Wednesday, 19 November 2014

Ed Miliband - don't feel too sorry him.



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    Mr Drew's wonderful piece on the robot probe had some support for the beleaguered Wallace understudy that is poor Ed Miliband. Nobody loves him. And people are being horrible about him. And he's no worse than the other guys, so why are they picking on him?

     

     Poor Ed Miliband indeed. Having to endure some press criticism. from his own side, no less. Though he somehow managed to convince his youthful activists that the socialist newspaper,  The New Statesman, was somehow is in the pay of Rupert Murdoch. As was the equal right wing The Observer, that also ran a story about useless Ed. That's the Observer, owned by the Guardian media Group. As left of centre as you can be before you move into socialist worker Pravda territory. 

     

     Ed made a speech blaming Dark Forces for his troubles. And several commentators here agreed. Which is a surprise. 

     

    Because you don't hear Nick Clegg, someone who has taken his party from 15% in the polls to around 7%, and possibly the second most despised politician in Britain, complaining about the right wing media, then why should Ned? 

     

    David Cameron has never enjoyed the support of the right-wing media. The Sun and the Mail are both skeptical of his apparent wooly wet Conservatism. The Mirror and the Gruniad run nothing but Toff  Dave laughs at bedroom tax food banksters stories.

     

    his soft Toryism has won him not a line of praise from the left wing media. And none from the right either. It was the ex-Tory press that really put the boot into him over the Osborne pasty budget and the gay marriage laws. an attack so damaging that the party has only just recovered, two years later, to its low levels of polling support.

     

    So for Miliband to blame to blame 'Dark Forces' on his woes, like he is a former royal butler trying to unconvincingly sell a book, is laughable.

     

    Yes, he has had a tough time lately. But who hasn't? Does he think Nigel Farage is basking in the glow of a favourable media sunshine? There are no good UKIP stories. The Daily Mail might be the most anti-immigrant paper, but it is not {yet} pro-UKIP. And if there can be a fruitcake-loonies and closet racists story to be found, then all the papers will print it.  The top of this page is just 1 page of 511,000 results (for ukip is racist).

     

    UKIP have to take the mud every day. And they have a lousy organisation, 2nd rate PR personnel,  and a fledgling history to defend them. Farage can't go to one of his millions of Union people and ask for some PR assistance. he can't pop a shadow minister for nothing very much onto the Today program to say the government's latest policy idea on nothing very much is wasteful/wrong/incoherent/we thought of it of first; like Miliband can, and does.

     

    The Green party can't even get on the TV debates, despite having an equal number of MPs to UKIP and about two thirds as much support as the Liberal Democrats. Even those hippies, prone to conspiracy theories and Dark Forces statements, aren't suggesting its ALL just a right wing media plot to keep them from their mission to greenify the world.

     

    And here's the thing. Even if it was a right-wing/left-wing media plot, they only print the polls that have been undertaken. They don't select the people to be sampled. They don't answer the pollsters questions. It was the electorate who said they rated Miliband a big zero. Who thought he would make a poor prime minister. 

     

    It was labour MPs saying, on record, that they thought they had elected the wrong leader.

    It wasn't Dark Forces, appearing like Darth Maul to prevent the 'good' Ed from his mission. It was ordinary, sampled,  people. 

     

    The reason Ed Miliband is unpopular in the polls, and has been almost since elected leader, is because he is Ed Miliband. He has convinced hardly anyone who wasn't already convinced that he is the next big thing. That's why his polling for his party has gone from 30% when elected to only 33% now. Pathetic for an opposition party seeking office in 6 months time. He should be on 40% without even trying. More like 47% if he was going for it..

     

    Ed Miliband has every possible advantage an opposition labour leader could ever hope for. 

     

    • A seven year continuing recession.

    •  Full Union backing for labour's leader. 

    • Tory errors pushing public sector workers ever leftwards. 

    • Scotland and all the red mps remaining in the UK. 

    • Continuing economic malaise. 

    • Still unresolved and public unsatisfied banking crisis. 

    • Low wages. 

    • High taxes. 

    • Out of touch ruling government.

    •  Cuts to services. 

    • A hostile to Cameron media. 

    • Defecting Tory MPs taking seats and overturning 10,000 majorities to do it! 

    •  Hostile liberal media. 

    • Students fanatically against the government.

    •  The collapse of the two-left parties overturning the 30 year split of the left vote.

