Monday, 17 March 2008
Today Heather Mills McCartney won over £24m as a litigant-in-person in her divorce from Sir Paul. This weekend the fourth largest US investment bank, Bear Stearns, went belly up – or did it? And we learn today that a canon of the Church of England was assaulted by Asians in his own churchyard.
Starting with the tabloid news: “Lady” Heather is now made for life, unless she does something reckless like entrusting her fortune to an investment bank. Her settlement includes the cash pile, plus £35,000 per annum for their daughter, a paid-for nanny, paid-for school fees and a £2.5m house in London.
My thoughts on this? Well, she was married to Paul for four of his 60-plus years and didn’t assist in any way in the creation of his fortune so the £35K pa alone would be generous; most people don’t earn that in a year. In fact £35K pa until the daughter is 18 seems like a reasonable settlement. It’s a living wage. And when the daughter is properly in school Heather can supplement it by taking a part-time job. She could probably make it up to £60K and be quite affluent.
Now to Bear Stearns, an investment bank on Madison Avenue, New York, at 80 slightly older than Sir Paul. Two weeks ago its shares were trading at $60 a pop, last week they were down to $30, and over the weekend JP Morgan “rescued” Bear Stearns by offering to buy it for $2 a share using a $30bn loan facility provided by the Federal Reserve System. (Amusingly Bear Stearns’s website quoted its own share price as $30 through out the weekend.)
Although the boards of both banks have approved the “rescue”, it’s by no means a done deal. To start with why should JP Morgan get handed an investment bank on a plate? Yes, Bear Stearns is bust, but not with a £30bn sweetener it isn’t. Its HQ building alone is probably worth $8/share. And strangely, despite JPM’s “rescue” at $2 per share BS is still trading at over $3 a share. And why am I putting sneer-quotes around the word “rescue”? Well, it’s because it looks more than a little fishy, this rescue. This story may have a way to run.
And lastly to the man of the cloth. The BBC reported that those nasty Asians “jeered at his occupation”. No they didn’t, they called him a “f*cking priest”, and said his church should be a mosque (according to the Daily Telegraph which is unlikely to be making it up.) Let’s dissect the BBC’s report a little shall we? “Jeered” isn’t that rather down playing the level of offence? And “occupation” – since when was being a priest an occupation? It’s a calling. So what we have here are some muslims (one presumes given the reference to a mosque) getting far too big for their boots and seem to be psyching themselves up for a little ethnic cleansing, and the BBC determined to downplay the incident. I find it hard to decide which is worse: muslim nation-building in our land, or the BBC pandering to it. I think, by a tiny margin, the BBC revolts me more.
Wednesday, 5 March 2008
Yesterday an alliance consisting of Conservative, rebel Lib-Dem and rebel Labour MPs failed to secure a referendum on the Lisbon Treaty; this is generally considered a European Union constitution by the back door.
So should we have a public vote on the Lisbon Treaty?
This question is easily answered by argument from first principle.
Like it says in the US constitution, legitimate governmental power can only derive from the will of the people expressed through plebiscite. The public votes, and thereby they grant authority to parliament to rule over us for a fixed maximum period. Parliament can delegate its power to executive authorities, but parliament cannot extend its own term and any power it delegates dies when it does. Likewise, no parliament can legally bind any successor parliament because its authority does not exceed its term.
The only legitimate way for a delegation of authority to survive the death of a parliament is for that authority to be granted directly by the people in general plebiscite. If Europe is, in anyway, to rule over us beyond the term of one parliament, this can only be legitimate if put to a referendum.
Let’s look at some of the provisions of the Lisbon Treaty.
For the first time it gives the European Union “legal personality”. That means the Union itself can enter into treaties with foreign powers. It makes us all Citizens of Europe; it creates a Europe-wide military organisation and may take us to war (although not to conduct naked aggression, but for peace-keeping and other loosely worded aims.) It forces us to defend all other members of the Union using “all means in our power”, and, our old favourite, it gives the Union total and exclusive control over who fishes in our territorial waters. Slightly spookily it changes member “countries” into member “states”. That’s a trivial word change and seems to be inspired by the United “States” of America. The Treaty can force us to change our domestic laws to “approximate” the laws of other members – for general convenience.
There are also escalator clauses in the Treaty. They can add new bits to it! There is the safeguard of new items requiring national ratification by each member state. However article 48, clause 7, provides a slippery little codicil that lets the European Council change the voting rules where it sees fit so that where previously unanimity was required now only the infamous qualified majority voting shall apply. This clause is safeguarded by a condition that it does not apply to defence and military measures, but still means that the rug can pulled from under us in many areas.
On the plus side, there is a get-out procedure. Any member can resign from the Union. It takes two years, which the Union can extend if they want, and during the “leaving” period the withdrawing member state cannot vote on provisions affecting its departure.
Of course we have also elected a European parliament.
That’s a laugh! Who’s your representative in the European parliament? Do you know? I don’t know mine. If you know yours, congratulations – you’re a political wonk! The EU parliament is a pointless talking shop. It does not have sovereign power over the Council or the Commission. It is “consulted” on various matters but doesn’t have its hands on the levers of power. It provides no legitimacy – only the illusion of such.
