Most people just don't understand how bad it nearly got. Whilst everyone who has been paying any attention to the news over the last 3 years is perfectly well aware that the banking system crashed in 2008, most think of it as significant, but not earth shattering.
Once it is understood how bad it could have got, why it needed rescuing, and why it wont be possible to rescue it next time, it only requires one last ingredient- the understanding that there will be a "next time" and that it is coming very soon, to start up a cauldron of real fear.
I'll try and make it as clear as possible. For many years the world economy had been in a state of deep sleep on a runaway train, being kept alive through a drip feed of "credit", but so subdued by its own apparent success that it arrogantly behaved as if there was no danger. The problem was that it became hungrier and hungrier, polluting the planet faster and faster, and using finite resources and land faster and faster. As supply shot up and demand faltered, we saw the oil price spike, the food price spike, the price of metals spike, you name it, it spiked. What happened is that all of these made the production of others that were related to them grow even faster. As the commodity crisis of 2007 spiralled out of control, some of the worlds biggest firms issues profit warnings, which led to jitters in the stock and equity markets. As commodity inflation eroded profits, firms laid off workers, who were already struggling to pay higher living costs. Then, everybody stopped paying their debts, and the economy sank into recession, and this rest is history.
We must be clear that the recession certainly can not have been caused by the banking crisis. In America for instance, the first declines in GDP figures were posted in the summer of 2008, just as the oil price reached an all time high of $150 dollars. The American "commuter" way of life was hit hard, and this only worsened the situation with the sub prime credit markets. The banking crisis actually happened in the Autumn, so it is simply false to argue that it caused the decline in GDP, since it actually happened after this had started. The banking crisis occurred because banks balance sheets became corrupted by asset write off (they had to write off bad debt that had defaulted) meaning that they had less money left over to lend. What's more; many banks were operating on the fringe of financial viability, preferring to lend borrowed money rather than use their own cash. This was an inherently risky strategy that only worked as long as there was growth. The problem was, growth stopped. Many banks completely ran out of money and had to be saved by emergency government loans. In the UK, Royal Bank of Scotland was 2 hours away from having empty cash points. As desperate depositors would have rushed from bank to bank, the "contagion" would have spread like some sort of super-virus, and we would have seen society descend into mob-rule within days.
As the recession clamped down, demand fell back within the supply capacity of vital commodities, and consumers were temporarily relieved by the crashing price and could afford to buy more again. So what happened is commodity prices started to soar yet again and have followed the recovery upwards through 2009, 2010, and now the early part of 2011. It is becoming obvious that these prices have got too high again, and companies (and now the indebted public sector) are laying off workers and posting profit warnings (such as the electronics retailer Dixons/Currys did in the UK three days ago). This is just the start of a near repeat of the 2008 near miss, but but this time, the collapse will be the real deal, because governments are not in a position to provide more bailout money. Debt is now a problem in every sector of the economy, firstly because it is now much larger, and secondly there is extremely little prospect of the economy growing fast enough to pay the debt. For instance, the UK's already austere public spending plans for the next 4 years are based on the assumption of 3% a year GDP growth- something that looks increasingly unlikely. When the next financial crisis hits (be it another banking crisis, or a sovereign debt crisis in Europe) everybody will be so overwhelmed by debt, there will be practically nobody left to go to for a bailout, and the global economic and financial system will just start to rapidly shut down. It's likely to occur later this year or next. Prepare.
Thursday 31 March 2011
Saturday 19 March 2011
"Computational capitalism" on the brink as Japan meltdown threatens supply chains already weakened by sky-high oil costs.
The news last week of the ongoing meltdown at the toxic fuel-rod infested Fukushima complex in Japan shook world markets to their core, and G7 leaders raced to fight off Yen surge as currency jitters hit the banking system like a ton of dynamite.
