We're past the worst.. again

Since late 2008 there have been predictions that the worst is over, that there are "green shoots", or that the UK economy is recovering. The stories below come from searches of Google news of these and other phrases.

At any given time there are in fact a greater number of stories indicating a gloomy outlook. However in almost every month since the crisis began someone has predicted that 'the worst is over', or 'the recovery has begun.' 60 months and counting.

updated 26 March 2013.

2008

• 2008-11-18 (nebusiness) But there are some green shoots of optimism with manufacturers’ expectations of export orders for the next three months positive and exceeding August expectations.

2009

• 2009-01-14 (Sky News) Business Minister Baroness Vadera was asked on ITV's Lunchtime News when she believed the UK could expect to see "green shoots"... ""I am seeing a few green shoots but it's a little bit too early to say exactly how they'd grow."
• 2009-03-27 (Evening Standard) Britain has been in a deeper recession than was first feared, official figures have revealed. But members of the Bank of England's monetary policy committee are today insisting the first green shoots of recovery may be about to sprout.
• 2009-04-03 (Telegraph) Back in February, Mr Brown predicted April 2, when the G20 leaders met in London, would be the start of a "move towards recovery". However, while economists were excited that the data suggested things had stopped getting worse, no one was prepared to call an outright recovery.
• 2009-04-17 (Mail Online) 'The worst of recession may be over', says Bank of England's newest recruit.
• 2009-04-20 (Bloomberg) The CBI will today join the growing list of economists and business groups arguing that the UK recession is now bottoming out.
• 2009-05-06 (Bloomberg) More 'Green Shoots' in Battered Britain
• 2009-06-10 (BBC) The first monthly increase in manufacturing output since early 2008 has re-ignited the debate about the green shoots of recovery. Economists, even at the gloomier end of the spectrum, are dusting down and reworking previous forecasts.
• 2009-06-11 (Evening Standard) The number of people signing up to new mortgages leapt in the spring, the latest signal that green shoots in the UK economy may be taking root
• 2009-06-15 (BBC) The UK economy is stabilising but it will not be until early next year that a "slow and gradual" recovery will begin, business leaders have said.
• 2009-06-29 (BBC) There are signs that the financial services sector is emerging from the worst of the downturn, a quarterly survey from the CBI suggests. The UK's finance services sector could be on a "gradual" road to recovery, said the survey by the business group.
• 2009-07-08 (Telegraph) The International Monetary Fund (IMF) admitted on Wednesday that economic recovery in Britain would happen earlier than it previously thought.
• 2009-07-23 (Bloomberg) -- U.K. retail sales jumped four times as much as economists forecast in June as signs of improvement in the economy and discounts encouraged shoppers to buy more food and clothing.
• 2009-08-03 (BBC.) "We're past the worst of it on the manufacturing side, and we could even be getting back to growth by the third quarter of this year," said Jill Evans, co-portfolio manager, Alpine Dynamic Dividend Fund." 
• 2009-08-05 (SkyNews) The UK economy is showing more signs of recovery as industrial production expands at its fastest rate for nearly two years.
• 2009-09-10 (BBC) "If you look at survey data, you see the signs of green shoots, but if you look at hard numbers on the real economy, green shoots are much more difficult to see," said Graeme Leach, Chief Economist at the Institute of Directors business group.

2010

• 2010-03-08 (Bloomberg) -- Bank of England policy maker Kate Barker said she is optimistic that the U.K. economy is recovering and that it faces fewer threats than before.
• 2010-04-07 (Reuters) - Britain's economy continued to recover in the first quarter of this year, a clutch of industry surveys showed on Wednesday, but concern about a public spending squeeze is making firms reluctant to invest.
• 2010-05-25 (Vogue News) THE recession is over, so said Marks & Spencer executive chairman Sir Stuart Rose, as he presented the company's end of year results this morning.
• 2010-07-23 (Telegraph) UK's 'startling' economic growth reignites austerity debate. The UK economy has confounded experts in the past three months by growing at almost double the rate predicted.
• 2010-07-26 (FinFacts) UK fiscal tightening should not choke off the recovery.
• 2010-09-28 (BelfastTelegraph) The UK economy is on the mend and "recovery is under way", according to a report by the International Monetary Fund (IMF).
• 2010-10-26 (Telegraph) George's Osborne's economic recovery plan for Britain gets double boost. Britain has scored a welcome double boost from strong economic data and a credit rating upgrade that will add to hopes the recovery is gathering momentum.
• 2010-12-06 (Scotsman) Manufacturing output rose to its highest level for seven months in October, official data yesterday revealed, suggesting the UK's economic recovery remains on track in the final quarter of the year. 