It should be pretty clear that the Lisbon Treaty is intended to, and will, exercise power over us beyond the life of the parliament we have elected. It should also be clear that the Treaty will not have legitimate authority unless it is endorsed by a public referendum.
Of course we did have a referendum, back in 1975 – to endorse our continued membership of the EEC which we’d joined in 1973. You remember voting, don’t you? Apparently two-thirds of us said yes to the EEC, which was a purely economic organisation concerned with money, jobs and food. Of course to have voted in that referendum you must have been born before 1957, later than that and you have been disenfranchised. Prime Minister Gordon Brown mentioned this referendum when he was defending the Lisbon Treaty in parliament yesterday. “The people have already had a referendum,” he said, or words to that effect. That’s a laugh, I was too young to vote. How many of you weren’t even born? And it was a referendum on a completely different subject anyway.
No. We should have a referendum on the Lisbon Treaty, otherwise it has no legitimacy. And we should have occasional referendums on our membership of the EU, say every five years, just to confirm we still want to be a member.
Sunday, 2 March 2008
For the first ten years of New Labour’s misrule of the United Kingdom Gordon Brown was feted as a miracle-working chancellor of the exchequer who was delivering unprecedented continual economic growth and perpetually increasing prosperity; at least he was by those unable or unwilling to look behind the smoke and mirrors.
Of course many of us have considered him a liar, a cheat and a self-serving hypocrite since his first day in office. But to the general public, and those who deemed their star hitched to his wagon, he was Brown the bountiful. But in the last twelve months the wheels have been coming loose on that wagon and now it is probably not too early to start the post-mortem on a golden era that was only ever made of fool’s gold. (Ironically Brown sold off the UK’s gold reserves early in his tenure, at a price so low gold has never been that low again.)
For his first two years Brown followed slavishly the spending plans left behind by the outgoing Major administration. His watchword was “prudence” and in fact these were arguably the only two years of his tenure during which he did a good job. By the year 2000 he had lost his grip and prudence was being jettisoned in favour of complexity and obfuscation.
Look at this table of government expenditure:
|Year of budget||Govt spending||Change on previous year|
See how he was quite self-controlled until the year 2000. After that he really let rip. The above numbers, by the way, are in “2005 pounds”, ie, they are adjusted for inflation – the increases you see above are after inflation has been taken into account! The real increase in government spending between 1997 and 2005 was a massive 34%.
This raises some questions: how did Brown get away with spending so much money? What did he spend it on? And how did he avoid collapsing the UK economy with his profligacy?
The key to Brown’s tenure has been debt: public debt, private debt and hidden debt.
In those heady days back in 1997 when New Labour came to power they did something previous chancellors have said they should have done but never quite had the balls to do; they “set the Bank of England free”. Specifically, Brown and Blair handed over to the BoE the power to set interest rates. They established the Monetary Policy Committee (MPC) and charged it with controlling inflation in the UK economy. But even as they handed over the chalice, it was poisoned. They chose as their preferred measure of inflation the Consumer Price Index (CPI) which, crucially, did not include house prices in its basket of goods. Thus they planted the seeds of the house price bubble which has ripped through the economy since 1997. This bubble has been used by New Labour to fund an unprecedented profligacy. We shall see how.
First look at how much debt we are in.
|Year of budget||Total personal debt |
|Increase on previous Year|
As you can see, New Labour has presided over constantly rising personal debt, mainly in the form of mortgages, although credit card lending has also surged. Total personal debt now exceeds one and a half trillion pounds. And this was during a period of affluence and prosperity (supposedly) when you might have expected debt to be paid down, rather than to increase.
Now let us have a look at the flip side of debt: public debt, government borrowing, over the same period.
|Year of budget||Government borrowing in year|
At you can see government debt has been a consistent theme of the Blair/Brown administration. Although the debt numbers don’t appear to be growing much, remember they are cumulative – we are still paying the interest on all previous years’ debt. Also note that Gordon Brown has proved a master of off-balance sheet borrowing. The published public debt figures do not include public-private partnership debt (PPP) or Private Finance Initiative (PFI) debt.
Gordon Brown likes to quote debt as a percentage of Gross Domestic Product (GDP) because this flatters the numbers. GDP is the total “value” of our economy; it’s how much wealth we created during the year. Since GDP appears to rise every year measuring debt as a percentage of GDP makes the debt look smaller. However GDP is also a complete crock of sh*t.
Let’s look at the GDP numbers while New Labour has been in power:
|Year of buget||GDP||Increase over previous year|
There would appear to be some reasonably healthy growth in the economy there. However to see the “real” growth, the sustainable growth, we need to subtract off the debt. Growth through debt is just eating tomorrow’s harvest today. Brown would call it “investment in the future” but I prefer to think of it as spending what you haven’t got.