And now, as the Fukushima situation seems to have gone into an eerie sort of nuclear coma, where nobody really knows what is going on, but we hear that traces of radiation now contaminate Tokyo water supply, that Spinach from 100km away from the plant was also affected, and that life in Tokyo, home to 35 million, is expected to be crippled by massive blackouts any day now; we hear that "Operation Odyssey Dawn" is underway in Libya to help the people fight off Qaddafi's crazed onslaught.
If either of these little issues gets resolved; (and I'll come back to why they probably will not in another post) we have a host of other crisis that brew in the background, playing a sneaky sort of waiting game until space in the news to start covering them again, and until the politicians and the movers and shakers and spivs and bankers and fund managers in the financial centers of the world start to get bored again.
To quickly reel them off; there is the European debt crisis- the fact that Greece and Portugal's debt has been downgraded again and Greece now pays just as much for its debt as it did when it was bailed out last year. Then there is an oil crunch, which could happen any week, any month now. The rising oil price posed a threat to the global economy, much like 2008, and that was before the trouble in the Middle East kicked off. Any further disruptions, or any intensification of Saudi unrest could unleash the price volcano needed to cripple economies left, right and center.
And then there is America. The ever obstructive Republicans are pushing the economy to the brink of disaster by refusing to approve more borrowing until April 15th, right when the Treasury is going to run out of money. Timothy Geithner, the Treasury Secretary has warned John Boehner, Republican House Leader, that the US would default if more debt is not quickly approved by congress. In the long term, the US debt needs to be brought down to prevent interest costs swelling to overwhelm the Federal budget- but there is no need to play cards with the economy like the GOP are doing right now. The "red threat" from the Republican's also manifests itself in a nasty piece of legislative work sponsored by presidential hopeful Newt Gingrich, that would allow states to go bankrupt. It is predicted by many, if not the majority, of financial analysts, that within days of this bill passing (and it could well pass) we would see a wave of individual states declaring bankruptcy, immediately wiping out millions of jobs, pensions, and welfare funds. The dramatic scenes in Wisconsin's state capital, where even the Police force joined in "on the side" of the protesters, could repeat themselves in a host of other states within the coming weeks and months.
But right now, there are more pressing concerns. Firstly, the finer details of the situation in Japan are at least hazy, but we can be absolutely certain of a few things; that the rebuilding efforts will require hundreds of billions if not trillions of foreign assets that Japanese insurers are required to hold abroad to be liquidated (sold to raise cash). It is no longer cheap to rebuild entire countries, an Japan's extra demand for oil which stems from it's nuclear crisis will only worsen the cost of rebuilding. Repairing Japan to it's former glory, will if it ever happens, require an enormous amount of money. If Japan is not fixed up quickly, and global supply chains continue to feel the loss of Japan's big industries, then the Japan situation could wipe out investments in the West. On the other hand, if Japan repatriates its foreign investments too quickly, this will also wipe out investments in the West. The threat to bank equity resulting from Japan's 9.0 earthquake could not have come at a worse time. Indeed, the FSA (Financial Services Authority) in the UK last week announced a series of "stress tests" to investigate whether banks would be able to withstand a further collapse in property values resulting from a double dip recession. My research suggests that banks will both fail this stress test, and that the Japan situation could quickly drain nearly all of their equity (the differences between assets and liabilities that allows banks to survive). The equity of Britain's greatest banks such as Lloyds TSB, Barclays, and RBS, is wafer thin.
In their latest annual report; RBS, the bank that told Chancellor Alistair Darling in 2008 that they were within hours of running out of cash, which could have brought the entire world to its knees, published it's annual report at the end of December last year. Their equity is just under 5.3% (the gap between assets and liabilities), meaning that any fall in the value of their assets, or increase in the value of their liabilities, or a combination, of this magnitude, would force them to shut both their doors and their cash-points. Also, the ratio between their cash reserves and the money value of customer accounts is about 1:9. A run on the banks is unlikely, but as George Osborne's fiscal axe sharpens by the day, this ratio could be pushed to breaking point, as public sector workers are laid off in the hundreds of thousands, many with little more than a months salary in savings, who would be forced to go to the bank to get by. If this ratio got much worse, it is highly likely that RBS, and other banks in a similar situation, would have to rapidly tighten lending, leading to a downward spiral the likes of which we saw in 2008.