2011

• 2011-01-04 (Sky) Hopes of an export-led economic recovery have been bolstered by the latest survey of activity in the manufacturing sector. Rob Dobson, senior economist at Markit and author of the survey, believes it was a "spectacular" performance.
• 2011-03-15 (Sharecast) “We have delivered further strong organic growth of 6.6% in New Markets, which now account for 29% of revenue and 33% of profits, and we are encouraged by signs of economic recovery in our larger developed markets of the US and the UK,” [G4S chief executive Nick Buckles] added.
• 2011-06-07 (Mortgage rates) IMF on UK Economic Policy. The International Monetary Fund (IMF) has issued a report on the state of the nations economic policies and reforms. The report has suggested no changes are needed to the UK policy on economic recovery and growth, a compliment that the government is only too happy to welcome.
• 2011-06-15 (Reuters) - Britain's economy is slowly on the mend but faces substantial global headwinds, as well as weak credit growth and a crippled financial sector at home, finance minister George Osborne will say on Wednesday.
• 2011-07-07 (BBC) UK manufacturing output rebounds in May. "Manufacturing is not as structurally soft as some people had feared," said David Page at Lloyds. "We think it will continue to be the cornerstone for an economic recovery over the next few quarters."
• 2011-10-05 (My Finances) Service sector growth bodes well for economic recovery.
• 2011-11-02 (MailOnline) A glimmer of hope for he UK as economy grew 0.5% in the past three months. "'This is a positive step forward,' said Mr Osborne."

2012

• 2012-03-02 (Guardian) UK construction growth bolsters economic recovery hopes. Construction PMI survey shows sector growing at fastest pace in 12 months, boosting hopes the economy has returned to growth after a 0.2% contraction at the end of last year.
• 2012-03-13 (Huffington Post) UK Recession: 'Positive Shift' In Economic Activity as Jobs Market 'Turns Corner'. The Organisation for Economic Co-operation and Development (OECD) said its composite leading indicators, a survey designed to anticipate turning points in the economic cycle, had signified stronger but tentative signals of improvement.
• 2012-03-19 (BBC) Mark Prisk on economic recovery outside London. Business and Enterprise Minister Mark Prisk rejected claims that growth had been patchy across the UK and said there were positive signs outside London.
• 2012-04-02 (UK Net Guide) Despite the gloom, signs of recovery are tentatively appearing: the UK was recently judged to have the largest proportional online economy in the G20 - responsible for 8.3% of GPD - and jobs in the high-tech and online sectors are simultaneously increasing at a relatively rapid rate.
• 2012-04-04 (Investors Chronicle) Hopes of an economic recovery increased this week, as two surveys pointed to brighter business conditions.
• 2012-04-30 (Deadline) Rich list hints at an economic recovery. Journalist Philip Beresford, who is in charge of compiling the Rich List, said that the appearance of these individuals shows evidence of “a revival of British manufacturing shown by the rise of industrialists and high-tech tycoons” and believes this could signal the beginning of an economic recovery for Britain
• 2012-05-09 (ilm) Despite the gloomy economic outlook caused by the UK's slip into a double dip recession, 60% of bosses believe their organisation will grow its output over the next year with almost a fifth (19%) expecting it to grow significantly, according to research published today (Wednesday 9 May) by the Institute of Leadership & Management (ILM).
• 2012-07-23 (Telegraph) Britain Unleashed: Truth and courage can power an economic recovery
  Remind ourselves of some basic principles and we can rebuild our faith in business enterprise
• 2012-09-13 (The Sun) Whisper it quietly – there are green shhhoots for economic recovery. "Ross Walker, chief economist at the Royal Bank of Scotland, said: “I think we are through the worst, in the sense that I don’t think the economy is shrinking. I think growth has resumed."
• 2012-09-16 (Independent) UK's economic recovery has begun, says Sir John Major.
• 2012-09-20 (BBC) Sir Mervyn King says economic recovery on its way.
• 2012-09-28. (Touch Stone Blog) Celebrating the 'Economic Recovery' covers various headlines.
• 2012-10-25. (mni news) BOE Bean: UK Past The Worst; Growth To Pick Up.
• 2012-10-30 (This is Money) Retail revival adds to optimism on UK economic recovery as High Street sales pick up
• 2012-11-12 (Telegraph) UK recovery gathering steam, OECD says. The recovery in the UK is gathering steam despite recent signs of economic weakness, according to the Organisation for Economic Co-operation & Development.
• 2012-12-14 (This is Money) Builders lay foundations of economic recovery with unexpected surge in business [financial website of the year]