    • The long predicted but only just arrived rise of social media to bypass the traditional right wing media's hold on the public's news access. 

    • Murdoch's once feared media empire now neutered by phone hacking and Leveson. 

    • The Liberals reneging on the boundary reforms that give Labour a 5% head start in the election race. 

    • Stupid government policies designed to inflame voters against them such as homosexual marriage and ring-fenced foreign aid.

    •  Previous unkept promises on a European referendum severely undermining the governments ability to get voters to believe it is serious this time.

    • The old euro-tory splits coming back to divide the party.

    •  Rising immigration untackled. 

    • Rising borrowing unchecked. 

      Thousands and thousands of former Liberal Democrat voters and activists returning to Labour

    • Crowded schools. 

    • Crowded, expensive public transport

    • Crowded hospitals and surgeries.

    •  Cuts to defence at a time of likely conflict.

    •  Government isolated amogst its European partners. 

    • Weak coalition allies. 

    • Left wing, charismatic, democrat president in the Whitehouse. 

    • No money for the usual election bribes for the government. 

    • Lack of faith in the government from both its supporters and detractors.

    •  Full coffers for campaign spending from union donations. 

    • Fired up activists ready to do battle with their class enemies.

    • Fixed term parliaments guaranteeing Miliband knows when the day of action will be so he can save all his goodies for that date and cannot be caught out by a snap election on the good news of a royal baby or something similar. 

       

    Even Brown could win this coming election.

     

    What more could the 'Dark Forces' crybaby want? 

     


39 comments:

Clive said...

If this is the soft, wet half-hearted Conservative party, I'd be genuinely fearful of what they'll do if the real hard-nut conviction right wingers seize control from Cameron.

dearieme said...

I have an iota of sympathy for Mr Moribund: when the press pack decides it doesn't rate you, they are ferocious.

On the other hand, when they decided against John Major they had to use invented stuff - underpants and all that. With Dead Red Ed they needn't invent anything. He wrestles bacon butties all by himself. And loses.

Still, I expect him to be the next PM.

Anonymous said...

" No money for the usual election bribes for the government"

Osborne's got that one sorted, bribe us with our own pension pots!

Bloody genius that man.

andrew said...

@Clive

Well, they could have actually cut spending so that the deficit = 0

Like they said they would.

Govt spending has not dropped over this parliament.

Now, if they actually had, we would probably be in the same state as France (not good).

But that is another story.



Electro-Kevin said...

Actually - even the press get a bad press. The Daily Mail isn't the most right wing, anti immigration paper: the Daily Express is. It even has Farage as a columnist but somehow it gets away with it.

Like Mr Cameron gets away with it. The real threat isn't Mr Miliband. It is David Cameron. And with this man you have to listen out for the small print (Yes. I wrote that right.)

"I WILL REDUCE IMMIGRATION... from outside the EU"

"I WILL NOT PAY THIS DEBT... in December"

Always some get out and he's criticised because there's a heck of a lot to criticise him about - including wanting to side with the loons who became ISIS.

What he is given an easy ride on is the debt and the economy and - Clive @ 9.42 - what might we dread that a 'hard-nut' Tory party would do ? Crack down on the debt like this lot should have been doing nearly five years ago ?

Because they haven't been 'hard-nut' means a coalition with the Lib Dems and that whoever gets in in 2015 is going to be forced to be 'hard-nut'. The UKIP support shows that a more 'hard-nut' Tory offering would have won majority in 2010.

I have no brief for Ed Miliband. But this personal vilification happens to be the biggest positive that the Tories have "WE ARE NOT ED MILIBAND... but we're pro EU pro immigration, anti grammar, anti English nationalist and pro tax & splooge"

It's the politics of fear far worse than anything that UKIP are accused of.

Great. It's keeping the heat off of Farage - a man whose armor appears to be impeneterable.

('scuse spellings)

Electro-Kevin said...

Couple of clarifications there:

- What he is given *is* and easy ride...

- Because they *weren't* hard nut means a coalition with the Lib Dems...

Clive said...

@andrew

That's kind-a what I'm afraid of !

Its worth repeating, there are three components to GDP:

1) Exports
2) Government spending
3) Private consumption and investment

So, let's say we cut 2). The only way that the economy won't contract is therefore either if 1) or 3) grow. Okay, let's have an export boom then... great... to whom, exactly, will we sell stuff to and why is our stuff any better than any other countries stuff ? In a world dragged down by overcapacity in pretty much everything (even oil, for goodness sake), what are the chances of that happening ?