In this case, the Bank of England could not, and would not, simply print the money to bail them out. "Quantitative easing", as it is called, has not resulted in skyrocketing inflation up to now, because it has mostly involved the flooding of new money "non liquid" assets such as property, meaning that the money only permeates through to consumer spending very slowly. The true scale of all of these problems will only become clearer in the current weeks and months, because the world leaders have run out of schemes to prop up the global house of cards. The game is pretty much up; we are truly out of time.
And now, as the Fukushima situation seems to have gone into an eerie sort of nuclear coma, where nobody really knows what is going on, but we hear that traces of radiation now contaminate Tokyo water supply, that Spinach from 100km away from the plant was also affected, and that life in Tokyo, home to 35 million, is expected to be crippled by massive blackouts any day now; we hear that "Operation Odyssey Dawn" is underway in Libya to help the people fight off Qaddafi's crazed onslaught.
If either of these little issues gets resolved; (and I'll come back to why they probably will not in another post) we have a host of other crisis that brew in the background, playing a sneaky sort of waiting game until space in the news to start covering them again, and until the politicians and the movers and shakers and spivs and bankers and fund managers in the financial centers of the world start to get bored again.
To quickly reel them off; there is the European debt crisis- the fact that Greece and Portugal's debt has been downgraded again and Greece now pays just as much for its debt as it did when it was bailed out last year. Then there is an oil crunch, which could happen any week, any month now. The rising oil price posed a threat to the global economy, much like 2008, and that was before the trouble in the Middle East kicked off. Any further disruptions, or any intensification of Saudi unrest could unleash the price volcano needed to cripple economies left, right and center.
And then there is America. The ever obstructive Republicans are pushing the economy to the brink of disaster by refusing to approve more borrowing until April 15th, right when the Treasury is going to run out of money. Timothy Geithner, the Treasury Secretary has warned John Boehner, Republican House Leader, that the US would default if more debt is not quickly approved by congress. In the long term, the US debt needs to be brought down to prevent interest costs swelling to overwhelm the Federal budget- but there is no need to play cards with the economy like the GOP are doing right now. The "red threat" from the Republican's also manifests itself in a nasty piece of legislative work sponsored by presidential hopeful Newt Gingrich, that would allow states to go bankrupt. It is predicted by many, if not the majority, of financial analysts, that within days of this bill passing (and it could well pass) we would see a wave of individual states declaring bankruptcy, immediately wiping out millions of jobs, pensions, and welfare funds. The dramatic scenes in Wisconsin's state capital, where even the Police force joined in "on the side" of the protesters, could repeat themselves in a host of other states within the coming weeks and months.
But right now, there are more pressing concerns. Firstly, the finer details of the situation in Japan are at least hazy, but we can be absolutely certain of a few things; that the rebuilding efforts will require hundreds of billions if not trillions of foreign assets that Japanese insurers are required to hold abroad to be liquidated (sold to raise cash). It is no longer cheap to rebuild entire countries, an Japan's extra demand for oil which stems from it's nuclear crisis will only worsen the cost of rebuilding. Repairing Japan to it's former glory, will if it ever happens, require an enormous amount of money. If Japan is not fixed up quickly, and global supply chains continue to feel the loss of Japan's big industries, then the Japan situation could wipe out investments in the West. On the other hand, if Japan repatriates its foreign investments too quickly, this will also wipe out investments in the West. The threat to bank equity resulting from Japan's 9.0 earthquake could not have come at a worse time. Indeed, the FSA (Financial Services Authority) in the UK last week announced a series of "stress tests" to investigate whether banks would be able to withstand a further collapse in property values resulting from a double dip recession. My research suggests that banks will both fail this stress test, and that the Japan situation could quickly drain nearly all of their equity (the differences between assets and liabilities that allows banks to survive). The equity of Britain's greatest banks such as Lloyds TSB, Barclays, and RBS, is wafer thin.