2013

• 2013-02-13 (Microsoft Business) Economic recovery on the way say CBI. "Organic growth is beginning to return to the UK economy, the Confederation of British Industry (CBI) has claimed. The business organisation says modest gross domestic product (GDP) growth is expected in 2013, with the pace picking up in 2014."
• 2013-02-14 (Scotsman) BANK of England Governor Sir Mervyn King yesterday insisted a “recovery is in sight”, but warned the path ahead for the UK economy will not be smooth.
• 2013-03-04 (Sky News & elsewhere) Economic Recovery 'In Sight', Says Mervyn King. Mervyn King says there is momentum behind an economic recovery coming to the UK after at least two recessions in five years.
• 2013-03-26 (Telegraph) George Osborne, confidence returning, tells Tory doubters: no shock therapy for the UK economy. James Kirkup
• 2013-05-01 (Guardian) UK manufacturing shows signs of recovery – but firms remain cautious. Strong export sales help UK manufacturing sector stabilise after slump earlier in year, Cips/Markit survey shows
• 2013-05-01 (journalism.co.uk) High-income earners bet on the housing market’s recovery: Leicestershire estate agency. Britain’s housing market is poised to return to pre-crash levels according to Ernst and Young ITEM Club and the Telegraph. Rising prices on real estate throughout the country is benefiting the economic recovery.
• 2013-05-01 (Telegraph) Factories boost for recovery hopes. Britain's factories almost stabilised in April after months of contraction, sending the pound higher on hopes that the recovery is bedding in.
• 2013-05-03 (Express & Star) Hopes of sustained recovery boosted. The UK services sector leapt ahead again in April, figures showed, driving forward growth for the wider economy and boosting hopes of a sustained recovery.
• 2013-05-06 (Telegraph) Ignore the IMF naysayers, Britain is on the slow road to recovery. Jeremy Warner (Strong growth in the Markit/CIPS purchasing managers' index for April)
• 2013-05-06 (GrantThorton) Economic recovery continues to strengthen in 2013.
• 2013-05-07 (MoneyMarketUK) UK economy to grow by 1.5% in 2014 (NIESR prediction)
• 2013-05-10 (Telegraph) UK recovery gathering momentum after 'stunning' rise in manufacturing.
• 2013-05-10 (London Evening Standard) UK on road to recovery, says Chancellor George Osborne.
• 2013-05-10 (FT - Paywalled) Better UK economic data – but risks remain. Chris Giles and Claire Jones.
• 2013-05-10 (MyFinances) NIESR predicts UK GDP growth accelerating in April
• 2013-05-11 (WalesOnline) Some grounds for optimism that the UK economy is on the road to a sustained recovery. A raft of economic data shows that the UK economy could be entering a sustained recovery period says Professor Dylan Jones-Evans.
• 2013-05-13 (Telegraph) CBI adds to optimism over UK economic recovery. The CBI has added to mounting optimism over the recovery of the British economy, forecasting a gradual pick-up in growth this year and next. Emily Gosden.

Comments

What many of these 'the worst is over' stories illustrate is that public commentators see nothing very special about the recession which began 2008. There seems to have been an assumption that as in other recessions since 1973 we would bounce back after a little while and return to trend growth. 5 years later and there is no sign of a return to growth in the UK.

And in reality?

Steve Keen on the US Stock Market Bubble

Seen on Social Democracy for the 21st Century. SK talks about why he thinks the US market will crash in another year or two

Month of March

I've been neglecting this blog for a while now because I'm busy with other things. But some things have stood out in the last couple of weeks.

Bubbles

Firstly I note that some pundits are pointing to another bubble in the stick market. Stephanie Flanders is not so sure about the FTSE, but the Dow went through 14k this month and some sources are trumpeting madly that it might rise to 36k. See for example Dow 36000 is back at Zero hedge. It speaks of "euphoria" in the markets. See also 13 European Housing Markets Sure Look Like Bubbles, and the blog The Bubble Bubble generally.

