The Recession 2: What Osborne Should Do

Our once esteemed Chancellor George Osborne, whose highly anticipated 2012 budget collapsed in a smouldering heap weeks after its delivery, a man who has been described by his own MPs as an ‘arrogant posh boy,' must be wondering what lies at stake for him for the future in public office and in his political career. 

His current part-time role as Chancellor, and stated objective of economic growth, has been a dismal failure. The extremely modest deficit reduction achieved so far has occurred mainly through stealthy tax hikes and his extreme monetary easing policies are doing nothing but storing up inflation and anger for the future.

His opponents on the other side of the commons can offer no better. Labour’s answer is, as usual, a call for more Gordon Brownesque demand side Keynesianism, more borrowing, more stimulus, and an avoidance of the real problems for a braver leader of the future. 


This two part series argues that the ‘austerity vs growth’ debate of recent months is disingenuous and misleading. The first part focused on the austerity side of the debate, and gave examples of how deficit reduction can be achieved without it. This second part focuses on growth, a word which has been hijacked by Labour in recent times to mean ‘more spending,’ and a concept that continues to elude Mr Osborne.

In order for Osborne to keep his office at the Treasury, he will probably have to give up his role as Tory election campaigner and will almost certainly have to change his economic strategy in some regard.

What the country needs is real plan for growth. A strategy that will actually makes it easier for people to trade and create jobs, but also a strategy that does not involve piling more debt onto our bankrupt government.

This post argues that growth can be achieved without spending excessively and can be done immediately with demonstrable results in as little as a few years.

The Recession 1: Too Far Too Fast

Since the UK governing coalition was formed in 2010, the economical debate has centred around less spending VS more spending.

One side of the commons wants controlled austerity, whereas the other wants to keep borrowing to boost growth while risking the loss of our credit rating, which could lead to emergency austerity (and/or inflation), as currently being experienced by Spain, Italy, Ireland and Portugal.

Nobody likes cuts. Taxpayers in the private sector who have paid into the social system all their working lives, now find out that the services they have paid for will be cut, and public sector workers are hit with a combination of job losses, pay freezes and reduced pensions.

So far the debate has been presented to the public as a straight choice between the Coalition cuts agenda and the Labour anti-cuts agenda. But is there a secret third option? Is there really no way of balancing the budget without austerity measures.

This blog argues that it is possible to balance the budget without austerity and it is possible to boost growth without excessive spending.

The Case For Regulation: How To Tame The Banking Sector

Deregulation of the financial sector is widely accepted as one of the contributors to the recent banking crisis that reached a peak in 2008. The repeal of the Glass-Steagall Act in 1999 permitted the formation of one-stop super banks. Many institutions held and traded enormous portfolios of complex financial securities, the risks of which were not even sufficiently understood, let alone adequately provided for. During this time there was a degree of uncertainty between the FSA and the Bank of England over whose responsibility it was to regulate the banks. Things got out of hand. 

Then again, over-regulation was also a contributing factor. As explained in more detail in a previous article, the government’s involvement in the banking sector to guarantee deposits for individuals, and the central bank’s involvement as a lender of last resort, creates an environment which incentivises excessive lending and debt creation.

However one weighs up the factors, it is generally accepted that the banking industry will always require regulation, or at least for some time to come, and many urge that strict rules should be put in place as soon as possible to prevent any of the calamities of the financial crisis from reoccurring. 

This article discusses the merits and limitations of the new bank regulations proposed in the UK and gives some thoughts about an alternative solution. 

Monopoly Money 3: Fear Of The Unknown

If you or I were to print money, we would be thrown in jail. Why? - Because it is against the law! But the reason it is against the law is presumably because it is unjust for people to increase their personal wealth in relation to other people, without earning it. Yet the government and the banks do it all the time. It goes without saying that this is not fair. So why do people not complain?

A state controlled currency is widely accepted simply because people don’t know any different. It is deemed to be the norm. Every country has a government with a central bank that is in charge of the money. There is an unspoken trust for the government to act in the best interests of the people, and to act competently. But unfortunately for the majority of us, this centralised control of our money provides the means and the incentive to abuse the currency in order to indulge in human desire and create short term unsustainable economic growth at the expense of increased inequality in society and an inevitable future economic downturn, that is, when the boom eventually becomes a bust. So what can we do about this?

