true when there is a queue forming for the revolving door. Bonuses all round!

    https://acoba.independent.gov.uk/former_ministers_appointments.aspx

    https://order-order.com/2011/01/13/labours-losers-love-the-city/

    REMEMBER, WE'RE ALL IN THIS TOGETHER!

  • Comment number 11.

    @ 6. At 10:12am on 17th Jan 2011, watriler wrote:

    > There is much unfinished business both domestically (self inflicted deflation)
    > and abroad with the Eurozone and even the USA.

    Indeed. Bankers have a huge debt to pay first. When that's been brought down, and the country is flourishing, maybe we can reduce the pressure. Until then, they have to do the best they can without any bonus. They'll be better people for it, in the end.

  • Comment number 12.

    Oh. Addressing fundamental issues. Costly for political sponsors and therefore unlikely to happen apart from minor tinkering with interest rates, cutting govt expenditure, raising taxes and press releases asking banks to lend more to SMEs. Even ECB bonds, which seem like a sensible suggestion to me, don't seem to have much support from the main stakeholders.

    But what about the elephant in the room - the effect of bad weather on commodity prices. It rained again today in Australia. Well....that's coal, wheat, mutton and wool up again, right? Maybe cotton, rice, pineapples, bananas, mangos etc etc too.

    *Stop Press* Icy weather in Russia may affect oil and gas supplies/prices.

    I didn't get where I am today....etc etc

    https://www.youtube.com/watch?v=GYoFCwIFB0M

  • Comment number 13.

    I would advise everyone to view your video...

    It is clear to me , rather than slow down the process of reducing the deficit we actually need to speed the process up !!!!

    As a country that is neither a reserve currency ($) or part of the Euro we are in a perilous position against if the "market" went against us...

    Although I appreciate tax rises are required at present to fill GB's public spending black hole , we need to be making space for eventual tax cuts in the years to come. Simply increasing over all taxes year by year is simply as unsustainable as the present banking system. Year on year reduction in public expenditure for the next decade is the only feasible way to balance the books and yes we do need a proper debate on what services we REALLY can't do without.

    Blackpool's Council involvement in selling second hand bicycles, refurbished at tax payers expense this week, proves excess expenditure is still available to local authorities and quangos.

  • Comment number 14.

    "...Similarly, a premature return to normal monetary conditions and normal rates of interest in the UK could wreak havoc on the finances of British households still struggling to manage record levels of personal indebtedness...."


    Gee! If anyone's finances can't cope with normal rates of interest then they have probably borrowed too much.

    When I had a mortgage the rate touched 12% at one point. Where were you then, Robert?

    Now I'm a saver I've seen my interest income drop to virtually nothing - wreaking havoc with my finances.

    So who's paying for 15 years of excessive bank lending?


  • Comment number 15.

    In the next ten weeks we move from the Darling cuts to the Osborn cuts era. His cuts will be actuated in fiscal 2011-12. (VAT replaced a planned rise in NI and most of the £6bn June 2010 cuts are in public pensions which cut in on April 5th 2011.)

    The Condems will continue their small state revolution announced as an objecive in the directions for the 2010 spending review. But the Big Society is dead as gradually public services like the NHS will be privatised piecemeal. GO's cuts as ANNOUNCED (not yet implemented) so far are front loaded aimed to create the space for a tax reduction before the election in '15 so there is a real risk of destablisation both in actual delivery of services and in the overall economy (double dip and its consequences). There may be increased social unrest. These undoubtable will have an impact on investor confidence

    At the end of the day we are still struck with the structural deficit (and interest payments on the National Debt) but with 2p of income tax instead.

    All this is against a background of weaknesses in European and US economic policies and maybe in Chinese too.

    I hope we can discuss GO's policies and the future, and leave the past to historians....

  • Comment number 16.

    The 21st December 2012 is rapidly approaching.

    Will any of this even matter on the 22nd!

  • Comment number 17.

    It is the debt wot done it! (apologies to the Sun's sub-editors)

    Indeed it is the debt levels in the private sector that will continue to cripple the recovery.

    "Robert wrote: "a premature return to normal monetary conditions and normal rates of interest in the UK could wreak havoc on the finances of British households still struggling to manage record levels of personal indebtedness"

    The sentence in Robert Peston's piece above encapsulates the catastrophic time in which we live. I'll just concentrate on one word in the sentence 'premature'. I suggest that what this means is that all commentators and indeed the financial community know that the interest rates regime we have been running for the past decade has both caused the crash and is continuing to cause an inability to recover from the crash.

    Rates must rise for monetary policy to be rational (and to allow fiscal and macroeconomic policy to function in the way it is understood to function.)

    Also encapsulated in the good and greats phrase premature is the recognition of failure and collapse. If monetary policy is presently financially illiterate, innumerate and nonsensical, which the word acknowledges ow can we ever recover? The answer is of-course the obvious one - we can't.

    No matter how huge and insurmountable the financial imbalances are we must tackle them to enable unemployment to drop and to make productive use of our poeple. There is no escaping this reality.

    I have put forward over the last decade alternative policies that would have prevented the bubble, but the users of the Treasury Economic Model ignored the arguments. Their model, the Treasury, The Bank of England and the FSA are failed institutions - their senior staff must be sacked and the models on which they work must be reformulated (preferably without any dominant input from the existing failed economics educational institutions.)

    It is I believe rational to suggest that debt must be deflated/de-leveraged before a genuine economic revival can take place. This must be achieved by putting up interest rates - it is the only policy lever available.

    Further I have shown elsewhere that the present policy nonsense has created a situation whereby the BoE (The Fools of Threadneedle Street) have lost control of the interest rate and money markets. (in normal situations Savings LT Base LT Borrowing rates, but today - in the present mad world - Base LT Savings LT Borrowing rates therefore the FoTs are a disaster! and 'market' base rate is about 3% today!)

  • Comment number 18.

    So, Robert, to summarise for a simpleton like me:

    The banks have structurally wrecked our economy for a long period - what a generation? How can we (i) let them remain in control of OUR money (ii) believe a single word Messrs Diamond, Daniels or Dimon say again?

    They did all this when the UK was facing huge external challenges from China et al. They won't be on my New Years Honours list.

    No anger? They'll be nothing but fury when we all catch on.

  • Comment number 19.

    They intend to enslave us, don't they?

    Well, they'd be advised to look at the revenge dished out by Toussaint and his band of people fighting to break free from the slavery of big industry. I'm sure once they do, they'll hand back every penny they've earned above average salary and beg us to be gentle.

  • Comment number 20.

    The way that the global economy works ... is on the basis of 'the devil take the hindmost'.

    That said ... there is one aspect that I don't think that anyone in the BBC has covered or considered ... that is the question of 'proportionality' relating to the big picture on the UK economy.

    This relates to the structure and management of the UK economy in terms of strategy ... currently we ... the voters and taxpayers do not have one that gives us stability for disposable incomes, employment, pensions etc.

    The starting point with 'proportionality' is this ... the UK banks according to Digby Jones pay 20-24% of UK tax reveneus. This was found to be another lie/error and his figure has been redeuced to 12% (or less with tax fiddling) ... but our banks either directly or indirectly control about 90% of all UK 'capital' ... depending on our one defines 'capital'.

    So who really does has strategic control of the UK economy ... and are these people acting in our best UK national interests?

    I would argue that the UK is going nowhere and is actually heading for another crash until this constitutional strategic issue is addressed and the economy is rebalanced using a higher import tariff 're-balancing' tax strategy.

    It is no use asking the BOE to maintain low interest rates when it is tasked with controlling short medium and long term inflationery pressures and effects ... it is their primary task to manage inflation and interest rates and currency levels ... in whatever environment is provided to them by UK government.

    This is another aspect of strategic proportionality ... the govt sets the environment ... the BOE is recative to that environment ... this is not working ... UK plc needs something that is 'pro active' in terms of key financial decisions and is not 'reactive'.

    I heard the guy from Ernst and Young this morning saying that the BOE should maintain low interest rates no matter what the inflation level and that inflation is temporary ... I think that he is grieveoulsy wrong on both counts because of the strategic proportionality issue.

  • Comment number 21.

    "we shouldn't be gulled by the clear evidence of recovery into thinking it's business as normal again."

    I don't think that anyone on this blog will. However, with the global experiment of printing money well underway while trillions in probable and provable losses quietly exist, out of sight, on the balance sheets of the US Federal Reserve and other financial institutions. A massive deflationary spiral should result, losses should be piling up and swamping bank balance sheets - But they're not! Big banks are reporting record revenues and near-record profits.