Steve Keen tweeted: "It's the private debt bubble that counts. Debt rising again in USA & that's why both economy & stock market seem to be recovering."

The rise on the FTSE may be a result of the weak pound as Flanders suggests, but the bubble in the USA isn't. This month HSBC bank recorded record profits, well beyond pre-crash levels. Banks' income comes from speculating on assets and commodities, and from interest payments. Record bank profits is not a good sign when economies around the world are struggling. It either means their speculations have forced up commodity prices or that another debt bubble is building up somewhere.


David Cameron

DC has been caught out several times recently being economical with the truth.

Back in Oct the New Statesmen ran this story: Cameron hasn't created "a million" private sector jobs". This got less coverage than it deserves I feel. Cameron has repeated this false claim recently. There's been some analysis of the way that DWP have warped the figures by shuffling people around job schemes.

The way unemployment figures are reported hid that the actual number increased last month.

Mean while December 2012 the Telegraph ran a story entitled  "David Cameron ordered to stop saying NHS spending is up". The leader said "David Cameron and Jeremy Hunt have been ordered to stop claiming that NHS spending has increased after the official statistics watchdog found health funds had fallen."

Cameron misrepresented the Office of Budget Responsibility. The Chairman Robert Chote felt moved to publicly rebuke the PM (I first I think) and to point out that the OBR consider the governments austerity to have a negative impact on GDP.

Fact Check made it clear that the government was not been "rebalancing the economy" as they claimed to be.

It's quite likely that the government will miss their deficit target because they do not understand national accounting.

Cameron keeps telling us that the good news will keep coming. It appears that he's quite willing to make it up if need be. And politicians wonder why we are cynical about politics?


Austerity

With the IMF and the OBR questioning the success of austerity it is difficult to find any reputable economists who still supports the government policy of cutting public spending (to the extent that it has been cut). Austerity squeezes demand even more and has appreciably slowed growth - according to the OBR. There is a growing consensus that without growth the government will not meet their deficit targets. This is because, as the IMF pointed out some time ago, the problem with the deficit is not created by over-spending, but by drops in revenue caused by the long recession - now the longest depression in modern history.

Growth has to come from spending and investment. Spending is low because consumer debt is still high and the risk of investing is high. Everyone I know with a bit of spare cash is putting it into rental housing; surfing the property bubble that makes so much profit that it can afford to support a whole layer of middle men that leach 10% (or more) of the gross.

Investment is low because business debt is still high, and risk is high. So interest rates at the sharp end are still high (despite banks borrowing at next to nothing and being bribed by the government) and lending criteria are high. Bankruptcy levels are high, with a series of high-profile insolvencies and in each case the business seems to have been carrying substantial debts borrowed in a boom, that it could not service in a recession. Businesses are sitting on surplus cash because risk is high.

So banks lending money is not really an option for creating growth in the UK. All power to Dave Fishwick and the Bank of Dave, but he's a small player, and I don't think Burnley reflects the national situation.

In the end I agree with Ha-Joon Chang (Britain: A Nation in Decay) that facts about austerity are irrelevant to the Tories:

In reality, though, the coalition government isn't as stupid or stubborn as it appears. It is sticking to its plan A because spending cuts are not about deficits but about rolling back the welfare state. So no amount of evidence is going to change its position on cuts.

The government are like those asset strippers in the 1980s who would buy a company, run it into the ground and sell of its assets. Only the Tories, with the assistance of their LibDem toadies, are doing it to Great Britain. Great for how long I wonder? And even if we vote for labour in the next election would things really be better?

Is he a dreamer?

Danny Alexander: No triple dip recession in UK economy

Last week, the Office for Budget Responsibility (OBR) forecast that the economy was set to shrink in the final three months of 2012.

Mr Alexander said he accepted this, but added "steady growth" in 2013 meant the UK would avoid another recession.

BBC

A lot of economists disagree with him. If he's wrong will he resign?

Why are we holding back?

On the FundWeb page Tomas Hirst has posted an article about the problem of reserves. Corporates Sitting on Piles of Cash. The strap line is

"When the UK corporate sector reacted to the onset of the financial crisis by hoarding cash reserves, it set in train a phenomenon that is now casting long shadows over the UK recovery."

As he says a report has put the cash reserves at £729bn. To put this in perspective the total private debt in the UK is £7.4 trillion. So the cash reserves are about 10% of the total debt. He then goes on to outline the problems caused by lack of business investment - based on various other reports. But none of these reports are able to see that lack of business investment is also a problem with a cause - massive private debt.