Maybe 3) then... that's comprised of consumer spending and industrial / business spending. If you know anyone who in what is still laughingly referred to in the middle class is sitting on a pile of cash and keen as mustard to spend it, you know one person more like that than I do. I do know a lot of people who would like to buy this- or that- but don't have liquidity. They would borrow it, but are worried about job security and stagnant incomes. So they don't borrow for fear of the bailiffs coming calling one day. There's another group of people who don't really give too much thought to paying it back, but the banks have -- not before time -- wised up to them and are, stunningly enough, reluctant to lend to those sorts of borrowers. And do we really want more private personal sector indebtedness ? It's not exactly the first thing I'd put on my list as the basis for a good economy right now.

This just leaves private commercial investment. Given the aforementioned problems of excess capacity and tapped out consumers, they too are strangely reluctant to splash their cash pile around.

The 0.1% have money and many are willing to spend it, of course. But there's a limit to how many houses, cars, glitzy nic naks and so on they are willing to buy and they don't eat / buy socks / send Christmas cards in appreciably larger quantities than you or I do. So their contribution is necessarily limited.

Do then please explain to me how cutting government spending -- at a time when no-one else is either willing or able to spend -- will do us any favours.

Its just that sort of (ill)logic that will get us into more trouble. The some people still insist on thinking that will actually help and are, worse, urging the Conservative party to whip the horse harder that makes me frightened. Because many in the Conservative party are genuinely nutty enough to do it.

CityUnslicker said...

Clive - so your solution is more Government Spending...8 years after recession...the next one is closer.

We have had QE, we had had Plan B. What we need is a few years of 1.5% growth, not 4% debt fuelled. 1.5% with the debt falling.

It's a tricky balance, the current lot have njot managed it as they were too wussy to cut anything that would have a real impact today - like pension entitlements or in work benefits, or foreign aid, or, well or anything.

Your plan is to keep gov spending high on a misguided idea that GDP growth is the only ting that matters. Not if the debt ratio is growing faster than GDP. Quite wisely many years ago Osborne, who if you read here a bit you know I don't like, said you can't borrow your way out of a borrowing crisis.

We have a very deep structural problem with a ballooing structural deficit the key cause of which is government overspending on vote winning subsidies for poor and middle class people.

Demetrius said...

Anyone for a Monarchist Party and the divine right of kings?

andrew said...


as long as you vote for me as king!

... oh.

Clive said...

@CU

Oh, I do read here often and while I agree with some of the overall narrative, sometimes, as here, I think you're all barking up the wrong tree. But being familiar with opposite positions to one's own helps you sharper your arguments and -- you never know -- you may find from time to time that you've got it completely wrong. So it never hurts to keep an open mind.

From what I can tell, then, you seem to be in favour of some sort of what I'll call a "cathartic recession" to shake out whatever is believed to need shaking out from both public and private sectors. We'll never agree totally on that one, it calls to mind Mellon's enthusing:

"liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate... it will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people,"

Which was fine in theory but in practice the amount of pain required was more than society was prepared to endure. No doubt you think that we should have a higher tolerance for pain. So I'll just agree to differ.

Where we may agree is that, regardless of whether a draconian deficit reduction plan was/is needed, or whether more government spending was/is needed, the distribution should be progressive. If there has to be pain, we should all be in this together. If there should be government stimulus, it should be to the benefit of all, equally.

What the Conservative have done instead though is implement policies which have benefited no-one except a few holders of certain very specific asset classes. We're hardly a better country for that.

john miller said...

Cameron, Miliband and Clegg stand tried and convicted of transferring billions of pounds from the public to the energy companies and the Treasury, while at the same time trying to bankrupt the British economy.

It fell to Miliband to enact a law (which is what Ministers do given the whip system) which means that we get rid of foul nuclear and coal power stations and replace them with renewables and diesel generators, paying 34x the cost of energy.

But all three, desperate to outdo each other in terms of their Greenness, conspired to appoint A Green Activist (ooh, it spells AGA, I wonder if they got confused with what Cook used to use)to write the suicide note that is our current energy policy.

May they all burn in Hell (using windmill energy, so it may take a few centuries)for their crimes against this country.

Electro-Kevin said...

Mansion House Tax

Isn't this the wrong name for it ?

Shouldn't it be The Overpriced House Tax ?

