De Tocqueville

Give me my Life Back

Everyone is discussing the economic crisis and trying to "Find Someone to Blame" or "Find a Cure".

All of this is interesting in the short term but irrelevant in the long term. Why? Because our political system is wrong.

We, the people, have virtually no say over how we are governed. We have allowed a group of professional politicians to run our lives and it matters little whether they come from left or right; their objective is much the same.

To be in charge.

It is their incompetence and hunger for power that has got us where we are today.I for one have had enough.

In the UK, our parliamentary system evolved to provide a check to the actions of the Monarch, later the Prime Minister.The problem is that the MPs, whose function this is, have been effectively "bought" by one party group or another.

I am sure that no one would deny that the PM and the leaders of the opposition parties have significant patronage at their disposal; from official positions with fat salaries and perks down to selection for a safe parliamentary seat or the House of Lords.

The result of this is that MP's, who are supposed to represent their constituents, nearly always represent the Prime Minister or the leader of the opposition.

Politicians who rise to the top and become Prime Minister fall into two categories.

1)The Zealot who knows for sure that he knows best and has the answer to everything.

2)The power hungry who will do anything to be top dog.

Neither of these characteristics are desirable in a Prime Minister; in fact both are downright dangerous.

We need to curb the power of the Prime Minister over our representatives, who are actually supposed to check his power. In order to do that we need to limit his patronage. I think there are three very simple ways.

1)All Members paid positions in government, ministers,secretaries of state etc are subject to approval by the Commons.

2)All elevations to the Lords require the same approval.

3)Candidates for Party Parliamentary seats to be selected by a primary election in each constituency.

I believe that the last of these is the most important ( it's adoption will bring the first two about).It will return power to the electorate. The sitting member will always be at risk of deselection at election time regardless of the general political mood in the country .It will make him answerable to the constituents in his seat

You may say what has this to do with the current state of the economy, and I would be hard pressed to give you a direct correlation, but for example, government has saddled business with hundreds of costly regulations over the years, all of which make it more difficult for the wealth creators to be competitive. Many of these rules are nothing more than a thinly disguised tax.

The current government have created new criminal offences at the rate of one every four days for the last ten years.

The government has been able to create dozens of new personal taxes, which individually affect only a small proportion of the population and so attract little lasting anger, but which taken as a whole are an enormous burden on society. 

The Police force is nearly useless, and sees itself as an arm of government or another social service rather than an independent upholder of the law

The bureaucracy of the state has grown to almost ridiculous proportions, nearly all of it unproductive and acting as a parasite on the wealth creating body.

The stupidity of much of the advice and initiatives coming out of Whitehall is extraordinary.The one about safety over Christmas recently issued beggars belief. Yet these are the same body of people advising the government on the current financial crisis.

All of these things make us less competitive and therefor less able to recover.

The unbridled power of the Prime Minister allows him to buy popularity by borrowing against the lives of our children and none of his own party gainsay him.It allows him to renege on a promise to hold a referedum on the European "constitution" with hardly a squeak from his own party.

 I believe the collective wisdom of 600 or so MPs freely expressed in the debating chamber stands a much better chance of giving us a truly representative and wise democracy than the present collection of whipped and cringing creatures that we see at present.

I believe men and women selected by their peers in their locality, will be better suited to govern us,and more in touch with the governed, than the present party apparatchiks who simply parrot the party line.

I do not know how you feel, but everything that happens today seems to be designed to grind us, the people, into the ground and I, for one, am truly fed up with it.I am begining to understand what it means to be a Subject!

Who is The Banker

Much is being made of the unwillingness/ability of the banks to lend money to businesses across the UK.

So dire is the situtation that the government is being urged to lend to companies directly.

Whilst not belittling the seriousness of the crisis that we find ourselves in, perhaps it would help if we looked back to before cheap money.

I believe that the seeds of this crisis were sown by the Japanese deflation in the early 90's.

This deflation, or rather the attempts by Japan to get out of it,made cheap money availablee across the globe, really cheap money.