This post is the last in a three part series about money. In the first part we spoke of the rapid expansion of the amount of money in the economy. The money supply is going up, and the value of our money is falling. This has been happening on a huge scale in the last 40 years since the fall of the Bretton-Woods agreement when the last link to gold through the US dollar was severed. At this time an ounce of gold was agreed at $35, but since 1971 the price of an ounce of gold has soared, and peaked at $1900 in August of this year. The money that we use, however, buys nothing like what it did back in the day. The devaluation of our currency makes prices rise, and ordinary people bear the brunt. In the second part, we established that the root cause of economic discontent lies with the central bank, and hence with the government. We talked specifically about the system of fractional reserve banking and how it relies on confidence. If confidence was to be lost, everyone would attempt to withdraw their money from the bank and not everyone would get it back. We spoke of how the government and the banking sector are jointly involved in creating money. The Bank of England buys government bonds and other financial assets, using money created out of thin air, which in turn increases the money in the banks. The Bank of England also supports the creation of money and credit by the banks themselves in its role as the ‘lender of last resort’, which guarantees the credit worthiness of the banks so they can all compete by lowering rates in order to create and lend more money.

The sad truth is that so long as the management of our currency is left to government, it will continue to be debased at our expense. Depreciation of the value of our currency will continue indefinitely until one of two things happen - The government voluntarily changes its policy and embraces the subsequent recession, or continues in its money creating activities, artificially spurring growth until the economy becomes so reliant on monetary expansion to survive that the only possible outcome is total collapse of the financial system. Or is there a third option? Can we find a way to release our currency from its strict bounds and permit a free flowing stable monetary system, immune to the human forces that seek to manipulate it? In this post, I talk about the management of our national currency and some of the proposed solutions to break up this vast concentration of power.

Monopoly Money 2: Don’t Blame The Capitalists

This is the second post in a three part series on money. The first part can be read here. 

The recent Occupy protests have mainly targeted the banking sector. Demonstrators have held signs saying everything from: “Capitalism in cancer,” to “You got bailed out, we got sold out,” to “No bears, no bulls, just pigs,” get it?

Protesters have camped outside Wall St. and the London Stock Exchange etc, where many of the wrongdoers can be found. However, this isn’t where the root of the problem is. The protesters should really be outside the Federal Reserve or the Houses of Parliament and the Bank of England.

The blame for the economic instability and unfairness that people resent is being laid on capitalism, and when people think capitalism, they think banks. Although capitalism does of course create inequalities and embraces greed as a positive driver of prosperity, it is not the enemy. Capitalism creates the wealth and jobs that we all want to see. It is the government’s involvement in the banking system that has entwined banking and politics and sown the seeds for yet another credit driven recession. 

In the first post we talked about how the central bank creates money through ‘quantitative easing’ and the reasons it gives for doing so. We asserted that inflation = people getting poorer, and I stand by this generalisation as being true for the vast majority. 


However, there are some groups of people who stand to benefit from the government’s money creation activity. In this post I talk about who these people are, how the government’s policies are designed to benefit them and hence why we are the 99%. 

Monopoly Money 1: The Predicament

This is the first in a short series of posts about money. Each will contain a little bit of economic theory, but I hope for it all to be comprehendible for those that have not studied economics.

Despite thinking often about our finances, the system of money in our country is not something that most people really stop to think about. You get your wages, spend what you want to spend and save what you want to save. But how exactly did our current system of money come to be? Our entire way of life relies so heavily on its availability and its value, yet the people that control its production, issue and usage are a small number of powerful individuals. In this series I attempt to explain the dire need for our country to democratise the management of our currency and how, when it comes to the future management of our monetary system, the whole world could benefit from a little bit more open-mindedness.

Daylight Robbery

The financial crisis of 2007/2008, aka the credit crunch, brought about some shocking events in the world banking industry. As I am sure you know, the housing bubble, inflated with the easy credit and the fashionable casino banking of the 21st century, burst spectacularly in 2007 resulting in plummeting values of real estate securities, a lack of liquidity for financial institutions, widespread evictions and foreclosures in the housing market, the collapse of huge financial institutions and, consequently, global economic recession. But we are still feeling these effects today. The banks still haven’t managed to shake off the bad debt and get back to doing healthy business. Why is that?