The UK national debt stands at over a trillion pounds or around 88.7% of total GDP. That’s £18,506 for every man, woman and child in the UK, more than £40,771 for every person in employment. Every household will pay £1,918 this year, just to cover the interest
Party politics has become overblown rhetoric about cutting fast or slow but this is a smoke screen while the politicians get on with the real job of raiding our savings. If you don’t read all this article then at least skip to the end to read the extraordinary quote from last week’s Economist.
By rights, at the time of the credit crunch in 2008, the banks should have gone bust and three groups of people would have lost out. Those who owned shares in the banks, those who had entrusted the banks with investment money (often other banks) and those with savings in the banks of over £50,000 as this was the government backed deposit guarantee in place at the time.
This would have been bad but it would have been the most fair outcome because all three groups had chosen to entrust the bank with their money. Admittedly the savers did not think that they were taking a risk but what can you do? Shit happens. The point is that only people with a stake in the failed bank should have lost out.
Saving and investing is an intrinsic part of our economy and necessary for industry and to provide funds for people in retirement. The British government chose to bail out the banks because they judged that to allow the banks to fail would have wreaked havoc in the British economy and there seems to be consensus that this was the right thing to do. However, by doing this, everyone, including people with no investment or savings or any other relationship with the failed banks were forced to repay the debt.
On the face of it, share holders have only partially lost out as the value of their asserts declined but savers have not lost out and the bankers themselves have actually increased their remuneration with the idiotic assertion that we need them to steer a safe course out of this crises.
Meanwhile the British population are suffering a stagnating economy and cuts. This is, of course, fundamentally unfair.
Now the banks of Cyprus are in trouble and the European Union is trying a different tack. Cognisant of the fact that a lot of rich (and supposedly dodgy) Russians have money in Cypriot banks they are trying to force investors and savers to share directly in the cost of the bail out. This sounds reasonable but seems to be causing uncertainty which could lead to the turmoil that everyone agrees should be avoided. Perhaps the blank cheque bailout was the best option after all?
To protect savers and investors or not to protect them, that is the question. Should tax payers take on the debts of others or accept market turmoil by allowing the banks to fail?
Perhaps none of this matters after all?
It took Dr. David Starky on the BBCs This Week program on Thursday night to say what politicians of all stripes are keeping quiet about: the pound has been devalued 25% since 2008 by Quantitative Easing. Perhaps prompted by Dr. Starky’s forthright statement, last week the Economist put it more succinctly in an article entitled The Financial-Repression Levy:
“In the developed world total debt (including that of the financial sector, consumers and companies, as well as governments) is so high that it is implausible that it can be repaid via the fruits of economic growth. The debt must either be written off (defaulted on) or slowly inflated away. That means inflicting pain on someone: sorting out the crisis has been so difficult because no one wants to take the hit.
The Cypriot deal is a very clumsy attempt at a write-off. Your humble deposits are banks’ debts. So taking the deposits and using the proceeds to recapitalise the banks is a roundabout way of defaulting. But any form of outright default creates the potential for contagion.
Because it is more subtle, financial repression (any of the measures that governments employ to channel funds to themselves) is more successful. It was the way that many countries reduced their debt burdens after the second world war. It takes advantage of the phenomenon of money illusion: people get confused between nominal and real numbers.
The danger is that savers will eventually get wise to the erosion of their spending power….”
In short: we’re all shafted as the politicians take advantage of our economic naiveté to raid our savings and investments to repay the debts incurred by greedy bankers.