Up until this point companies who wished to expand either had to find the cash out of retained profits or have a rights issue or a bond issue to raise the money from the City.This meant offering an interesting rate of return, but in exchange the money was usually equity so no one could take the umbrella away when it started to rain.

Cheap money changed all that, clever finance directors could borrow at significantly less cost than the dividend payment required for new shares, and the quantities were easy to come by. The effect of this was that management could achieve excellent performance figures and raise their bonus levels as a result.

Management buyouts became all the rage with managers putting up a relatively small piece of equity themselves, usually backed by a rocketing house price which was  also fed by cheap credit. The rest was borrowed money either directly or via a hedge fund.

The problem is that this fueled company capital values to silly numbers and when it started raining the lenders, as is their habit, took their umbrella back.

In a state of panic the Government is now considering lending to all and sundry. It has got all the money because it is seen as the only safe haven open to those with savings. If only! If it has not managed to borrow this cash it proposes to get the cash from taxes in the future.

So in essence we are lending to HMG who in turn is proposing to lend to UK companies. We all know this will become a political exercise and will fail so we should try to avoid it.

Savers can be tempted away from the safe haven of government loans if the return is attractive enough. I suggest that the City gets of it's bottom and starts to refinance Britain's companies using good old fashioned rights issues.

This way I get a decent return on my money, the company gets secure finance but only for sensible projects, the government can stop trying to be a bank and we can all pay less tax.

If HMG wants to help this along it could give some sort of tax incentive to encourage such investment. 

Don't hold your breath as HMG finds it far too much fun acting the Lady Bountiful with our money to let it happen.

This Way Out

There has been quite enough written about why we are in the mess that we find ourselves and apart from learning how not to go there again it is behind us.

It seems to me that if we are going to listen to the counsel of the "experts" who got us here in the first place we should do so with caution.

I believe that the way out of the current economic crisis situation requires some good common sense.

The Government and maybe the opposition are just electioneering.

Clearly if you overspend for years you acquire a debt that will have to be repaid or you must go bankrupt. That applies to a country as well as people. With a country bankruptcy comes with a price. Afterwards you will always have to pay more for any money you borrow; so it is probably not a sound long term option.

This means that we will have to repay our debts and to do so we shall either have to increase production or reduce consumption. Given that our biggest export, the City, is not going to do very well in the next few years, the reduction of consumption seems like the only option.

Therefor to pour money into the economy arbitrarily seems ridiculous.

Targeted spending to encourage those parts of the economy that have the ability either to sell their products abroad or to replace things that we import, seems like a sensible move.

It seems to me that government money should be directed at these two targets.

We need to supply this money in the simplest way possible, if we try to set up quangos to manage it it will never happen and it will also cost a fortune.

If my memory serves me right we have in the past given exporters favourable tax treatment and something along those lines would be a good start. The penalties for fraud could be draconian. We should have to accept that some people will get away with mal practice but we must accept this  as speed is essential.

Import replacement is probably easier.

There are two main essential items that fit the bill. Energy and Food

The government can encourage the replacement of imported energy by immediately implementing feed in tariffs for renewables, both heat and power. At present the heat element will not come on stream until 2011. This is an example of government urgency!These tariffs should be available to all producers not just the big boys.It will have the added advantage of being green.

This action will spawn new industries to supply the hardware most of which comes from Europe at the moment.

Food is more difficult. Perhaps as a starter we could unravel the red tape that surrounds agriculture and direct the Single Farm Payments away from park keeping and towards food production.It is difficult to encourage farming with tax incentives as the marginal land which we need to bring into production is not profitable at present prices.

We need a way to increase prices without falling foul of EU regulations. The current devaluation of Stirling may achieve that on its own.If not we must ignore the EU.

How to pay for all this largess

First off let us dismantle part of the huge government machine that costs us so much and achieves so little except give ministers pet  projects to play with.

Secondly let us push those hiding unjustifiably behind the benefit system back to work much harder than we are at present. The government's newly announced measures are not enough and again, do not come into force till 2011.That alone will replace the cost of non UK labour which is already going home because of our rotten exchange rate.