    Rules are being broken to achieve this:-

    May 6, 2010, the NYSE (New York Stock Exchange) stepped in and arbitrarily drew a line above and below which trades that day were 'broken' or canceled

    The Commodity Futures Trading Commission has position limits that regulate how many contracts, long or short, any one market participant can hold. HSBC and JPM not withstanding.

    (What is going on with Silver?)

    And not forgetting:-

    The special attention given to a favored bank or two, the US Fed has been busy printing up and handing out some $75 billion per month to its coziest clients.

    Or:-

    The millions of people who ran out of extended unemployment benefits and lost houses due to completely fraudulent and illegal banking practices.

    No Robert, no one here believes a word of this fraudulent recovery. The average working man is paying for it and his children will continue to pay for it. In some counties people are paying for it with their lives as the commodities are priced at ever higher levels so that the US can devalue the dollar and inflate asset prices.

  • Comment number 22.

    RP Wrote:
    "Similarly, a premature return to normal monetary conditions and normal rates of interest in the UK could wreak havoc on the finances of British households still struggling to manage record levels of personal indebtedness (a point also stressed in related presentations by Stephanie Flanders and Simon Gompertz)."
    ----------------------------------------------------------------------------------

    For the UK economy everything else is insignificant. Until the economy is devalued considerably there is no future.

  • Comment number 23.

    Well Thanks Robert.
    That's a bloody great way to start the week.
    Cheer up you miserable sod !

  • Comment number 24.

    # 20

    Yes I heard the 'More or Less' programme where Digger's fantasy figures were demolished. Actually I think the bank tax contribution was reduced to 11% or less depending on tax avoidance behaviour....as if.

    I also agree with you that the UK does not really control it's own assets or capital. That would be a band of unelected power brokers who meet regularly and from whom no minutes or statements are provided.

    Contrast that with the Command economies of China and Russia and I've not a clue where we'll end up.

  • Comment number 25.

    Apologies for being too simplistic. The Daily Mail recently showed a visual aid of where Government spending goes. It is mostly Welfare Benefits and the NHS. The rest is just small beer. The largest componant of the Welfare budget is the pension bill. No government is going to touch either of these holy cows, so the overspend will continue and we will play around the edges slashing a billion here, a billion there and hoping against hope that growth will balance the books

  • Comment number 26.

    20. At 10:43am on 17th Jan 2011, nautonier wrote:

    "The starting point with 'proportionality' is this ... the UK banks according to Digby Jones pay 20-24% of UK tax reveneus. This was found to be another lie/error and his figure has been redeuced to 12% (or less with tax fiddling) ... but our banks either directly or indirectly control about 90% of all UK 'capital' ... depending on our one defines 'capital'."

    AND

    "It is no use asking the BOE to maintain low interest rates when it is tasked with controlling short medium and long term inflationery pressures and effects ... it is their primary task to manage inflation and interest rates and currency levels ... in whatever environment is provided to them by UK government."

    ----------------------------------------------------------------------------------

    So who do we think are demanding low interest rates, government or corporate business, and therefore running the economy.

    Tick box A for Corporate Business or Box B for Corporate Business.

    FASCISM!!!!

    As for recovery, the UK hasn't even got out of rehab yet let alone started recovery. Recovery pah! We're still in the death throes.


  • Comment number 27.

    Similarly, a premature return to normal monetary conditions and normal rates of interest in the UK could wreak havoc on the finances of British households still struggling to manage record levels of personal indebtedness

    .....................................................................................................................

    I remember a poster scolding us all on here once for mixing up high finance and personal finance. He pointed out our reactions to the world financial crisis were based on how we dealt with money as individuals. It's probably true, how could we know how the minds of the masters of the universe work ?

    Robert's statement above shows most people in the UK can not live within their means. If going back to a normal economy would 'wreak havoc' in British households, it's shows a normal economy is unaffordable to normal people.

    Why ? house prices of course. You need affordable housing for people, it should be the governments number one priority. But they can not build because the people in existing homes would lose money and them folk ain't going to vote for you. Maybe the government should give an interest free one off loan to newly married couples to get them started. Just the first loan, if they divorce, sorry folks back to the banks. At least this will do something to help the young un's and it would leave them a bit more money to spend to help the economy.

    I expect the high finance boys will scold me once again for my inane ramblings. But I always believe starting at the bottom is the best place to start, build the foundations for an affordable life... building houses would be better though.

  • Comment number 28.

    ...and the crises will become more frequent and more violent - for these are the death throws of Capitalism which is fighting for it's survival - a survival which has the destruction of the social fabric as it's price......

    It was good to see Ed Milliband at the weekend showing that the truth will not be a casualty of fear.

    Just because the simpletons of the UK like to blame Labour (and Gordon) for everything - the facts are that public spending was not at the heart of the crisis. Too many Labour supporters have readily accepted this argument simply for a 'peaceful life' - but just because the right wing idiots are loud and aggressive - you should not take on the blame fro something that is being used to cover up ideological changes.

    You can blame Labour for mismanaging the banks (not that ANY other Neo-liberal party actually had a 'increased regulation' stance during the boom - although can you name any party that has during any boom? - regulation is the afterthought, it always is).....but you cannot blame Labour for the depth and length of the crisis. It wasn't new schools that needed bailing out....the hosptials didn't come cap in hand claiming without support "the economy is doomed" now did they?)

    Cameron's admission today is a giant red target on the NHS. He's not making this non-manifesto, non-coalition agreement change because the NHS needs it - he's making it because he's a son of Thatcher.

    Luckily - greedy and selfish are often next to stupid - and the closing of NHS hospitals and the outrage from highly respected Doctors should focus the minds of the people and make it clear who is on their side and who is against them.

    Take a seat people - Capitalism is going to fail - we can see that with Roberts piece. Apparently we're hoping for a GDP growth rate of 3% (the heady days) - but isn't inflation already running higher than that?

    Japanisation - we're heading for a lost decade (or maybe two) - because lets not forget that when Japan strated heading downwards the rest of the world wasn't - now we're going the same way - but who's left to pull us out?

    You've got to love those who defend Capitalism with "it's the best we have got" - if this system is the best we have got - then I would suggest we have nothing, and maybe the human race's "self genocide" will in fact be a welcome relief for the Earth.

    I hope you all saw the seattle protests film last night - it's going to be like that for the foreseeable future. A police state taking orders from a private sector who's sole goal is profit - anything that gets in it's way must be exterminated....and that includes human life.

  • Comment number 29.

    24. At 10:55am on 17th Jan 2011, LostatHome wrote:

    # 20

    Yes I heard the 'More or Less' programme where Digger's fantasy figures were demolished. Actually I think the bank tax contribution was reduced to 11% or less depending on tax avoidance behaviour....as if.

    I also agree with you that the UK does not really control it's own assets or capital. That would be a band of unelected power brokers who meet regularly and from whom no minutes or statements are provided.

    Contrast that with the Command economies of China and Russia and I've not a clue where we'll end up

    ............................

    Hi ... Yes ... very good point about China and Russia ... I've just been reviewing their global trading indiscretions on the following website:-

    https://www.globaltradealert.org

    BTW - for those who keep saying that more better targeted import tariffs are not needed in the UK ... I suggest that review of the data on the above web site makes interesting reading ... particularly for those who are ignorant of our local and global competitors' 'rampant protectionism.'

    See how out of date and innapropriate are our existing UK import and export tariffs as now muddled up with EU tariff mechanisms in another ... 'EU straight-jacket' and as not having any 'rebalancing effect' on our UK economy.

  • Comment number 30.

    Excellent video clip.

    There is a parallel here: unsecured credit card debt is costly whereas a mortgage secured on your property is cheap (and has 'health warnings' associated with it such as 'you may lose your home if payments stop'). But companies are now having some success in getting unsecured debts that go unpaid to be secured on your property (but don't refund the high interest you paid).

    Unsecured loans to banks from sovereign states are now being secured by the country of origin of the bank (witness HBOS and RBS) if the bank gets into difficulty. This is unsustainable but is (for the moment) convenient.

    Strangely the reason why it is such a disaster to allow a bank to go bust is that it triggers derivative contract payments of such large magnitudes that it would not be possible to find the money for them. Here's the real problem - derivative trading whose gross amount is many times the GDP of the planet. These contracts are the classic 'Emperor's clothes' but are, fortunately, not something that children are allowed to see for fear of what they would say!

    t

  • Comment number 31.

    26. At 11:02am on 17th Jan 2011, NorthSeaHalibut wrote:

    20. At 10:43am on 17th Jan 2011, nautonier wrote:

    "The starting point with 'proportionality' is this ... the UK banks according to Digby Jones pay 20-24% of UK tax reveneus. This was found to be another lie/error and his figure has been redeuced to 12% (or less with tax fiddling) ... but our banks either directly or indirectly control about 90% of all UK 'capital' ... depending on our one defines 'capital'."