This is what happens without a 'hard-nut' regime. We end up with all manner of taxation which won't even solve our problems. It will lead to diminishing returns and exodus.

The policy of providing generous welfare, NHS cover, large scale house building, low interest, inflation... is one of 'build it and they will come'

And for that there will never be enough tax.

CityUnslicker said...

JOhn, your on the right track there.

Clive, very interesting to read your thoughts. I don't agree the rich got richer.The GENI co-efficient so belvoed of the left has reduced. Not becuase the poor got richer, they did not; the rich got poorer.

I am rich average standards, I pay more tax and am poorer in real terms than I used to be, by a considerable margin.

What Government have done, and there will be a post of this, is use the automatic stabilisers to buy the votes of the populace. This spending cannot be controlled and so Government spending - pushed also by terrible Energy and Health policies - has rocketed to way over 40%. The tax base cannot catch up.

So in your world, we need more debt. In my world I see the debt will kill us. But I don't want another great recession.

Take a simple example, houses are overpriced. Perhaps a crash woul dbe good, but that would be painful for many. A period of no rises and real terms falls over say 5 years would be great. The overall public finances need the same treatment - I am not advocatina shumpeterian carnage.


However, none of the politicians can deliver this because they are all in de nile.

As for QE, I thought it was a shit idea to keep doing it when there was so little evidence that more was going to work. the first bit helped keep the lights on in the very bust banks - so avoiding a crash.

Also, so what if asset prices rose - they rose from a dangerously low level - this was the point.

The fact that rich capitalists benefit is a side-effect; not the aim of the policy, which was to avoid economic collapse. How would that have worked out for the poor people?

I advocated handing our money to all like in Switzerland at the time as it would have been fairer and driven a quicker recovery.

but that choice would also make people see money has become a fallacy and no controlling Government is going to sign up to that.

Electro-Kevin said...

Clive @ 4.52

"Which was fine in theory but in practice the amount of pain required was more than society was prepared to endure."

OK then. We'll opt out of austerity. Keep the debt coming instead.

Where do you think this is going to end ?

Do you believe in the Money Tree ?

A Smith said...

"Mansion House Tax"

Tax all land. They can't move it overseas.

Remove the taxes on added value - slash VAT.

Slash Corporation Tax to Irish levels. Get a few more Amazons in

Slash Uni Fees. See tax on added value.

If we can make it, sell it and consult on it worldwide, its far better than sitting on it reading the Daily Mail like a poor man's FTSE.




Suffragent said...

Evening All
Clive
Seems you’ve dropped a couple of clangers.
The first is the holy grail of GDP. A never ending exponential growth, open to the interpretation of any statistician (lies, damned…………………..)
The second is Government spending, an economic term which originally meant that the government stepped in to take up the slack in the economy and keep the workforce busy with infrastructure projects. Build things or improving services that would make it easier for business to turn itself around. Government spending is now directed at an ever increasing overpaid state, who’s only job is to increase the tax take in the form fees (and if rejected fines) and subsidise the poor to the point, that actually taking a job would be financial suicide. All of which stagnates business and kills the work ethic. The parasites have truly taken over the tree.
It isn’t better to have somebody in a job than on the dole, when that incompetent twat is on a quarter of a million a year, plus pension, to run a failing NHS trust, school, Police force …..(or successful paedophile ring)

PS I’ve noticed the blog getting darker over the last few months.
So what can we do to make our lives better? The politics, while funny isn’t the answer.

MyCuriousName said...

@Clive - I am intrigued by your posts but the question raised by Electro-Kevin could scupper you -

"Do you believe in the Money Tree ?"

PS - I greatly appreciate the ability on this site to post continuously and (fairly) anonymously, changing my user name for each post. Long live Liberty (of this sort)


LLL

Clive said...

@MyCuriousName @Electro-Kevin @Suffragent

Please rifle through your pockets / wallets / under the sofa cushion etc. and take a look at the £5 note or whatever coins come to hand.

Please then evaluate what the actual true value of that object is. The notes and coins cost fractions of a penny to produce. And that's just the physical stuff. The billions on the government "balance sheet" have zero marginal cost of production.

Those objects are worth something because we and everyone else thinks they're worth something. If I gave you a fiver, you could go out and buy a sandwich and the shop selling the sandwich would happily accept this bit of paper and you'd have a full stomach (if you at the sandwich). The sandwich -- and the full stomach -- would be real.