I tried to post a comment on the website but it kept self-borking, so I'm putting it here instead. (Always write long comments in Notepad before posting them!)

There is certainly some evidence to suggest that business is sitting on reserves. But there is also evidence (from the 2011 Budget Report and a subsequent McKinsey Report) that private debt in this country is around 490% of GDP, and McKinsey thought this on the increase at the end of 2011.

Now I've asked every economist I come across the same question: what are the interest payments on ~ £7 trillion of debt likely to be? They uniformly ignore me, even the one's that argue that we should be looking at private debt.

We can see that every 1% of interest rate requires about 5% of GDP. But what is the average interest rate? 1% 5% 10% 20%? No one seems to know or care.

In an economy where interest payments alone amount to a significant proportion of GDP (my guess is about 50% each year) we don't have to theorise why demand is low. It's because everyone is busy deleveraging (including the finance sector who account for about half the total debt). As Richard Koo observed: right now business is not maximising profit, it's minimising debt.

But what it also means is that investing right now is not going to produce much return because the choke is on demand not supply. People are simply buying the absolute minimum of stuff at every level of the economy. More supply of anything in an economy saturated with debt is not going to stimulate much in the way of demand. At the same time government is busy squeezing the economy - and undermining confidence. And meanwhile we know that 1000's of zombie companies are being kept afloat by the banks in the hope that things will improve soon. But even the one-eyed, head-in-the-sand government are starting to realise that a recovery is a long way off. Those zombie companies are going to be wound up soon - let's see how Christmas goes...

So what would a sensible individual or business do with their reserves right now? Buy gold? I don't know. But investing in a new business venture would not be sensible right now in general. Of course some people are doing it and doing well. But they are a drop in the £1.5 trillion GDP bucket. And the Bank of Dave is happily and profitably lending money. But a few thousand at a time.

Those reserves could be quite huge, but until the debt problem is sorted, which will take another 10-15 years, there won't be much incentive to make risky investments.

I don't disagree that there might be reserves, and they'd be better spent than not. But in the broader perspective it's not sensible to risk your capital in business ventures right now. Which is partly why banks are loathe to lend - they've sobered up and realised that, given their reserves, they loaned far too much money at far to high a risk, in the 1990s and early 2000s. And now it's being said that they're under-capitalised - which is arse about face.

Osborne Problem in Two Sentences

From today's Guardian:

UK government monthly borrowing rises more than expected to £8.6bn.

Fall in corporation tax receipts hits George Osborne's chances of meeting his deficit reduction targets for this year.

Or more succinctly, as the  IMF has been saying since this time last year, the government's approach to managing the economy is causing tax revenues to shrink exacerbating the government's problem.

You have no idea how much it pains me to agree with the IMF. But there is it. However the article also contains this:

A Treasury spokesman said: "The economy is healing, but it still faces many challenges..."

Now the first part of this statement is just bullshit. The economy is not healing, it is actively haemorrhaging still. Which is why government borrowing is rising still.

Remember the falling unemployment figures? Puzzling. But here we see the truth - business might be creating a lot of part-time jobs, but it is paying less tax. This either means that everyone is doing better at exploiting tax loopholes, or that they are making less profit. Only the government can do anything about the former, and despite the fact that they are long on rhetoric on this subject, to date there is not even a substantive proposal for tax reform, despite all the other reforms pursued by this so-called "Conservative" government.

One of the chief reasons revenues continue to fall is that demand is low, and one of the chief reasons demand is low is that debt repayment is soaking up a huge proportion of GDP. When debt is 492% of GDP (according to Robert Peston) what are the payments on it likely to be - I've asked many economists to offer a guess and they uniformly ignore me. Perhaps the answer doesn't bear thinking about?

A conservative is someone who seeks to preserve the status quo. The so called Conservative element of the coalition government is strongly reformists and has been shaking up the establishment from top to bottom to no great purpose. The Conservatives have morphed into the NeoLiberal Party.

Bank of England no Longer Predicting Recovery.

The Bank of England's Inflation Report for Nov 2011 is out today. The outlook is fairly pessimistic.

"The UK economy has barely grown over the past two years, as it has laboured against the consequences of the financial crisis and its impact on global demand, a sharp squeeze in domestic spending power and a necessary fiscal consolidation. The period of weak demand has been accompanied by stagnant productivity, raising questions about the extent to which the supply capacity of the economy has expanded. Increases in energy and other import prices and in VAT have meant that CPI inflation has been well above its 2% target for much of this period."