    AND

    "It is no use asking the BOE to maintain low interest rates when it is tasked with controlling short medium and long term inflationery pressures and effects ... it is their primary task to manage inflation and interest rates and currency levels ... in whatever environment is provided to them by UK government."

    ----------------------------------------------------------------------------------

    So who do we think are demanding low interest rates, government or corporate business, and therefore running the economy.

    Tick box A for Corporate Business or Box B for Corporate Business.

    FASCISM!!!!

    As for recovery, the UK hasn't even got out of rehab yet let alone started recovery. Recovery pah! We're still in the death throes.
    ......................
    Hmmm .... so what is your point?

  • Comment number 32.

    Having viewed the video am I right in thinking that the Eurozone has not really faced up to the credit crunch or that another crunch is looming once the European central bank stops buying bonds?

    If the states with defecits eventually get themselves sorted out then will their credit worthiness recover? If so then it appears that we will again return to a credit fuelled system.

    Perhaps its simplistic to say that this is a vicious cycle in that without growth Spain and Portugal (among others) will struggle to get to that credit worthy state.

    In the meantime it appears that growth is a long way off.

    My own view is that the long term solution to this problem is not the pursuit of economic growth anyway. Additionally cuts to public expenditure are going to backfire eventually in terms of social costs and externalities.

    The lack of credit results in inflation through price rises and further challenges to growth in the form of unemployment caused by cost cutting as businesses and banks attempt to recoup money in the short term.

    The solution is efficiency gains in other ways. I think that the whole question of what efficiency really means is brushed over in the quest for short term gains to keep shareholders happy.

    What needs to be addressed next is private sector efficiency.
    There is a vast array of ways in which private business are incredibly wasteful in their quest for short term profits. This seems to be an area which is conspicuously overlooked as we assume that competition automatically leads to efficiency (whilst in reality the level of competition in a lot of industries seems to be minimal. There are too many cartels and the banking industry is a prime example.

  • Comment number 33.

    I laughed out lud this morning when I saw the Ernst and Young ITEM club guy on Breakfast news.

    Apparently inflation is nothing to worry about - and the BoE should keep rates low. This guy reckons the problems are being caused by increasing fuel and commodity prices - but when they 'go away' there won't be any more inflation.

    Seriously BBC - where do you get these clowns from? How can you put someone on the TV who talks (unchallenged) total rubbish? You'll confuse the people and eventually they will get angry and smash the place up - that will be your fault BBC.

    Please get some people who know what they're talking about on TV - of course inflation is being driven by commodity prices and fuel inflation - that's what usually drives it. Pointing to low wage inflation and apparently low input price rises (despite reports being for rising input prices) - as this man did - just means that the wage earners will soon run out of wages to feed themselves - and the result is the same.

    There needs to be a law that the only people allowed to talk about economics on TV are those who can explain what they're talking about. Simply making glib statements of 'fact' without any challenge is ridiculous. You trundle out an 'expert' at least once a week to tell us that the recovery is here or that we've turned a corner.....

    ...that's been going on for nearly 3 years now - don't you think it's looking a little bit like you're lying to us?

  • Comment number 34.

    31. At 11:10am on 17th Jan 2011, nautonier wrote:
    26. At 11:02am on 17th Jan 2011, NorthSeaHalibut wrote:

    ......................
    Hmmm .... so what is your point?
    -----------------------

    Eh?

  • Comment number 35.

    With acknowledgments to the 'Hitchhiker's Guide to the Universe':

    Planet Earth: imports none, exports none, deficit many billions, debt many trillions.

    I have always wondered what 'world inflation' meant. This is what we seem to have?

  • Comment number 36.

    We are living under a volcano.
    Banks have been bailed out to the tune of £3Trillion by Central Banks and Governments around the world. They have used this money for two main purposes - to speculate on commodity prices driving the cost of oil and food to record highs and to short European Government Bonds inflicting huge misery and debt on the populations of these countries.
    Ordinary people are paying for the bank bail outs through cuts in public services, pay restraint, job losses and higher inflation (due to speculation and quantitative easing).
    The Banks are rewarding themselves with unbelievable bonuses and pay hikes. No apologies, no jail sentences for those who caused the crash - just business as usual and the middle finger of £7Bn bonuses.
    In the UK, at least £124 billion of the money we have given the banks is being scored on the National Account as government debt-

    https://www.nao.org.uk/publications/1011/support_for_banks.aspx

    This gives the Government the excuse to inflict £81 billion of cuts and tax rises on us.

    The ConDem Government promised the electorate reform of banking remuneration-
    www.guardian.co.uk/politics/2009/oct/26/george-osborne-bank-bonuses-ban

    But due to their funding arrangements we won't be getting it-

    https://www.havingtheircake.com/content/2_Our%20financial+industrial%20system/7_Government%20and%20politicians/Politicians%20and%20the%20finance%20industry.php

    People are realising that we are not in fact all in it together but have instead a kleptocracy

    https://en.m.wikipedia.org/wiki?search=Kleptocracy


  • Comment number 37.

    ~28 WOTW
    Is that a direct quote from Milliband, and if so from where?

  • Comment number 38.

    "32. At 11:13am on 17th Jan 2011, i wrote:
    I think that the whole question of what efficiency really means is brushed over in the quest for short term gains to keep shareholders happy.

    What needs to be addressed next is private sector efficiency.
    There is a vast array of ways in which private business are incredibly wasteful in their quest for short term profits. This seems to be an area which is conspicuously overlooked as we assume that competition automatically leads to efficiency (whilst in reality the level of competition in a lot of industries seems to be minimal. There are too many cartels and the banking industry is a prime example."


    I am struggling to see the consistency in this argument, "i". Market power often comes from investing in the development of strategic factors (these markets themselves may or may not be efficient), so apparent lack of competition in many industries is actually evidence of the long term investment behaviour of companies. So is it the short termism or the long termism that is the problem?

  • Comment number 39.

    Global Economy? - Recovery? -Lets see what happens on Thursday when the December inflation figure for China is announced. About 4.5% is good. Less would be better, but higher and we all need to keep a look out. If it comes in red hot, then Beijing will not blink at a heavy correction and the ripples will be global - especially commodities.

  • Comment number 40.

    For once I will (at least in part) be agreeing with John-from-Hendon.

    If we assume that govt will get control of public spending and drive it down to below 40% of GDP (tough but manageable) and we assume that the banks will re-capitalise themselves (again tough but entirely manageable if only by reducing dividends and bonuses) then that still leaves the elephant in the room of private debt.

    Unlike John, I am not so worried by mortgage debt. People have to live somewhere and in many cases the mortgage cost is actually less than the rental on the same property (why that is the case is a different issue). What worries me far more are the private debts in the following two catagories
    (a) people running up debts because the costs of running a non-extravagent lifestyle exceed their income
    (b) people running up debts because they refuse to curtail their lifestyle even though what they would cut back is not particularly important.

    The first group I have sympathy for and our benefit system should assist, the second group I have no sympathy for. Sadly the second group is likely to be much higher than the first.

    For the second group I have some suggestions:
    1. Give up smoking
    2. Reduce your drinking
    3. You do not need that Sky subscription
    4. Foreign holiday(s) are not necessary.
    5. And for the really radical - can you move to a different part of the country? NE/NW England are much cheaper places to live, the people are very friendly and the football is better (you may guess I am a little bit biased). Teachers in particular should look at this option. Not suggesting this is an easy option, it is not, but sometimes you have to look at radical changes

  • Comment number 41.

    Oh Robert, I do hope you are sitting in the audience of the Frontline Club to listen to all this wonderful description of banking, lawyers, accountants etc coming from John Christiannsen et al

    I expect a full professional reporting.

    Thanks

  • Comment number 42.

    Here's a radical idea: If attempting to combat inflation by raising the base interest rate, why not make the rise applicable to NEW loans only?

    This would avoid causing hardship to those whose budgets are thrown out of balance by increasing repayments beyond their means, while still reducing future borrowing - the stated intent of such a hike. This would be of especial benefit to those whose circumstances have already been adversely affected by downturn or austerity measures, who are struggling to pay off loans taken out when they could afford them.

  • Comment number 43.