If there was some terrible mistake by the DWP and your bank accounts got credited with £10,000 (perhaps they thought you were an asylum seeker or something), and you could go out and have a nice holiday with this money which has "magically" appeared in your account.

That "credit" to your account would be matched by a "debit" on the DWP's ledger which would sit with a million million other debits accrued over time and represented by the outstanding issuance of Gilts. The Treasury can issue as many of these as it wants to. It costs them practically nothing to do so. It may try to "sell" these, as people exchange this type of asset for another asset they hold but where the holder has decided they would rather have Gilts. instead. Or it can buy them off itself either via straight monetisation (not yet done overtly in the UK) or through QE which is an exchange of one type of institutionally-held asset class for another (less liquid securities for cash). So again, money can be produced for "nothing".

If I take the metaphor of "a magic money tree" to mean that money can be produced by some mechanism (the "tree") for free (the money "grows") then yes, that's a pretty good description of how it works on a simple Noddy level of explanation.

How would you describe then the reality I've just outlined above ?

I know it's an almost physical shock to the system to realise that, in a fiat currency system, money really isn't intrinsically worth anything and it is only of value because we keep believing as such. What, we might wonder, would happen if we all stopped believing ? Do we trust ourselves and each other to keep everything ticking along together ? Would we all act responsibly ? What about the people who we know wouldn't ? How would we keep them in line ?

Scary stuff. But really, isn't it time we all wised up and assessed the reality of our fiat monetary system and worked out how best to make it function for the benefit of everyone ?

Or you can keep believing in your "hard money" fairy tales...



Clive said...

and @Everyone, generally...

While politically you'd definitely find my on the left of centre, probably it would be me in the corner with Polly Toynbee, necking. Actually, maybe not.

But anyway, I'd concur 100% with knobs on that we have -- be you on the left or the right -- a political problem. In that, our politicians are a hopeless lot and misrepresent all of their tribal constituencies. I would normally vote Labour, but with the joke that is Miliband as leader, I'll probably end up just spoiling my ballot paper...

Sebastian Weetabix said...

I get the feeling Clive is too young to remember the 60s and 70s at first hand, or he is one of those people - to quote Shankly - who has all of his brains in his head.

Increasing the money supply in the reckless manner he demands is very useful to those who enjoy the purchasing power by getting first dibs on it (investment bankers, for the hard of thinking) but as soon as it circulates it thieves from my pension savings and yours via inflation, screwing the average white or blue collar worker. We can tolerate mild inflation because we don't notice 1% p.a.... But once you let inflation rip it is very hard to stop.

Clive has either not read 'When Money Dies' by Adam Fergusson - and he should, then he wouldn't be so blase about printing cash to meet government obligations - or he is Robert Mugabe's finance minister, and I claim my 500 billion Zim dollar reward, with which I may buy a loaf of bread, provided I can get to the shops before 10am when the price goes up for the fourth time this morning.

bob said...

*Increasing the money supply in the reckless manner he demands *

I don't see him suggesting that, he's saying "let's think about it", not lets just recklessly spend.

He may be wrong, but I think you lot are all trying to read between lines that are not there.

CityUnslicker said...

SW quite.

Clive, no need to explain the vagaries of of currency to us here.

As well as Zim or Argentina I would also ask you to look at Japan.

Endless Government spending, endless debt. You will say, yes look no collapse.

Everyone else will say, no GDP growth, no future.

Like a house price crash a debt crash is hard to predict. We predicted the 2008 crash here from 2006 onwards. WHEN it will happen is impossible to get right.

If Britain's debt dynamics go vertical then we will have a 1970's mess at best.

Printing money is not the answer. Velocity of money is key, not the base quantity. We have increased the base to make up for the velocity.

hovis said...

SW I can see where you are coming from but do you really beleive that we are no already de facto doing this? Do you seriously believe we are on the verge of hyper inflation?? I trust you are not really Andrew Sentance in disguise?

More generally:
The conumdrum is that the money is funding the machine of state ( including large transfer payments and debt interest), not anything useful.

That said Clive has touched on something interesting in FR Banking that the system of money creation (in the hands of private banks not the government.)
So Bradbury pound anyone?

Suffragent a reasonable analysis imho but I would disgagree that it is just "the state" we live in a corporatist state where public /private domain is blurred and the idiocy you describe is carried out by the so called private sector. Also you rightly skewer GDP as a nonsensical measure and ever increasing growth as a fantasy, both ideas loved by economists and financiers. Interesting to note our GDP growth partly inflated/ fuelled by drugs and prostitution lead directly to the extra EU membership fees.