In their latest annual report; RBS, the bank that told Chancellor Alistair Darling in 2008 that they were within hours of running out of cash, which could have brought the entire world to its knees, published it's annual report at the end of December last year. Their equity is just under 5.3% (the gap between assets and liabilities), meaning that any fall in the value of their assets, or increase in the value of their liabilities, or a combination, of this magnitude, would force them to shut both their doors and their cash-points. Also, the ratio between their cash reserves and the money value of customer accounts is about 1:9. A run on the banks is unlikely, but as George Osborne's fiscal axe sharpens by the day, this ratio could be pushed to breaking point, as public sector workers are laid off in the hundreds of thousands, many with little more than a months salary in savings, who would be forced to go to the bank to get by. If this ratio got much worse, it is highly likely that RBS, and other banks in a similar situation, would have to rapidly tighten lending, leading to a downward spiral the likes of which we saw in 2008.
In this case, the Bank of England could not, and would not, simply print the money to bail them out. "Quantitative easing", as it is called, has not resulted in skyrocketing inflation up to now, because it has mostly involved the flooding of new money "non liquid" assets such as property, meaning that the money only permeates through to consumer spending very slowly. The true scale of all of these problems will only become clearer in the current weeks and months, because the world leaders have run out of schemes to prop up the global house of cards. The game is pretty much up; we are truly out of time.
Monday 7 March 2011
BREIFING: "The timebomb with multiple fuses."
As a quick update to all readers (the last time I checked there are only 23 unique hits for the average day and still only 1 subscriber, come on guys)...
We are at the moment playing a waiting game, as any one of several "sticks of dynamite" could ignite world events at any time. These "sticks of dynamite" are countries that are in a potentially very vulnerable ECONOMIC situation, or a potentially very vulnerable POLITICAL situation.
They can be identified as:
> Saudi Arabia (political unrest)
> Greece & the other PIGS (debt crisis brewing after credit rating downgrade)
> China (political unrest)
Saudi Arabia
Tensions in the desert land's eastern Provence, where lies the crown jewel of Saudi Oil, the 5.7 million barrel a day Ghawar field, are running high. Growing unrest amongst the countries Shia majority has manifested itself over the last few days in protests in several small towns. The House of Saud has mustered tens of thousands of Aramco (state oil company) militia men to guard the oil industry, particularly the Ras Tanura facility which processes 10% of the world's crude. Any disruption here, or to any of the major oil rigs in the stalwart Ghawar and Shedgum reserves would send oil markets spiraling in what could be described as an inflationary "volcano". The Saud's and the Aramco oil company are right to be concerned, for a "day of rage" has been called by anti government protesters for the 11th of March, inspired by action taken by complainants in other parts of the Arab world. Any significant political disruption in Saudi Arabia will not only panic the speculators (who are simply making guesses about the future), but may well spark the introduction of oil rationing. Nearly all of the world's spare production capacity is controlled by the Saudi's, who might be able to boost production for up to 2 years from the current 8-9.5 million barrels a day to 10-11.5 million barrels a day. After then, the decline rates in other fields will have canceled out the spare capacity in the small pockets of oil that they have spent the last 5 years bringing on stream.