    10. At 10:17am on 17th Jan 2011, DebtJuggler wrote:
    MEMBERS OF THE FORMER GOVT THAT WON'T BE AFFECTED BY THE AUSTERITY MEASURES

    For all the city bashing going on last week from the red benches, it seems Gordon’s old lot, especially those advising him on money matters, couldn’t sign up to the financial world soon enough. Working directly for banks or investment firms are:

    • Lord Davies – Former Minister for Trade Promotion and Investment
    • Ruth Kelly – Former Secretary of State Department for Transport
    • Lord Malloch-Brown – Former Minister of State Foreign Office
    • Lord Myners- Former Financial Services Secretary
    • Ian Pearson - Former Economic Secretary HM Treasury
    • Jacqui Smith – Former Home Secretary
    • Baroness Vadera – Former Under-Secretary of State Enterprise
    • Admiral West – Former Under-Secretary of State Counter-terrorism....[End quote]

    Thank you DebtJuggler for consolidating this information. The rank hypocrisy of some of the former Gov't Elite thus reconfirmed for me.

    There are many pigs at every trough.

  • Comment number 44.

    John Christensen is saying 20 trillion dollars is being held offshore!

    He also says "Secrecy encourages criminal activity." Right we all know that, don't we. Then he goes on and says "Bankers...promote secrecy.."

    It's time we had police investigations into these monsters organisations.

  • Comment number 45.

    The Bank of England appears determined to follow an interest policy that keeps the pound low ( although that is not part of there remit). It is therefore no surprise that oil, gas and food prices are shooting up and boosting inflation - we are importing inflation. A small increase in interest rates ( to say 1%) would help the pound, reduce inflation and only slightly reduce the competitiveness of our exports. As we import more than we export it would also benefit the balance of payments. An increase in interest for savers would mean more tax for the treasury and more spending power for savers; whom we are frequently told vastly outnumber borrowers. I appreciate that this can't go too far the other way but it does worry me that the pendulum appears to have swung completely towards low interest / low sterling which is building up problems for the future.

  • Comment number 46.

    "There are reasons to hope that we will avoid a double dip back into recession. That said, the weight of debt bearing down on our economy raises the prospect that growth will be relatively anaemic for years, that a return to the 3% per annum enjoyed in the UK during the golden years of 1992 to 2008 may prove elusive."

    Robert, as a financial journalist of some standing perhaps in some future work or perhaps it is more in Stephanies domain you could elucidate further on these golden years.

    For a start given that during these years - most of the apparent growth was funded by borrowing both public and private at unsustainable levels and therefore fundamentally was not real. This nation borrowed and lent it's way in the world and did not earn any of the apparent improvements or vast expenditure increases (or tax decreases without equivalent cost cuts) it lavished on itself during that time.
    More importantly - for much of the last 30 or 40 years this nation has been unprofitable i.e. our economy did not earn more than it spent as an entirety.

    The public still appears to believe that the nations collective efforts and work produced a situation where all this was affordable and earned - it is and remains largely deluded in this belief.

    A significant proportion of the population live under the impression that they are contributing to the wealth of this nation when the truth of the matter is that actually most of population is not either directly or indirectly.

    Now is a good time for any government or political party to get this clear with the population - because put simply it can be defined not as politics since we have had two series of long single party rule from both main parties and both made a comprehensive mess of it and failed to fix the problem or inform the population that there was no jam tomorrow because unfortunately we are still paying for the jam your parents had but forgot to pay for.

  • Comment number 47.

    25. At 10:56am on 17th Jan 2011, Tony wrote:

    > The Daily Mail ....

    Harumph!

    > the NHS. ... the pension

    are used by the people who built this country in the first place.

  • Comment number 48.

    • 25. At 10:56am on 17th Jan 2011, Tony wrote:
    Apologies for being too simplistic. The Daily Mail recently showed a visual aid of where Government spending goes. It is mostly Welfare Benefits and the NHS. The rest is just small beer. The largest componant of the Welfare budget is the pension bill. No government is going to touch either of these holy cows, so the overspend will continue and we will play around the edges slashing a billion here, a billion there and hoping against hope that growth will balance the books

    - It's simple cut the winter fuel allowance, hope for a cold winter and bingo pension black hole sorted!

  • Comment number 49.

    47. At 12:08pm on 17th Jan 2011, Jacques Cartier wrote:

    Well put

  • Comment number 50.

    Just to give a flavour of what might come out this week. I imagine that 1 or 2 UK residents will have an eye on the news! Why? Because former Swiss private banker, Rudolf Elmer, is about to give the Wikileaks site reams of data on who is secretly using offshore bank accounts. He will hand over the data at a news conference tomorrow, according to Der Sonntage newspaper, (via Reuters).

    Two compact discs containing the names of business people, artists, and politicians will be handed over. "The documents show that they hide behind banking secrecy, probably to avoid tax."

    Odds for a UK politician or two being on the list? Anyone?

  • Comment number 51.

    Anyone else notice the price of gold is dropping like a stone – about 10% over the last six weeks, but still about 10% over the price this time last year?

    I'm sure this isn't anything to do with the speculators, awash with free government-supplied QE cash, selling their gold at an all-time high and moving into commodities.

    I do hope they've kept some for when the end comes, but, of course, they're so stupid and greedy that they probably haven't.....

  • Comment number 52.

    Little point keeping base ates low to avoid recession if lenders are going to ignore the policy due to recessionary increase in risk.

    https://www.bbc.co.uk/news/business-12206011

  • Comment number 53.

    17. At 10:37am on 17th Jan 2011, John_from_Hendon wrote:

    I agree with this post entirely.

    Inflation is going to be a continual nightmare for a long time.

    Interest rates should be much higher but the "invest in property" brigade are too valuable, politically, to Cameron and co for them to do anything about it.

    As a result property prices will continue to be propped up by an artificial restriction of supply (cuts to public housing, golf courses and green belts) which is bleeding younger generations dry in the form of rent and mortgages. The way in which we treat the under 30s in this country is shameful. They won't forget.

    The current government thinks it can worm its way out of this impasse in a series of privatisations of unprofitable parts of the public sector. All that will happen is the price of these services will go up and the vast indebted majority will pay more. More fuel for the fire. The standard of living for the majority of people in this country is headed downward for a very long time.

    The bubble isn't going to burst. The majority are going to pay for it slowly and for a very long tiime. Whats criminal about it is that its none property owners who are taking on much of the burden.

  • Comment number 54.

    Correction to my last post #50 - Release is today, now, in London, not tomorrow.

  • Comment number 55.

    51. At 12:17pm on 17th Jan 2011, the_fatcat wrote:

    Or a desperate country trying to raise cash secretly..... maybe?

  • Comment number 56.

    I seem to recall that in summer 2008, oil reached record prices and then the bottom fell out of our economic world. People stopped spending, couldn't afford their mortgage payments, subprime mortgages collapsed etc. I'm not the only one that thinks this :- https://www.econbrowser.com/archives/2009/04/consequences_of.html

    It's very convenient for politicians to blame bankers, but that's only a smokescreen to divert you from the fact that we've all been living beyond our means for a very long time and the prospects, even if we can get our debt down, are pretty grim reading.

    The imbalance will be between the oil producing nations and, unfortunately for us, the oil consuming nations. Each £50 tank of fuel that you put in your car contains the same energy as 4 man years of hard labour. This subsidises our economy on a massive scale and provides you with a life of luxury, plentiful wealth and plentiful food. Unfortunately we've reached the point where this endless free energy, wealth and food are less plentiful than they were and will only decline from here. Oil producing nations, can maintain their standard of living and population levels by exporting less.

    We have only one place to go in this oil depletion scenario which is back to victorian population levels and living standards.

  • Comment number 57.

    Whatever government was in place, the same addressing of the deficit would be taking place with the same level of ultimate pain. I think it's very easy for Mr Miliband to say 'it would be easier with me' but that is the 'talk the talk' protection afforded by opposition.
    We still have to address the defecit issues. As Mr Peston states in his presentation, sovreign debt is a big part of it, but domestic debt still looms large in the room. With the rules and indeed the entire landscape changed, saving suddenly becomes necessary, but with big debts many find putting money away hard to do. This also links to a reality that many seem to want to ignore - the current financial situation is the 'new normal' and we're not likely to get back to pre 2007 ease of funding any time soon.
    Interest rates are also interesting - I heard on the news yesterday that whilst inflation is high due to increases in commodities etc, wage inflation is very low and for many non-existent or negative. Hence a disparity exists that prices are rising whilst wages are not meaning greater pressure on home finances. Also consider what happens if interest rates rise, mortgage repayments rise and hence defaults become more common.
    Catch 22? - bottom line is we have to take the pain at some time.

  • Comment number 58.

    53. At 12:21pm on 17th Jan 2011, i wrote:

    The buy to letters may very well take a hit as housing benefit changes kick in. Not sure how they'll manage to let to people who can't afford the rent (we have legal requirements here about licensing landlords, number of occupants by size of home etc) though not sure how it will work in other countries of the UK.