Jan said...

We are all living beyond our means at all levels....individually, at government level and on a global level. It's that simple. People blame others for their own greed..I just heard someone on the radio blaming Wonga for allowing her to get herself too deep in debt. If you can't afford it don't buy it. It really is that simple to take personal responsibility but we seem to have lost that mindset.

We collectively in the west use more than our fair share of the earth's resources so we need to consume less. The magically increasing year on year growth and GDP will have to go into reverse to allow others in the world to catch up.

I agree we are in danger of allowing the debt to kill us off. If we didn't have debt (interest) to repay we'd have more to spend on the sacred cows NHS/schools etc.

Fancy money creating schemes just disguise the bare facts and at some stage will lead to inflation or if we're lucky maybe there'll be a crash in asset values (hopefully property/fine art etc)which will hit the ultra rich much more than the rest of us plebs.

Electro-Kevin said...

Clive @ 9.25

I asked you if you believed in the Money Tree and you answered in the affirmative (thanks for the good explanation btw).

I've never disagreed with your understanding of fiat - but the other question I asked you originally was "Where do you think it will end ?"

Especially when that magic money loses its power to repay anything.

Electro-Kevin said...

A Smith - 'Tax land'

My issue isn't with how tax is raised but that it has to be raised at all (or nearly as much as it is)

The big growth 'industry' in Britain is government. And government doesn't even solve problems - it makes them so as to increase its own work and self importance.

So I pay tax on the home I've bothered to buy to live in. Yet another blow for self sufficiency. I may as well go on the dole and try to get a council house (fat chance these days)

MyDisappointedName said...

@Clive -

Thats very disappointing.

A simple question and all you could produce was an intellectual skidmark.

Money with nothing backing it and no limits on its production isnt money.

Youre a fool.

Y Ddraig Goch said...

Clive @ 9:25

I've heard that story before. While you are on a roll, could you explain something else to me? It's this ...

Why do we pay tax?

I don't just mean income tax, I mean any tax at all, ever, on anything. You rather eloquently explained how cheap and easy it is for the government to conjure money out of thin air. And you didn't mention a single problem following from that. Not one. So, why do we pay tax? Why doesn't the government just magic money out of thin air?

Bonus supplementary question ...

Why do we have a national debt? Why not magic money out of thin air and make it go away? Then magic even more money out of thin air to avoid ever borrowing again.

Sebastian Weetabix said...

@Hovis: I do believe we are doing it already, and I also believe it needs to stop. Immediately. We need to restore moral hazard. We need to jail the likes of Diamond and Dimon. We need interest rates to go up. We need a house price crash and we need the BTL crowd to go bust. It's going to happen in the end anyway and the longer we wait the worse it will be.

Inflation is not low. They've just kept housing costs out of the stats because it's easier than ending the free money party.

Clive said...

The BoE took great pains to explain this all and they needed 12 pages (and there's a load of references to plough through if you want to get a full understanding):

http://www.bankofengland.co.uk/publications/documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

.. so it is a little above my abilities to boil that (which was an abstract in itself) into a quick blog comment !

But that basically is where money comes from and if you can accept the BoE's statement (and if you think they're fibbing then it really is tin foil hat time for you) that by walking into a bank and borrowing a few quid, the bank doesn't actually have that few quid, it creates it out of nothing which then triggers a long sequence of accounting entries to represent the newly created money. You might well never have thought of banks as magic money trees, but that, in a one-liner is what they are.

They could lend the hundreds of billions which are in reserves out. That might trigger some sort of Weimar-like inflation nightmare like I often read about round here. But only if there was a stampede of people or business borrowing it and spending it. But we're in a (in my opinion) deflationary spiral whereby the people who are credit worthy won't borrow and the people who might borrow aren't credit worthy.

Finally, before this thread collapses under it's own weight, @ Y Ddraig Goch -- a very very very good question. What the buggery are taxes for ? Taxes are NOT to "fund" government spending, NOT to redistribute wealth, NOT to pay off the national debt and NOT even to pee money against the wall by giving it the EU or foreign aid -- or any other hot-button bogeyman you might like to imagine.