Thirdly we have to do something about the disparity between private and public pensions. We cannot afford a society where one section benefits from significantly better pension that the rest. Particularly when it is the rest that will have to pay for it.

Altogether this seems like a plan.

Brown must stop electioneering.

Working Title

UK Ltd is broke. We owe money all over the place and have very little way of working our way out of it because our biggest earner "Finance" is shafted and our next biggest "North Sea Oil" is in decline.

For years we have lived on borrowed and North Sea Oil money; our politicians have bought popularity by sloshing money into benefit and state non jobs that pay obscene salaries (and pensions), viz the director of Harringay Social Services.

We now have to get real and what does Brown Darling do? Throw money out of the window quite indiscriminately to "get the economy going". If we are going to get going we had better decide what direction we are going to go in.

There are some glaringly obvious things that we should do.

There are a large number of excellent Eastern European workers over here doing jobs that the indigenous population are too idle or proud to do.The reason that our unemployed can get away with this behavior is that the rules surrounding benefit payment are easy for the determined recipient to manipulate.

Let us remove benefit from those under say 21 for a start, that should deal with the excessive boozing as well, let us also make percentage reductions in benefit in areas where jobs are available. A sliding scale springs to mind.Those who keep rejecting jobs or who engineer rapid dismissal should have benefit stopped.

This way we can reduce the drain on our finances caused by those who could work but will not.This will cause a huge outcry from those with a monopoly in compassion but we must live with it.

Secondly let us see what we are importing in large amounts and see if we can replace it internally. Throw some financial incentives at the home grown version of those industries. Energy production is a good place to start.

Thirdly lets get rid of all those agencies that the government has created; that do very little but cause difficulty for the productive sections of the population and create cost and gold plated civil service pensions for the rest of us to pay.

The problem is that most of the current bunch of politicians will be quite unable to do this as it requires them to overturn everything that they believe in about compassion and social justice.

I can only say to them that if we allow the money to run out, compassion and social justice will cease to exist. If you want to retain these two admirable things you must put our house in order and that requires some painful pruning.

Make it Worth my While Gov

How do we get the economy moving again?

Certainly not by just pouring money into it.

We might ask ourselves why people invest money; for surely if we are to get the economy moving we must have people in productive employment.For productive employment investment is needed. People must not just be units of consumption which is how Brown Darling sees them.

People or businesses invest money because they see a profit at the end of the exercise. When a low risk is perceived and the economy is motoring then a small profit is acceptable: however when times are hard and the world is a dangerous place it is only worth investing if the potential profit is large.

Imagine that you have a couple of million in cash and everything around you is uncertain.

If you invest and make a profit the Chancellor has made it clear he will hit you hard with tax. If you employ people and then have to stop employing them, you will face an employment tribunal who will fine you unless you are very carefull.

Or you can find the safest place that you can think of and stash the money away, put your feet up and wait for the storm to pass.

Which would you do?

If the goverment wants the economy to move it must make risk taking  worth  while and at present it is not.

If it was worth while thousands of risk takers would come out and invest to get the economy moving again.

Stop giving everyone money to consume with no purpose, give a tax holiday to those who try and build something to support the economy.They will reward you with action.

Pour Oil on Troubled Water do not add Fuel to the Fire

The situation we are witnessing in the UK is not new. It is the last stages of an economic cycle that has been followed by Kings, Emperors and Governments since they discovered paper money.

 

They all, without exception, buy their popularity or power by printing money.The warlords amongst them did it to pay for more armies to conquer more territory, the control junkies, a description  which applies to most elected politicians, do it to buy votes.

 

It works OK in the early stages, as does any pyramid scheme, but as it expands the amount of money, it has to go faster and faster and it starts to fail. The failure occurs when the savers realise that they have been conned and stop lending, or the numbers just get too big.

 

The response, which is to panic into pouring even more money into the system, is almost certain to fail particularly if it is done with no particular goal in mind. This appears to be the government’s response.