  • Comment number 59.

    Whoooo hoooooo!

    I knew the people would bring this tragic system down in the end......see how the slaves rebel and undermine the system from the inside...

    https://www.bbc.co.uk/news/business-12205690

    Tragically the banks never saw this coming - they thought the people would always be complicit in their fraud - now they're finding out that morals are not a privilege afforded to a few.
    Expect more revelations from the banking world and the state in general - I mean we already have undercover police officers revealing some of the best kept secrets of covert operations.

    The truth shall set you free.

  • Comment number 60.

    38. At 11:33am on 17th Jan 2011, Mike3 wrote:

    Its a paradox. Too many business are kept alive. In many ways a countries' needs need to be solved once and for all by its businesses. Instead we are in a situation where we re-purchase things with limited lifespans in the form of various forms of in-built obsolescence. Its the equivalent of a worker who knows that s/he has "solved the problem" that is his job and could complete a 35 hour week's work in 5. His self interested quest for continuity is inefficient, but s/he gets away with it. The company continues - there is job stability. Likewise superior product which doesn't need to be repurchased could have been produced. End result = death or severe shrinkage of company and its profits. no company or investor wants this to happen so the market is rigged. Its inefficient.

    On the other hand the deaths of countless replicated private sector businesses cuts the fat from the economy but the loss of skills has a vast social impact. Why start 50 different companies if 48 of them will eventually fail because their marketing strategy wasn't food enough as opposed to the actual quality of their products?

    Takeovers and mergers occur when profits can't be made at the required level so businesses eat each other. The economy is churned continually at great cost in terms of retraining, unemployment benefit, loss of capital.

    Banks again are a prime example - with takeovers that backfire, banks are bailed out and kept afloat. Lack of competition in so many industries equate to endless hours of work which are wasted as people pay more because there is no real competition. Profits are reaped, the economy appears to grow, but really nothing more is produced - its just currency flying around.

    You could fill several libraries with this sort of thing. Instead we have this continual focus on the public sector.

    My main point is that half of what the nation does moves money along, but doesn't actually account for a real growth in standards of living.

    So called economic growth is the problem. It isn't real growth because most of what occupies the country is needless. Advertising adds a vast amount to the cost of producting anything. Company A and Company B spend a vast amount locked in a propaganda struggle (which they feel they can't escape) to win consumers and its the consumers that pay. Do I really need to be told that Cornflakes exist again? No, but I pay for it. The cornflakes are more expensive.



    My main point is that private sector efficiency is taken for granted. The whole concept of efficiency is ignored and most markets do no behave in the way that classical economics suggests that they should. Profits should shrink for any given product eventually. They don't.

    All of this goes unmentioned because the only alternative would be some form of interference by the state. Ideally such matters would be settled by consumers but they aren't.

    My main point is that in the midst of the clamour to cut out "unproductive" state spending there are vast areas of private sector activity which are entirely wasteful.
    On the one hand to keep investors happy through continuity (like what happened at Enron). On the other hand in the form of duplication of effort in the form of millions of failed businesses and the way in which we pay more so businesses can compete via marketing (just one example).





  • Comment number 61.

    56. At 12:26pm on 17th Jan 2011, doubledip wrote:

    "It's very convenient for politicians to blame bankers, but that's only a smokescreen to divert you from the fact that we've all been living beyond our means for a very long time and the prospects, even if we can get our debt down, are pretty grim reading."

    'meaan's being measured in pounds, shilling and pence of course - for the actual 'means' of the Earth are the resources available to us - and in terms of solar energy we haven't even touched our 'means'

    This is the diconnect between capitalism and real life. According to Capitalism we 'cannot afford' hospitals, schools and other public services. However the truth is we cannot afford NOT to have them. This is because people are being asked to make uninformed choices - and in many cases choices based on mis-information.

    This is why people 'choose' a new TV over paying more tax to keep their hospital open. They are not provided with the full information and consequences of such a choice. The 'choice' is driven by the advertiser - not really by the consumer, and the advertiser has a vested interest - and would rather sell his goods now than save lives in the future.

    This is what happens when you allow the market to rule - we get a 'price' for everything - but we know the 'value' of very little. This allows morons like the coalition to come to the idiotic conclusion that getting rid of public services will be 'better for the people' - which of course any 4 year old can see it won't.

  • Comment number 62.

    #28 writingsonthewall. Try and free your mind from the constraints of doctrine.

    The heart of the crisis was and is fraud and corruption. It is endemic, it is everywhere and that includes your much vaunted public sector. What do you think PFI is all about? Where were the pure hearted public "servants" when this particular fraud was being being forcibly metastised into the public sector? Where are the much vaunted teaching profession as they herd an entire generation of youth into the gulag of debt slavery?

    Capitalism has already manifestly failed and only those obsessed with doctrine would bother to debate such a nugatory point. No aspect of capitalist thinking contemplates the forced transfer of $trillions from poor to rich. No aspect of capitalism envisages the carpet bombing of any population that dares to resist this naked banditry. Instead of bleating about the NHS which is an entirely corrupt institution ask why cancer rates in Fallujah now exceed anything ever recorded in Hiroshima or Nagasaki.

    You suckers stood around and watched this happen, somehow assuming that your devotion to the cult of political correctness would offer you protection from the horrors that your tax revenues are used to inflict on others.

    It´s game over and the volcano will blow, but this time the hot lava is going to fall on the heads of those who consider themselves wholly innocent, whose only desire in life, was the pure and alturistic desire that their house price would rise for ever and ever. You have been suckered into the end game through a cunning combination of ignorance and delusion.

    The cult of doctrine will not save you.


  • Comment number 63.

    #56. At 12:26pm on 17th Jan 2011, doubledip wrote:

    'We have only one place to go in this oil depletion scenario which is back to victorian population levels and living standards. '

    Since the Victorian times I think you will find that we have invented many more power sources than hard labour. Petrol, weight for weight contains more power than dynamite and although petrol is a mightily impressive energy supply, there are more impressive and more plentiful energy sources out there. Water for one - Hydrogen and Oxygen - both very volatile gases. I believe we have oceans of the stuff.

  • Comment number 64.

    Please let this truly promising Swissgate give us some CONDEMS i.e.

    https://www.bbc.co.uk/news/business-12205690

    Just 1 or 2 either from the HOC or HOL I'm not fussy.......

  • Comment number 65.

    All these people who are wishing for pain. What a dreadful lack of analysis and a mind devoid of coming up with creative solutions to problems.

    Still with that, all you need is a history book. All you need is to read Greg Philo's article in the Guardian.

    The rich benefited. The rich weewee'd in their own home. The rich need to clean it up.

    What do you think churchill would have said if someone suggested closing down the libraries during World War II?

    The rich paid 95% tax way back then. Anyone who tells you you can't put up tax rates on the wealthy is just as likely to tell you how old you will be when you die from reading your tealeaves. All drivel! Pure drivel!

  • Comment number 66.

    I think Julian Assange has just been given his 'Get out of jail free card' courtesy of Julius Baer

  • Comment number 67.

    There is a clear disconnect between Growth, Debt levels and Interest rates in most Developed countries. The risks of Sovereign default are very high but Interest rates are at historic low levels. This cannot continue for very long. No country has come up with any plan to raise Revenues and lower Expenditure so that deficits and Debt can be whittled down. This cannot continue for very long and sooner or later Interest rates should rise. Whether this follows an Economic collapse or causes it, I am not sure. Low Interest rates starting with Greenspan attracted Capital flows to speculative financial products. Rates should be such that Savers are rewarded, not speculators. Credit rating agencies have colluded with Debt issuers to create a cocktail of toxic financial products that are festering Time Bombs which cannot be defused without the Global financial system unravelling.

  • Comment number 68.

    59. At 12:31pm on 17th Jan 2011, writingsonthewall wrote:
    Whoooo hoooooo!

    I knew the people would bring this tragic system down in the end......see how the slaves rebel and undermine the system from the inside...

    https://www.bbc.co.uk/news/business-12205690


    ----------------------------------------------------------------------------

    Oh this is only a taster. I believe Wikileaks has much more profound information on how and by who (or should that be by 'what') affairs are really run. The 'Disclosure' movement has a lot more to uncover....

    You're right though, the elite thought they would control the politicians who would control 'us'. They forgot that the internet would erode everyone's secrets. It's a bit dim and hpocritical though, because these same people argued that freedom of information would do for (other) totalitarian regimes. Well what's good for N Korea and Iran is also good for the rest of the elite.

  • Comment number 69.

    #33. writingsonthewall wrote:

    "I laughed out loud this morning when I saw the Ernst and Young ITEM club guy on Breakfast news.