Taxes have one purpose: to drain savings. You pay tax because you've got more money that you can immediately spend. If you didn't have any money, HMRC couldn't take anything off you in tax. The government decides that, if you have more money than you need at this particular moment in time, you shouldn't splurge it all on cars, holidays, the horses or fast women or whatever. It takes, under the pain of imprisonment some of your excess money. What it gives in return are skoolz 'n 'ospitels to educate your kids and patch you up if you get sick, military forces to -- notionally -- keep us safe from nasty people in other places, roads to drive on, duck houses for MPs and goodness knows what else.

"Ah-ha !" you may say "but why should I have to pay those taxes ? If I have savings (extra income, i.e. more money than I can spend right now) who the cluck is the government to take it from me ? If it left me my savings, I would pay for my own and my depedents' healthcare, education, private security for my town, toll roads etc. etc."

Yes, you could indeed.

But your monthly / annual / and even lifetime income and expenditure wouldn't balance. You'd need to put your savings somewhere. £20k for little Johnny's schooling, £50k for if the other half had a nasty disease, £100-1000k for my retirement needs yada, yada, yada. You might want to speculate with some of that savings. But for a lot of it, you absolutely have to be able to get it back at par the second you need it.

So you'd take it to the bank. But what does the bank do with it ? It needs -- even under a fraction reserve as opposed to a full reserve system -- to put it somewhere. What the bank needs is an asset class which is completely liquid and utterly failsafe. So it goes out to buy some government Gilts.

OOOPSiE !

You've all just decided that the government should run a balanced budget and not issue any Gilts.

So, that's why we have taxes and that's why governments can -- and should -- run deficits.

Electro-Kevin said...

Clive - Thanks once again. Sincerely.

I used to ask how on earth countries had gone into trillions of debt - way beyond the amount of stuff in the world that money could buy.

How so ?

Of course, it's not just the central banks which create money but the commercial banks too - in the form of loans. And this is the foundation of the global crash.

We have gone so far beyond balanced budgets that some of our economies are unreal.

No one here is saying that there shouldn't be deficits and debt. But where debt has exceeded real stuff by so much then we have a problem.

There IS a Magic Money Tree, we'll agree on that. (Bankers pick the juciest fruit from it) But the fact is that its roots can no longer keep the tree upright and there must come a season when it's drained all of the nutrients out of the ground in which it stands.

Now.

I shall stop talking like Peter Sellers in Being There or I'll end up President of the USA by mistake.

CityUnslicker said...

Clive, wow, that is really intellectual madness.

The government do not own my money. There was not always tax, they do not own my savings. This is a silly starting place.

I can buy my own healthcare, my own schooling for my kids ( I do of course). I can't even continue on this bit as its bizarre that you think our labour is the state's to start with.

Anyway, back to reality a little, The Government, if it was really investing money, would be on to something running a deficit. After all, that would produce money in the future.

But the deficit is to pay benefits, tax subsidies and foregin aid. Not investment, CURRENT spending. There is no future benefit, just immidiate consumption.

Once day, that will cause an almighty collapse. Japan will go first and us sometime thereafter if we continue on the same policies.



SW - There is no inflationary crash coming because imports and commodities are going down in price. But wages are stagnant - its a varation of stagflation but at a low level.
The danger to adding debt at this point is there is no inflation to correct it. the debt becomes too burdensome, prices low, wages low, interest rates get decreased.

Everything reverts to zero. A singularity if you like. It ends badly, I don't know fully how - again, Japan will show us one day.

andrew said...

I think there is a difference of opinion over what money is.

It is nice to have clive here (with a different pov), at least he can spell and is vaguely coherent.

However,

"Taxes have one purpose: to drain savings..."

Just - no.

Taxes move money from people to the government so the government can spend that money (ideally on something really useful like the NHS, often on something that turns out to be worthless like not of the money spent on NHS IT projects).

Savings are taxed because it is easy to tax them (*).

(*) except if you are vv rich.

'When Money Dies' by Adam Fergusson is a good read on the history of the abuse of fiat money.

There has been a couple of vv good articles on how assets are being hidden by the vv rich at alphaville and Izabella Kaminska writes well on what money really is.

Not sure I completely agree with her - but she is cleverer than me.


Electro-Kevin said...