Let’s see what happens to the growth when we subtract off the public and private debt growth for each year.
|Year of budget||GDP “growth”||Public debt||Private debt||Actual growth|
Suddenly the numbers aren’t looking so good. One could argue about the methodology here, for example some of the debt may really have been “investment” which will return more in the future that it costs now, but the basic point is that since New Labour came to power we haven’t had a single year of true, non-debt-based, economic growth. Effectively we’ve been in recession all along – we just didn’t know it. And not surprisingly our total indebtedness as a country now stands in the trillions of pounds. This is why people feel poorer while the government claims they are richer.
(Another factor which I’m not going to cover in this post is immigration. Clearly what counts is not absolute GDP but rather GDP divided by the number of people. When the number of people in the country goes up, per capita GDP goes down. The country is richer but the people are poorer. No nationalist blog would be complete without an immigration rant, but that will be a treat for the future.)
Clearly if the public had been unwilling to take on new debt during the last ten years the country would simply have collapsed under the weight of government spending. The tax base would have been too small to support New Labour’s spending plans. But Brown and Blair knew what they had to do to ensure the public willingly donned the chains of debt slavery. The name of the game has been: house prices.
With house prices excluded from CPI the MPC had little choice but to regard inflation as considerably lower than it really is. They therefore kept interest rates far lower than the historical norm. In the current cycle interest rates bottomed out at 3.5% in 2003, whereas they would normally be around 8%-10% and indeed on “Black Wednesday” then chancellor Norman Lamont announced an interest rate of 15%. (However this interest rate never “applied” as it was cancelled later the same day and interest rates reverted to 8% on the Thursday.)
There is another way of calculating inflation. Rather than looking at the cost of a basket of goods you can simply take the growth in the money supply, M4 the broad money number, and subtract GDP growth. For example if GDP has grown 3% but M4 has grown 13% then inflation is 10% because there is 13% more money trying to buy 3% more goods. Using this technique inflation has been 10%-15% per year during New Labour’s administration.
In the last ten years the UK has been awash with cheap money. House buyers came to regard previously unthinkable debt levels as quite acceptable and the old three-times your salary rule for mortgages fell by the wayside (although it’s back with a vengeance now) and multiples of up to 10 times salary have been achievable.
This flood of borrowed money has found its way, to some extent, into the British economy and kept it afloat when; quite frankly, it would otherwise long since have sunk. Although the house buyer who borrows the large sum to buy his house doesn’t directly insert that money into the economy, every house purchase chain has two ends and at the “selling but not buying” end money sprays into all sorts of purchases: cars, holidays, plasma-screen TVs – you name it.
In addition home owners have been increasing their mortgages to spend on consumption, even when they are not moving house. Let’s look at a table of Home Equity Withdrawal (HEW). This is increasing your mortgage when not moving house just to spend the amount you have “gained” due to house price inflation.
|Year of budget||HEW|
It’s interesting to note that the interest rate trough in 2003 triggered the highest ever equity withdrawal. In the main this money has been injected into the UK economy – spent on the High Street in the vernacular. Clearly some has been used to buy other property, buy-to-let in the UK and holiday homes abroad. The borrowers may have thought they were spending their “gains” prudently by investing in other bricks and mortar. However, now we are into a period of falling house prices worldwide this will appear less prudent with the benefit of hindsight.
Anyway, it time to get back to the questions asked at the top of this post. Why have Brown and Blair presided over this enormous debt bubble? What’s in it for them?
The answer can be found in something called the “New Labour Project”. When New Labour came to power in 1997 they set themselves the straight forward objective of staying in power, for as long as possible, by any means necessary. In the main New Labour MPs were non-entities before they achieved power, and will revert to being non-entities when they lose power. Few of them have ever held what most of us would consider “a proper job”. Now is their time in the sun, and it must not be allowed to end – whatever the cost in future damage to the country.
The “project” requires the creation of a “payroll” vote. In the past the payroll vote has referred to members of parliament who have a government job, ministers and the like, whose loyalty can be counted on because they are being paid. The “project” has established a new payroll vote. New Labour has increased public sector employment by 500,000 jobs during its decade in office.
In the NHS we now have more managers than beds. Elsewhere we have diversity advisors, we have social inclusion advisors, we have access to the countryside advisors, we have public servants whose job it is to help us eat five portions of fruit and vegetables a day. These people are the new payroll voters. Only under New Labour do their jobs exist. Note the degree of cynicism in New Labour here. It would have been possible, and publicly applauded, to increase the number of doctors, nurses, teachers, police officers and soldiers. However the numbers employed in these professions have remained largely static. Instead recruitment has focussed on the essentially useless. The reason for this is self-evident. The professionals, nurses, teachers, etc, have private sector employment options, and in any event a change of government is unlikely to result in job loses for them. Diversity advisors on the other hand have no choice but to vote Labour. A government of a different complexion would fire them to save money and they have no private sector options. In short, their votes have been bought and paid for.
In order to finance this payroll army, New Labour has required a tax base stoked up artificially. Government spending increases have been layered on public and private indebtedness. In short, New Labour has purchased their present by mortgaging your future.