 

The correct answer, if it is not too late, and it may be, is to spend money wisely to produce things that we need which will save money later.

 

Overseas lenders are not going to go on funding our present life style, maybe we get one more bite at the cherry but that is it. So we have to put our own house in order.

 

We have to stop spending on the thousands of pet schemes that ministers have had in the last 10 years but produce nothing concrete but red tape, believe me there are thousands of them.

 

We need to channel those resources into an area that will save us money, a great candidate is fossil energy replacement but there will be others.

 

Use the tax system to encourage saving by the small saver.All money saved is tax deductable for example. That will make individuals feel better and help them put their own house in order. Create an easy saving system with no red tape and let people have their money back after a couple of years. Use the reduction in government spending above to pay for it.

 

Offer serious incentives to ALL fossil fuel replacement schemes, aimed at the small and medium enterprise. This will produce a targeted boost to the economy. Lots of businesses spending modest amounts of money will produce a quicker benefit than a few multinationals spending large amounts.

That money will be spent quickly as it will be obviously profitable. We will save on fossil fuel and the economy will start to recover.

Buddy can you Spare a Dime?....."Not Today Thank You"

The market seems to have decided that the British pound is not worth very much and I suppose it is hardly surprising.

Our main export earner, the City, is blown away and Gordon Brown, who clearly does not understand money at all, is going splash it into the system in a totally uncontrolled way.

His only objective seems to be to give his core voters more money to spend "to stimulate the economy". He might as well pour petrol on a fire. When the money is gone there will be nothing to show for it!

The Tories are no better. How on earth is giving a national insurance holiday to a company who takes someone off the dole going to help a company who is laying  people off. It is pathetic.

We have to have a strategy. First of all we need to borrow money. There is a fair chance we will not be able to from the usual sources. If you were an overseas investor would you see UK Gilts as a good bet when the base rate is so low and going lower. I don't think so.

So we must find it at home.

Why not take a chunk of those tax cuts and make saving by the smallsaver really attractive.Make the interest tax free and give him enough so that he really gets a return.

Secondly we need to ensure investment into an area that will give us a return as a nation. What could that be?

 What is our biggest import?

 Energy?

Why don't we use the borrowed money above plus savings on the bloated bureaucracy that we have created, to encourage all types of non fossil energy plus carbon capture for coal (we have a bit of that).

Feed in tariffs, capital grants etc. that are easy to get, not a minefield as at present.

This should be targeted at small and medium businesses, not multinationals as they will just take the money home.

Savings made by us as above can then be borrowed by companies to expand in the energy field this will show a real return in a couple of years.

Those companies will be increasing employment which will effectively recycle the savings above into the economy as spending!

It's easy

A Billion Grains of Sand

So now we know Gordon Brown is going to cut taxes. He has been in charge since 1997 and every year he has found a new way to tax us more than the year before and now he is going to do an about face and start cutting. Wow!

David C and Cleggy are up for it as well, whatever next.

The trouble is they will not do it properly. Gordon will give it away to everyone who might vote for him and it will just get wasted.

David C will give it to companies and business. Cuts in corporation tax are no good if you are loosing shed loads of money.Mind you it might stop some of them relocating.

Cleggy will take from the rich and give to the poor. The snag is the rich will leave.

Of course tax cuts are necessary but they have to have an objective.It is no good cutting taxes if all it does is send everyone off to Bluewater for a spend up.

We need to do two things.

1)Encourage saving.

2)Invest in usefull and revenue producing projects.

The first can be achieved by producing, easy to invest, tax free,inflation beating savings products for the man in the street.Do not lock him in past his visual horizon. Give the option of withdrawal any time after a year. Let the public help produce the loans that we need to survive.

The second should be directed at the most obvious target there is, fossil energy replacement.Give EVERYONE the incentive to invest in renewable technology to allow us to replace as much fossil fuel as possible.

This will mean that the uptake will be quick, tax breaks for solar panels,feed in tarrifs for heat and power,easy to access capital grants for infrastructure.Currently you need a degree in accounting to fill in the forms. HMG do not really want you to have the money, they just want to be able to say it is there.