    Apparently inflation is nothing to worry about - and the BoE should keep rates low. This guy reckons the problems are being caused by increasing fuel and commodity prices - but when they 'go away' there won't be any more inflation."

    ditto... I attacked these blind failures on Stephanie Flanders's blog.

    The key to comprehending these fools is that they are using the Treasury's Economic Model - that is the same one that didn't understand that the credit bubble would inevitably destroy us!!!!

    Ernst and Young's ITEM Club join my rogues and fools gallery! I have accepted their application and placed in the pillory!

  • Comment number 70.

    50. At 12:16pm on 17th Jan 2011, Seer wrote:

    "Odds for a UK politician or two being on the list? Anyone"

    -----------------------------

    There are 40...

    https://www.guardian.co.uk/media/2011/jan/16/swiss-whistleblower-rudolf-elmer-banks

  • Comment number 71.

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

  • Comment number 72.

    When we think that we have a "weak pound", we should think again. The pound is still probably overvalued.

    The pound at 2 dollars, was a fantasy, and flooded the UK with cheap imports, as we all bought material goods. This, like record bank profits, was not normal.

    We are still overvalued.

  • Comment number 73.

    If after reading all this you are a bit down and depressed and need a good laugh :- (moderators - please give your readers a good laugh and let this through - Thanks)

    https://www.youtube.com/watch?v=wy-0cuZ3m18&feature=player_embedded

    I know it has nothing to do with Banking, Sleeze, Fraud etc. But if only he could be prime minister for a day. Wow, world leaders look out.

  • Comment number 74.

    The biggest shame is that anybody expected the events of the last year to play out any differently than they have done. It is clear that when MP's of both sides all work for banks/advisebanks/are major shareholders in banks etc that there is no way anything other than giving sack fulls of cash to banks was ever going to happen - turkeys not voting for crimbo and all that...

    It is also shameful that the QE money is not being used for any useful purpose whatsoever. To an outsider it feels very much that this money is being given straight to the banks , this may or may not be the case but if we stop for a minute we see the the huge lost opportunity that is passing us by.

    What if this money had just been given to the people, to be used as they see fit? would we be in any worse a situation?

    What if this money had been used to fund infrastructure projects? instead we now face the prospect of trying to engineer a recovery using a 3rd world rail and road system that is falling to pieces and is not fit for purpose, in a climate of decreased funding...

    The waste of money is criminal and gut wrenching, here's to 20 years of pain.

    I'm off to invest in antiques, nothing else is safe and at least i get to have some nice things around me while it all goes to pot

  • Comment number 75.

    @25 - one way or reducing the cost of these two could be by reducing spending on nhs services this decreases life expectancy , therby decreasing pension liabilities. or is that too much of a stretch for a government struggling to balance the books....? job done if just a little callous.

  • Comment number 76.

    I think the majority of the UK has a small degree of cash left after their paycheck, that can absorb a small interest rate rise.

    However, I understand that the majority of the US, are however maxed out.

    As long as the US has 0% base rates, raising our rate will cause unintended consequences, methinks.

  • Comment number 77.

    "The big point however is that the imbalances which built up in the financial system and global economy over the 15 years or so till 2007 were so huge (bank lending, for example, that grew out of all proportion to the fundamental needs of the economy)"

    Almost everybody agrees that bank lending was too large, but many do not seem to be able to understand what has to be done to correct this. For example the government is responding to appeals for help from businesses, which can no longer borrow as they were accustomed to do, by trying to twist the arms of bankers to persuade them to lend more. In other words to return to business as usual. Should they not instead be concentrating on measures, which would allow businesses to accumulate capital so that they do not need to borrow as much in future?

    The financial world is demanding austerity, and it looks as if it is likely to get it. The funds it puts into supporting political parties are producing a good return. But will this not mean that businesses are likely to become more dependent on credit than ever?

  • Comment number 78.

    Reference jon112dk last comment
    You talk typical left wing dogma, inspired by mass hysteria created by the LW PRESS.
    Why dont you take a step back into the 'Brown' era to see where all of these problems were derived, its like looking back into hell.
    We need the new ideas of radical reform, carefully considered, in order to make some progression out of this mess, after all 13 years of 'Labour' has produced wars and depression.
    This coalition is a breath of fresh air which you obviously despise, yet all you can do is harangue and downcry it.
    You cannot accept the legal conclusion to the election and give a chance to the new kids on the block. Your negativism goes right up to Ed the 'RED' the lead cockeral, crowing in your chicken coop.

  • Comment number 79.

    • 47. At 12:08pm on 17th Jan 2011, Jacques Cartier wrote:
    25. At 10:56am on 17th Jan 2011, Tony wrote:

    > The Daily Mail ....

    Harumph!

    > the NHS. ... the pension

    are used by the people who built this country in the first place.
    Complain about this comment

    - The Romans? Really Jacques, you've gone too far!

  • Comment number 80.

    Reading some of the more lurid comments and rallying calls for revolution, one would be forgiven for thinking we were back in the 1970s. A lost decade a la Japan wouldn't be a bad result given the depths of the fiscal problems this country faces (both nationally and at the individual level). The next few years will be fairly miserable for 99% of the population. I think we're all agreed on that.

    However, how peoples' one-eyed soclialist ideals can allow them to blame the Conservatives for this state of affairs rather than the lefties that were actually at the wheel for THIRTEEN YEARS!!!! is hilarious. As for those that blame "banksters", well you weren't whining when their taxes were propping up your ludicrously bloated public sector were you? No, you're just whining now when tax revenues from the PRIVATE sector have collapsed.

    There's nothing more to say, the facts speak for themselves. The only people who should be blamed are Labour voters. In fact, if we could track them down, a fairer solution to the debt crisis would be to find each and every one of them say £20,000 (to be taken out of income if not assets). That would at least be a step in the right direction.

  • Comment number 81.

    #44 copperDolomite

    Good post!

  • Comment number 82.

    68. At 12:45pm on 17th Jan 2011, LostatHome

    very true..

    ...this is exactly why the Government is using terroism and Paedofillia as an excuse for imposing restrictions and controls on the internet. Fear is the only way in which they can control us now (we stopped listening some time ago) - and even that is waning as people realise that they won't be bullied into submission.

  • Comment number 83.

    40. Justin 150

    'Unlike John, I am not so worried by mortgage debt. People have to live somewhere and in many cases the mortgage cost is actually less than the rental on the same property'

    I will have to challenge your thinking on this Justin.

    Mortgage debt in the UK now stands at £1,240bn which is around 100% of our GDP. This debt is only affordable for millions because interest rates are being held at clost to zero. More than half of mortgage holders are on some kind of tracker.

    What happens to someone on base + 2% if rates rise just 2%. Well their mortgage goes from 2.5% to 4.5% (thats nearly double).

    Mortgage debt in the UK makes up 85% of all personal debt with credit card being a mere £214bn. Rates on credit card are already in many cases at close to 20% which has trapped many into a debt spiral. This despite the very low rates. Millions have used credit cards to pay mortgages already. The whole thing is on the brink.

    Regarding your other idea: 2 kinds of debtor. Those who you feel sorry for and those you do not. The worthy debtor, and the unworthy debtor; in future being separated by state support. Sounds like you would support the reintroduction of the poor laws and debtors prison. You are suggesting we simply deny any benefits to those who are going to lose their homes in the future if they are guilty of putting a summer holiday or too many christmas presents on the credit card. What about their children do they too forfeit any state help too. Where do we send them if their parents are in the street.

    How many pairs of shoes is reasonable before we define someone a spendthrift? At what percentage over 100% of household income is it a crime to spend?

    Your ideas feel very Victorian to me: You sound like 'Thomas Gradgrind'

    Maybe a better idea is to blame an other group for the mess and unfairly punish them. How about old people? Rather than punishing debtors who you deem unworthy of our sympathy and help. Yes, why not. It will be fun. They are an easy target. We could punish old people who are deemed to be pompous and greedy or just too comfortable. A panel of young people under 25, hard working, debt free but without a pot to p*** in would vote on who's property would be seized and sold in special episodes of 'Home Under The Hammer' The proceeds would be absorbed by the state to repay the National debt and build hospitals, schools and provide services for those who could not afford them otherwise. The old people who's property was taken would be turned into the streets as a warning to others thinking of growing old and confusing good luck for good judgement.

    Or maybe we could try to make things better for everyone to prevent collapse and violence.

  • Comment number 84.

    It is good to hear that all you guys at the Beeb get to talk to each other and it is encouraged by the management. Would that other managements did the same!