Clive - I thought this worth reproducing:

Japan is one of the World’s largest economies but it is also the world’s largest debtor. The UK is the number 2 in the latter league. A big difference is in the international spread (External) of that debt.
It is the Japanese people who have been buying a large proportion of Government Bonds and keeping their external debt low, whereas much of UK Gilts have been bought up by outside sources. That is reflected in the External Debt League where the UK, with 400% of GDP = $160K per capita, is the number 2 and Japan is 5th with just $24000 per capita. To put that in perspective, each person in this country effectively owes the rest of the world $160,000. In Japan each citizen owes just $24000, a fraction of ours. Now, how will WE be able to repay that debt, given that the Average Wage is just £25000 and the average tax take per person is £7400? I believe that it will never be repaid and it will become a rolling debt funded by even more debt until the buyers stop buying. When that happens, catastrophe rears its fearsome head and we go down the path of serious default and the collapse of the Pound. The outstanding debt must be paid off but the last Labour Government locked in so much Public Sector expenditure that it would be impossible to do within the first Parliament. They knew they were going to lose and deliberately set this trap but at the expense of the UK Tax payers of course. Come May 2015 anyone inclined to vote for Red Ed, should seriously bear this in mind. Labour would borrow more and accelerate the decline of the UK. They have, many times, proven themselves untrustworthy to hold Office in our country. Do not give them another chance to wreck the UK.

Anonymous said...

Hmm .. Well..Not sure about any of this.

However, historically, most government taxation before 1900 was for the purposes of warfare.A little was needed for government itself and its offices and administrators, but only around 10% of all taxation.

Y Ddraig Goch said...

Clive @ 3:04pm

A couple of people have already responded but I'd like to follow up one or two points as well.

Taxes are NOT to "fund" government spending

Yet that is, in fact, what they are used for. So your statement is factually wrong out here in the real world.

NOT to redistribute wealth

Yet, once again, that is what happens when governments confiscate money from some people and gift it to others. The political left all agrees that this is what tax does (eg listen to Toynbee squeal at the slightest hint that tax might become less redistributive). So again, you are factually wrong in the real world.

Then we get to this. (Presumably an answer to my question about why we have to pay tax when the government could so easily magic money into existence.)

Taxes have one purpose: to drain savings.

Obviously, this statement is utter rubbish. For this to be true, there must have been a time in the past when the government decided that people were saving too much. And, in order to curb that bad behaviour, they invented the - previously unheard of - idea of taxation. Sadly they soon found themselves inundated with huge piles of money - so huge that the warehouses were overflowing. Then, one day, some bright spark suggested that they could spend the money, and in that way empty the overburdened warehouses. Thus was government spending born.

It's complete insanity isn't it?

So three things that you wrote are quite obviously totally wrong and I'm not even half-way through the comment yet. What does that suggest to you about the rest of it?

As best I can tell from the rest of what you wrote you think that the government must borrow merely in order to create some gilts that people can then use as a store of value. Again, this is complete nonsense. We could achieve exactly the same effect with gold - which is already completely liquid - and there are plenty of other alternatives as well.

Finally you triumphantly announce your conclusion

So, that's why we have taxes and that's why governments can -- and should -- run deficits.

Except that what you wrote before this line is self-evidently wrong. Where does that leave your conclusion?

Jan said...

To my mind Norway has it right. They wisely didn't spend their lucky North Sea Oil revenues and saved it instead. Then they have plenty to spend on pensions,schools, hospitals etc especially as they could GAIN interest on it by lending it out to idiots like us who owe so much as pointed out by EK above.

The rot set in when the gold standard was abandonned. Paper money and electronic money can easily become worthless and if/when this happens the UK will be in a very bad position second only to Japan. All it takes is a loss of confidence.

Bill Quango MP said...

A great thread wasn't it?

Thanks to ALL contributors.
Who'd a thought a piece about Dark Forces Ed would lead to entire thesis on "what is money" ?

Jan - in 1914 ALL the waring nations abandoned the gold standard.
Spending on war was met by a take up of bonds from the general populace, taxation and loans from the New World.

This worked surprisingly well.
In Germany, 10pf would buy 6 eggs in 1914.
In 1918 it would buy 1.
But considering the blockade and the war and all, that inflation is under control.

The US confederate states, over their war for the same length, in 1861 war and by 1865 the cost of living was almost 100 times greater.
The confederate states managed to maintain their currency at a stable, if high inflation rate, for 4 years through the same methods as the WW1 nations.
Public subscriptions of their savings into government binds and external borrowing.

But the confederate sates, after 1864,when all was lost, found their currency and also their goods, to be worthless, as no one wanted to take the risk of having a devalued currency.

And devalued currency is something we never even touched upon!
What price £1 to S1 in 1955 ? Around $2.90 to a £1.

Today ? - about $1.60 to £1