The chart above shows that BoE's GDP projections are on the low side, and that for the last 18 months at least the real GDP measured by the ONS has been on the low side of their projections. The model produces a bounce back, probably because this is programmed into the model. Throughout the 20th century the UK bounced back to historical trends of growth after recessions. A quick look at our GDP curve (below) shows that this recession is different. We aren't going to bounce back this time. This time it's different. (see also Past, Present and Future of GDP Growth)

Quarterly GDP 1955-2011

We don't have to look far for the reason it's different this time. From 1990 - 2010 UK private sector debt increased by 700%, as virtually all limits and oversight were withdrawn from the finance sector. Massive indebtedness means were busy paying off debt instead of spending or investing.

Any sensible government would be looking for ways to decrease the debt burden - a debt jubilee or debt relief program - which would be the best stimulus for growth, because it would stimulate demand by freeing up disposable income. Indirectly it would help the government balance the budget by boosting their choking revenue stream.

However "sensible government" appears to be an oxymoron. The Tories still seem fixated on cuts as the way forward despite mounting evidence of the deleterious effects. And despite the fact that Vince Cable identified the problem with consumer credit in 2006 and predicted trouble on that basis. He didn't quite foresee the crash in the way that other's did, but he did ring alarm bells. However Mr Cable appears to have forgotten that he ever knew about the problems of high debt levels now that he is Business Secretary and in a position to do something about it.

On the plus side unemployment came down this week, though it seems many jobs are being converted into part-time work. And there is the hidden effect of the government shuffling people around in work schemes. Claims for benefits went up which is probably a truer reflection of the state of employment.

Privatisation and the Deficit

A few weeks back the IMF published from information showing that the UK deficit was primarily caused by a reduction in revenue, rather than increase in spending. This is partly why they are now also saying that austerity won't help. Cutting spending won't deal with the problem of reduced revenue in the long term, and will in fact have a negative impact on revenue because of the consequent shrinking of the economy. We know this, and we know that the government is in denial about it. And taking £35 billion from the BoE as a fig leaf is not going to convince anyone. The Tories are naked and refusing to admit it.

Over the weekend the Observer, more usually a light-weight, published a story showing that three of the largest water companies in the UK have parent companies in Jersey, and pay no, or next to no, tax in the UK despite making enormous profits - and note profits not simply turnover:

Water companies pay little or no tax on huge profits

So these companies that benefited so hugely from the free market experiment repay us by sucking money out of the UK economy. Money that all used to go to the government.

We've also been hearing about how other large companies such as Amazon, Google, and Starbucks make fools of the UK people and its government by avoiding paying tax here, again despite making healthy profits.

Should we be surprised that large corporation have no sense of social responsibility? Well, no. Let's not be naive, these companies are set up to transfer wealth to the wealthy and no other reason. The service they provide has become incidental. The naivety has been on the part of successive governments. The ideology of the free market religion is that by allowing companies free reign (and all the while piling more and more regulations on individuals) that we all benefit. There never was evidence to support this ideology, its just something that some rather brilliant, but completely unrealistic, theorists came up with and won Nobel Prizes for. It never related to the real world, and still does not.

We now have 40 years worth of evidence now. And what the evidence shows is that free markets lead to long term economic instability - crisis after crisis across the planet; and to increasing economic inequality, which also leads to social unrest. Regarding inequality the free market religion facilitates the greed of the already wealthy and allows them to circumvent regulations requiring them to be good citizens. When people behave that way they are labelled anti-social and given punishments. But the free market religion does not see the dark side of business, it only sees the light.

It is true that privatisation has often produced benefits in terms of service. It's not all bad. But the cost has yet to be really counted. Indeed I think we are beginning to see the true cost in articles such as the one in the Observer. How long can we afford to pander to these companies that have no loyalty to the community which feeds them. It's like having a pit-bull terrier as a pet. It's only a matter of time before it turns on us or our family and decides to bite us.

I think we also have a problem with the middle classes in the UK. They are too comfortable, and too willing to put up with the squeeze. They are happy if they can maintain their standard of living, or a semblance of it. But they aren't paying attention to the consequences of having their heads in the sand. A happy middle class existence is dependent on social cohesion, and long term stability. We're in danger of losing both of these. 