Do this and you will create a crusade that everyone can get behind and be part of.Give money to large corporations and you will just be giving a present to overseas shareholders and cause resentment at home.

Manufacturing for these products will be encouraged,fossil fuel imports will be reduced and tax benefits will feed into the economy.

You will make the environmentalists happy, the individuals happy,the bankers happy and you will reduce your dependence on dubious overseas institutions. What more do you want!

Remember that a billion grains of sand make a sand dune.Blow on it gently and you can move mountains.

Very Interesting

What a dilemma the political/financial establishment is in. On the one hand we have spent the last ten years at least feeding off and spending other peoples cheap money. This, as every one knows, has caused a massive asset inflation which is now busy reversing.

If we turn the tap off now everything will collapse. So the Bank  of England cuts its base rate to try and get people or businesses borrowing again.A bit like pouring petrol on a fire!

On the other hand when you have gone on a spending binge you really should stop borrowing and pay back your loans.In fact you should encourage people to save so that you are not dependent on those nasty overseas money lenders.However that needs higher interest rates to make it worthwhile.

So far the Bank has decided to make it easier to let us go on borrowing by cutting rates,but it cannot last. It cannot last because the country is probably broke,apart from our declining North Sea Oil.It is a pain limitation exercise.

The UK earns 30% of its income from "financial services". That particular industry is in intensive care and likely to stay there. It would therefor seem that we have no chance of paying our way for the medium term at least. 

Overseas money lenders will have worked this out and will not be very interested in lending to us unless we pay them a high rate of interest, but we just cut the rate.

So economy broken and not profitable, and interest rates not up to much. Result withdraw money from UK Ltd,the  pound exchange rate falls, internal inflation rises.

The B of E must therefor turn to the UK saver to provide the money that they have to borrow.

Who would want to bother to save at the pathetic rate of interest now indicated by the base rate? No one.

How to make saving more attractive without deflating too fast?

I think Barak Obama showed the way with his fundraising, a few dollars from millions of people rather than lots of dollars from a few people. Preferably through the internet where costs can be reduced to nearly nil rather than the current complex paper trail if you wish to invest at the moment.

The solution is to increase the TAX FREE rate of return on National savings and Premium bonds so that it comfortably beats inflation and it becomes worth saving again.Some sort of index linked plus return (a real index mind you) would do it

Get 60,000,000 people saving with a decent return and they just might do it rather than borrowing.

Mind you HMG will hate this because it will force them to cut back on the bloated stae machine that is wasting all our money.

One  thing is sure, Johnny foreigner is not going to pick up the tab!

Oh What a Lovely War

When the world suffers a major recession war often results, this tends to turn the recession into a boom as the reconstruction needed at the end of the war and the expenditure during the war kicks in.

The population accept the hardships brought about by these factors, ie little or no personal consumption, because they believe in the threat posed by the "enemy".

I am not advocating a conventional war as a way of getting out of the current recession but I am advocating an unconventional war.

We have a war to fight over energy.

Whatever your beliefs over global warming; it is clear that fossil fuels are in decline and that the availability of energy is going to be a major problem in the next twenty years or so.Even nuclear is not the holy grail as the supply of fuel for that is far from unlimited.

Fossil fuel is the enemy

The UK government is intending to spend it's way out of this recession, a number of economists believe that this is a dangerous idea. Should the government simply fire a shotgun of money at the problem it probably is a very dangerous idea.

The desire to be popular means that money is likely to be spent on projects which make people feel good rather than those that will provide a financial return in the future.

They are most unlikely to include any serious belt tightening by the population at large and particularly those unproductive but capable individuals that currently live off the rest of us.

I suggest that the government target all of their efforts on the development of a diverse renewable energy infrastructure.

I suggest that we effectivly declare war on fossil fuel. We make this a popular cause which will capture the countries imagination.

This expenditure should be targeted at all renewable sectors, from local to national.

If the population know what they are fighting for they will put up with the "privations" of war.

It will also save us a fortune in foreign exchange.