    The simple truth is that the economy is begining to repair much as any entity that has been wounded begins to eventually renew itself as best as possible from its available resources. It would repair much faster if it was not so badly damaged and its resources so constrained. There is no quick way out of this situation but we would get there faster if all appreciated that change has arrived and we must all change with it. Uncomfortable; but that is how it is, so adjust!

    Firstly, until the fiscal deficit is resolved and the government returns to a balanced budget the National Debt will continue to increase. This is likely to be around GBP 1.4 trillion by 2014. This debt will have to be serviced by interest payments running into billions a year. This is just servicing rather than reducing the debt. This will have to be done through either taxes or the sale of government assets. On this basis it will be a very long time before taxes can be reduced.

    Secondly, private debt is already as big as the National Debt will be in 2014. This is largely secured against inflated asset values otherwise called houses. Property values are already in decline which means that a lot of people are either going to end up in negatice equity or even insolvency.

    Thirdly, the banking sector needs to be reformed to protect the taxpayer from further failures in the financial system. Whilst the taxpayer needs retail banks but not investment or merchant banks, there should be no reason for the taxpayer to guarantee anything more than retail banking. The fact that taxpayers are very angry at having to subsidise an industry prone to generous rewards to their employees - the even talk about `compensation' as if they are all gentlemen doing us a favour with their time - suggests to me that the bankers would welcome the separation of retail banks from the what is to them the more profitable part of their activity. They could then enjoy the risks they love, reward themselves in the manner to which they have become accustomed and go bust without ruining the rest of us. Even the bold Mr. Diamond might prefer that solution: or would he?

    Fourthly, we need a return to the concept of value. Everyone seems to know the price of everything but the value of nothing these days. This is why we have lost a lot of our industry due to the simplistic ignorance of bean-counting. There are broader economic issues for an industry than just profit or loss and even those can be changed by just looking at the numbers in a different way. The reorganisation of an industry to promote efficiences should be facilitated by government and managements should be prepared to embrace change to ensure good performance.

    Fifthly, we should follow on items three and four with a rebalancing of our entire economy from consumption to manufacture. I have no idea to as to how this can be done but Europe should see itself more as a single market and seek to make within its borders what it now imports from outside. The provision of gainful employment is in itself a good thing as it stabilises society, creates value and consumption. This is what Keynes called the multiplier and it needs to come back into our economic and political perceptions.

    Lastly, without value in our currency we cannot measure any economic value. Current policies on interest rates are adding to our problems with inflation gradually eating up our available funds and banks continuing to stoke up another bubble. There needs to be a return to realistic interest rates as this will help the economy to repair even faster.

  • Comment number 85.

    78. At 12:58pm on 17th Jan 2011, C Morgan wrote:
    We need the new ideas of radical reform, carefully considered, in order to make some progression out of this mess, after all 13 years of 'Labour' has produced wars and depression.
    ===========================

    Simple fact is the tories inherited 1.2% growth, it is now down to 0.7% and forecast to be 0.4% in the next figures. The IFS, CBI and even Osbornes own 'independent' OBR have all revised their growth forecasts downwards as a result of the cuts.

    There was a global recession during the last parliament.

    During this one there is a global upturn - but because of your tory mates, the disunited kingdom is not part of that recovery.

    In the near future the cuts really kick in - a million people dleiberately thrown out of work, whilst millions more stop spending out of fear. Inflation is rising. The tories have pushed the price of petrol/diesel through the roof with their taxes.

    The only thing open for debate is whether the tories have just stunted the recovery or actually precipitated another recession whilst the rest of the world is in upturn.



    (The growth inherited by the tories is purely due to the global upturn - nothing to do with labour. I am no fan of labour)

  • Comment number 86.

    I know the media has for years force-fed the incorrect definition of inflation to the masses, and I know there are plenty of people who say rising prices is all they care about, not monetary theory. However, a clear view of causation is essential when it comes to defining your reaction to rising or falling prices, and prices that rise because of scarcity demand a totally different set of actions than those that do because of a rise in total supply of money and credit, combined with velocity of money, which is what inflation truly is.
    The present, incorrect and force-fed "meaning" of inflation as all price rises no matter what their cause is, is relatively new. Rising prices used to be referred to as "(currency) devaluation". Not perfect, but way better than what we have now, where terms like “monetary inflation", "price inflation", "consumer inflation", "energy inflation" all the way down to "Loaf of bread inflation" fill the media.
    Why is the distinction between the definitions important? Because today in the UK both the money/credit supply and the velocity of money are falling (deflation), while some prices are rising, in particular those of food and energy. And no, you can't have deflation in one sector and inflation in the other. That really turns the whole debate into obscure nonsense. It's important to determine that if prices rise in times of deflation, the cause for those price rises must be something other than inflation.
    In today's world, that something else is speculation. But not of the ordinary kind. What we have right now is QE money speculation. The same unrecognized losses in the financial system. Mentioned in my earlier posts, that our governments cover up with criminally negligent accounting non-standards cause prices of oil and food to rise, since that's where the QE money -inevitably- ends up. And it's not just the banks that invest QE money, it's all of us.
    If banks would have been forced to reveal their losses, the hammering of home prices would have been huge. Since this did not happen, a lot of people are still sitting pretty in their homes, which are way more overvalued -in free market terms- than just about anyone is ready to recognize. Also, if banks had revealed their losses, unemployment rates would have been far higher than they are today.
    I know what many are thinking: maybe it's not such a bad idea to cover up those losses. But you need to see the whole picture. First, the cover-up has enabled the banks to access your money in order to pay down their debts. And second, QE money is not the same as real money, as something that has been earned by adding real value. QE money is not real.
    "Prepare for Hyperinflation".
    Preparing for hyperinflation is not just useless at this point in time, it's also damaging in that it makes people blind to the real problem: deflation. And before we get to hyperinflation, if we ever do, deflation will cause so much pain and grief and unrest and death, that the very thought of hyperinflation will come to be seen as a highly delusional non-issue.
    So how long will the QE money last?
    The QE money has to disappear, and it will. It all starts and ends with US and European real estate, the one biggest investment of those of us living on Main Street, by far. US home prices have now fallen for 53 consecutive months, despite the fact that Fannie Mae and Freddie Mac buy up and guarantee near 100% of all mortgages, and despite the fact that the Fed has purchased huge swaths of the securities allegedly backed by these mortgages.
    All those trillions "worth" of your money haven't been able to prevent that. And no amount of additional trillions will. Foreclosures are setting brand new records across the country, even as banks are ever more nervous about their paperwork, and their balance sheets. It doesn't matter how much money Washington throws at the issue, other than it’ll make you a whole lot poorer, for you’ll never see it back.
    In the US a further deterioration in home prices can't be prevented. Fannie and Freddie can’t buy 101% of mortgages; they're buying close to a 100% right now and prices still fall. Burger flippers and the rest of the great unwashed will not be allowed back into the housing market.
    I’m all for a society, a government, that takes care of the weakest in its midst. I’m all against a government that props up the strongest in its midst, in this case the bankers with bonuses larger in one year than the weaker among us can make in a lifetime, the same bankers who lost more money in bad wagers than the entire country can cough up, and still be economically viable.

  • Comment number 87.

    debtcrisisdave: I could not agree more. From the minute the Tories decided to sell off our public utilities and give away North Sea oil revenues in tax cuts to their friends (who regularly evade / avoid tax at every opportunity) and therefore placed the burden of financing our economy unfairly on those least able to pay, we have been heading for this debt crisis.
    Labour had to square the circle of the public finances being starved by those most able to pay with the need to replace infrastructure that had gone to pot under the Tories. Not one privatisation has delivered the infra-structure benefits claimed for it without loading the cost onto the consumer (the real stealth taxes), instead of being managed through central taxation policy.
    Labour chose the worst possible method of financing its infra-structure projects, steaming ahead with the Tories' costly, arguably fraudulently off balance sheet, PFI / PPP plans (just look at the similarities between HMG spending and Enron's accounts) not one of which has been shown to be more cost-efficient than schemes funded from central taxation: and which has left a legacy of our public institutions having their cost base massively increased by PFI profiteers exploiting poorly drafted contracts.

    #78 C Morgan - why don't you take your blinkers off? Your, no doubt, darling Margaret kicked off the whole greed, debt, free market, off balance sheet, PFI cycle: to Labour's undying shame, they carried on with it, and this coalition look even more clueless. Labour were conned by the City and the bankers: this lot are the City and the bankers.

  • Comment number 88.

    72. At 12:50pm on 17th Jan 2011, Crookwood

    The problem is that so is the dollar overvalued - so by comparing the pound to the dollar the real value is vastly overvalued.
    This is the problem with moving exchange rates - getting a sense of value is almost impossible. The price of the worlds most valuable commodity (currently) - oil - is priced in an overvalued currency - but that's going to end soon and then we'll see a serious fallout.

    https://www.zawya.com/story.cfm/sidZAWYA20101223035820

    Those of you who read history will know that floating exchange rates were a 'fix' to previous financial problems - left after the Great depression and a world war.