Governments need to stop being so naive about the intentions of business. If the aim of government is stability and prosperity for all, which is what it should be, then some kind of decisive reform is necessary. If a business is operating at a considerable profit in the UK and paying no tax on it's income then something has gone disastrously wrong. If we're going to tax wages and profit, and profit is adept at avoiding paying any tax, then all of the burden falls on wages. Such a situation cannot be allowed to continue. If that company is the healthy beneficiary of a government sponsored monopoly like a water company, then the fact that they don't pay any tax is an indictment of both the company and the government. Making a profit and paying no tax is immoral, even if the law is so stupid as to allow it.

The dark side of privatisation then is the huge negative impact that it's had on government revenue. That government is in denial about the real impact of small government and privatisation is not helpful. Just as the UK was in denial about Jimmy Saville and his child abuse. Companies like Anglian Water are abusing this country. We can't just stand by and watch it happen. Or maybe we can?

For a government staking its reputation on balancing the budget, the obsession with spending at the expense of revenue, the abject failure to deal with rich cheats while continually bashing the poor, leaves it looking more naive than average, more clumsy and blindly ideologically driven than any government since the 1970s. And that is saying something.

Occupy Wall St's Rolling Jubilee!

This is such a brilliant idea. Occupy Wall St's Jubilee idea is to use donated funds to buy up poorly performing debts - which can be done for pennies in the dollar. Then they just forgive the debt. They call it a Rolling Jubilee (http://rollingjubilee.org/).

In America Banks sell debts which are bought up by debt collectors who then extort money from the debtor. A little bit of money goes a long way. With $50k they can buy $1 million worth of debt and forgive it. 

As well as the website there is a YouTube video:

One of the organisers, David Rees, also has his own blog How to Sharpen Pencils, and he describes how in the test run they used $500 to buy up $14,000 worth of debt, and just forgave it. There is a fund-raising event on 15 Nov which will be streamed on rollingjubilee.org.

The industrialised world is heavily over-burdened with debt. It is sucking the life out of our economies. We desperately need a debt forgiveness program - a Modern Debt Jubilee. I have been advocating Steve Keen's version of this, but it assumes that the government will face up to the private debt problem. The fact is that if we wait for the UK government to do something about private debt we'll probably die waiting. The government is deep in denial about private debt and have no policy to deal with it. So we need to help ourselves and this Rolling Jubilee idea is an excellent approach to it.

If you are American I urge you to donate money to this project. It doesn't have to be a huge amount, a lot of little amounts will do the job. $1 of debt costs around 4c to buy. So $1 buys ~ $28 of debt.

I will help promote & donate money to a UK version of this if someone will organise it.

What is the UK Spending on Debt Servicing?

Since 1 Oct  I've been telling people that the interest payments on our debt take up a significant proportion of GDP each year. I estimated that the interest on the £7 trillions of private debt might amount to about 45% of GDP each year - assuming an average 10% interest rate.

Now in an online review of the 2012 edition Occupy Money, It’s the Interest, Stupid! Why Bankers Rule the World, Ellen brown reports that an economist has calculated the amount in the USA as 35-40% of GDP.

This is bad news for the UK as our private debt is much higher than the USA - which is a factor in why their economy is in recovery and ours is not. Their private debt peaked at 303% of GDP, whereas UK debt peaked at 475% of GDP (according to the 2011 Budget Report). Current rates are about 250% in the USA (according to Steve Keen and this graph) and 450% in the UK.

USA Private Debt 1920-present

UK Private Debt 1987-2010

And note Steve Keen's important point that even now private debt is much higher as a percentage of GDP than it was at the peak that caused the Great Depression.

Now if the USA is losing 35-40% of it's GDP then proportionally the UK is losing much more. I'm hesitant to put a figure on it based on this information it has to be more than 50%. And this is a chilling figure. Imagine if Camoron was right and we were to treat the UK like we were running a credit card. More than half our income is going on interest payments, let alone paying off the principle.

And just a note to acknowledge that Robert Peston wrote about this on the BBC Website in November last year.  His figures are from a different source, I prefer to use the government's own figures - the differences reflect the difficulty in calculating these figures. He has UK private debt at 481% of GDP in 2008 and rising to 492% in 2011 (or £7.4 trillion). The rise is being driven by financial institutions. So actually Peston's analysis is even more pessimistic than mine. I've tweeted him to ask what he thinks the interest payments might be. Chance of an answer is about zero, but one has to try.