    ...soon people will realise that without modern currencies not being pegged to anything (like Gold) - they can't actually 'value' their own pound. This is why ALL FIAT CURRENCIES ALWAYS end in total monetary and Economic collapse.

    This fact is often overlooked by those who claim this system is adequate and that we shoudl persist with it. Our nations were not originally using a FIAT currency system (it used to be backed) - but the contradictions of Capitalism demanded that something should be done - and the mistakes of many civilisations were ressurected - because apparently - "this time it will be different".

  • Comment number 89.

    25. At 10:56am on 17th Jan 2011, Tony

    There is a good reason no Government will ever tackle the pensions - simple because how are you going to convince the next generation to work when the pervious one is dying in poverty, after having worked hard all it's life?

    The Government knows without it's debt slaves there is no economy, no banks, no bonuses and eventually no order. They protect those pensions in order to save their own skin - but now the situation just points to how unsustainable it is to protect one section of society at the expense of the rest.

  • Comment number 90.

    Why is property so expensive, its not as if its rare like gold, the stuff is everywhere you look. Oh of course I forgot, interest on debt and the delusion we must all aspire to own some of it.

    Ther reason interest rates will cripple households is because the margin between base and bank rates has been redifined by the recession. Previously at a base rate of 5% my mortgage rate was 6.5% now the base rate is 0.5% my mortgage rate is 4.5% so raising interest rates is an o brainer for government despite it being absolutely necessary to rebalance the economy. Previously servicable loans at base rates of say 4% would become highly toxic and the banks can't take the hit. We are in for a very long period of low rates methinks.

  • Comment number 91.

    '76. At 12:52pm on 17th Jan 2011, Crookwood wrote:
    I think the majority of the UK has a small degree of cash left after their paycheck, that can absorb a small interest rate rise.'

    so why are millions apparently paying their mortgage and rent using credit cards rather than money?

  • Comment number 92.

    9. At 10:17am on 17th Jan 2011, jan wrote:
    As far as Im concerned the major issue of debt is barely being addressed. Individuals are still being told to 'spend spend spend' and banks are being told to 'lend lend lend' until we stop doing these two things to a sufficient extent the economy will be at risk. However doing so will also have risks. So which is it to be many years of stagnant economy or a few years pain then a new start?

    -----------------------------------------------------------------------

    This is the paradox of the current monetary system that is based on debt. All new money created is created out of thin air through debt, therefore the economy only grows as people take on more debt. When we pay our debt back the banks do not keep the money, they pocket the interest and write off the principle, thereby shrinking the money in circulation and therefore the economy.

    I find it ridiculous that the politicians refuse to see the root cause of the problem and do something about it. I suspect it could be that their lucrative careers after parliament are to be found on the boards of thses banks so they refuse to bite the hands that feed them ie Tony Blair and J P Morgan.

  • Comment number 93.

    80. At 13:00pm on 17th Jan 2011, a_sensible_comment wrote:

    "There's nothing more to say, the facts speak for themselves."

    ----------------------------------------------------------------------------------

    They do, so how did you get it so wrong. Parhaps you're not looking back FAR enough. And I'm not a labour supporter either, they all screwed up and have been doing so for fifty years at least.

  • Comment number 94.

    The outlook for 2011 is bleak Robert.

    Right now, the lava from your volcano is flowing towards Portugal & Spain.

  • Comment number 95.

    Having read today's blog I am considering selling up and buying the cheapest hovel I can, ripping out the boiler and installing a solid fuel AGA and exchanging the car for a horse...

    The point here is that successive short termism over the last 30 years has totally undermined the UK's strategic energy plan (if there ever was one pre-russia gas pipeline to EU).

    The UK having the benefit of a 100% coastline should now be the eco-energy capital of the world and apart from a smattering of wind farms we are now forced to go another round of nuclear.

    And for all those banker bashers - could the Govt step in to stop the CEO of Marks & Spencer taking a bonus? - OF COURSE NOT. Same with the Banks. They CANNOT be brought to heel because they have shareholders to please. PURE CAPITALISM means PROFIT is the ONLY driver and the incentive is, of course, FAT BONUSES.

    I don't know the answers to the mess we are in but unless we get a rapid grip of where we want the UK to be in the next 20 years then the outlook is very grim.

  • Comment number 96.

    78. At 12:58pm on 17th Jan 2011, C Morgan wrote:

    "Reference jon112dk last comment
    You talk typical left wing dogma, inspired by mass hysteria created by the LW PRESS.
    Why dont you take a step back into the 'Brown' era to see where all of these problems were derived, its like looking back into hell."

    All the problems were derived in the Brown era? - so why is the US in crisis? - why is Europe collapsing? What made Greece default? - was it all Brown's fault?
    Wow that guy deserves a medal - I mean even the Green Goblin couldn't cause that much damage and he is a super-villan.
    Maybe you didn't think it through properly and instead simply regurgitated from your right wing press toilet paper.

    "We need the new ideas of radical reform, carefully considered, in order to make some progression out of this mess, after all 13 years of 'Labour' has produced wars and depression."

    I think you'll find Capitalism produced war and depression - or are you blaming Gordon for the events on 1929 too? - I'm not 100% sure but I don't think he was born then...

    "This coalition is a breath of fresh air which you obviously despise, yet all you can do is harangue and downcry it."

    No it isn't - it's just a Tory government intent on destroying public services - with a "yellow arm" which does the PR (badly). There is nothing new or fresh about anything the coalition are doing. Maybe you're not very expereinced in politics, but this game has been going on for at least the last 30 years.

    "You cannot accept the legal conclusion to the election and give a chance to the new kids on the block."

    Do you mean the legal conclusion which meant that the Tories didn't have enough for a majority and were forced into coalition or re-run the election? This is a bit like the 'legal conclusion' the state of Florida came to when Bush got re-elected!
    Laws won't make a jot of difference, when the people conclude (as they are doing) that the Government is not doing what it said it would - they are going to burn it to the ground - it's what the people do - a good history book will show you that.

    "Your negativism goes right up to Ed the 'RED' the lead cockeral, crowing in your chicken coop."

    Negativism? - I would have thought a negative view would be shut down public services following an Econommic crisis and cite the 'impending doom' of the deficit as your reason for doing so......

    Did you actually have a point to make - or were you simply voicing your (sorry I mean someone else's) borrowed opinion?

  • Comment number 97.

    #33 writingsonthewall: 'There needs to be a law that the only people allowed to talk about economics on TV are those who can explain what they're talking about.'

    I prefer the approach adopted on these forums of branding any dissenting contributions as the work of Daily Mail readers. It seems a good way of ensuring the class-warrior dogma isn't threatend without resorting to censorship

  • Comment number 98.

    " Inherited an up turn", just stopped laughing enough to enable a reply. The last administration were handed an economic dream and look at it now.

  • Comment number 99.

    12. At 10:22am on 17th Jan 2011, Duxtungstu wrote:
    ....But what about the elephant in the room - the effect of bad weather on commodity prices. It rained again today in Australia. Well....that's coal, wheat, mutton and wool up again, right? Maybe cotton, rice, pineapples, bananas, mangos etc etc too.

    *Stop Press* Icy weather in Russia may affect oil and gas supplies/prices.

    ------------------------------------------------------------------------

    Exactly, the strong stock market is misleading people who should have more sense. Banks are switching funds from Government bonds (fear of defaults) and putting it into commodities. The six month lag time of the futures market will mean the above wont rise initially but we can expect further food price increases in June/July increasing inflation even more.

    I do wonder just how much inflation is needed before things start to get ugly.

  • Comment number 100.

    In other words....the bankers and investment firms stole the largest amount of funds from the middle class in the history of mankind and were not only allowed to keep what they stole but also rewarded with additional funds from the public. It is not a technical flaw in the financial system it is simply political corruption that allows this process to continue. The bankers are doing just fine, it is everyone else that faces difficulties. Crime of all crimes and unpunished in any way. The "debt" is based on the financial crisis caused by the bankers...yet they have no obligation to contribute to the correction. The imbalance in political power is the cause of it all and when people begin to demand some level of honesty from the political things may begin to get better. Do not think for one moment that the bankers and investors won't run off to Asia with your money and let the West continue in this malaise. They care not for nations or peoples...only profit. All nations that have allowed the wealthy to dominate have ended in the scrap-heap of history. The banks should have been allowed to fail and a new system put in place. The wealth of the wealthy was saved, that is all that has happened.

 

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