Greece and the other PIGS
Greece's debt matures more quickly than most other European countries, because it has found it difficult recently (no wonder) to borrow long term. The news comes today that the credit rating agency Moodys have downgraded Greece's sovereign debt again from Ba1 to B1, placing them further in the "junk" investment zone, and suggesting that a some sort of default within the coming years is likely. The situation could rapidly spiral out of control if the interest rate that the Greek government must pay on the debt that it must both frequently renew, and frequently add to given it's enormous fiscal deficit, shoots up again. Investors might react to Moodys credit signal by rushing to sell off Greek debt, resulting in a collapse in confidence in the Greek government, causing higher, more punishing demands for interest. According to The Economist newspaper, the average maturity length of Greek debt is 7.7 years. Ignoring the deficit (the amount of money Greece borrows in addition to its outstanding debt- which it can only afford to renew "rollover" rather than repay) Greece's national debt stands at roughly 110% of GDP. Greece must "rollover" debt equivalent to 14% of it's GDP every year, and this "maintenance cost" is rising by the day. The Greek government is still borrowing close to half of every euro it spends. The economy is also crashing fast, with the latest figures indicating an annual decline rate of 6.6%. This of course expands the relationship between debt and GDP. Even though the Greek government is paying a fat load of interest for it's debt, it is still borrowing more than it pays to maintain the debt. Investors may soon become dissatisfied with Greece's unsatisfactory attempts to trim their ballooning deficit. Interest repayments alone could quickly exceed more than 10% of Greece's GDP, acting as an even greater drain on the money Greece could be investing domestically. If the Greek debt crisis worsens- or more likely "when" the Greek debt crisis worsens, other highly indebted countries- Portugal, Italy and Spain better watch their backs. There is only so much money in the bailout fund, and if contagion spread to these, the Europe could rapidly topple into a deep depression.
China
If anything materializes of the apparently brewing "Jasmine Revolt", the whole world will find itself in a great deal of mess. China has been the great miracle of the last decade, enjoying miraculously rapid GDP growth. Some have started to doubt the figures that the government are putting out, and there are growing complaints about food price inflation- partly driven by oil- partly by the population boom- and secondly, environmental concerns are growing, as China's highways clog to the point where it is said that insects walk faster than motorcars. China is probably unlikely to go first, but if Saudi Arabia does, then you never now...
We are at the moment playing a waiting game, as any one of several "sticks of dynamite" could ignite world events at any time. These "sticks of dynamite" are countries that are in a potentially very vulnerable ECONOMIC situation, or a potentially very vulnerable POLITICAL situation.
They can be identified as:
> Saudi Arabia (political unrest)
> Greece & the other PIGS (debt crisis brewing after credit rating downgrade)
> China (political unrest)
Saudi Arabia
Tensions in the desert land's eastern Provence, where lies the crown jewel of Saudi Oil, the 5.7 million barrel a day Ghawar field, are running high. Growing unrest amongst the countries Shia majority has manifested itself over the last few days in protests in several small towns. The House of Saud has mustered tens of thousands of Aramco (state oil company) militia men to guard the oil industry, particularly the Ras Tanura facility which processes 10% of the world's crude. Any disruption here, or to any of the major oil rigs in the stalwart Ghawar and Shedgum reserves would send oil markets spiraling in what could be described as an inflationary "volcano". The Saud's and the Aramco oil company are right to be concerned, for a "day of rage" has been called by anti government protesters for the 11th of March, inspired by action taken by complainants in other parts of the Arab world. Any significant political disruption in Saudi Arabia will not only panic the speculators (who are simply making guesses about the future), but may well spark the introduction of oil rationing. Nearly all of the world's spare production capacity is controlled by the Saudi's, who might be able to boost production for up to 2 years from the current 8-9.5 million barrels a day to 10-11.5 million barrels a day. After then, the decline rates in other fields will have canceled out the spare capacity in the small pockets of oil that they have spent the last 5 years bringing on stream.
Greece and the other PIGS
Greece's debt matures more quickly than most other European countries, because it has found it difficult recently (no wonder) to borrow long term. The news comes today that the credit rating agency Moodys have downgraded Greece's sovereign debt again from Ba1 to B1, placing them further in the "junk" investment zone, and suggesting that a some sort of default within the coming years is likely. The situation could rapidly spiral out of control if the interest rate that the Greek government must pay on the debt that it must both frequently renew, and frequently add to given it's enormous fiscal deficit, shoots up again. Investors might react to Moodys credit signal by rushing to sell off Greek debt, resulting in a collapse in confidence in the Greek government, causing higher, more punishing demands for interest. According to The Economist newspaper, the average maturity length of Greek debt is 7.7 years. Ignoring the deficit (the amount of money Greece borrows in addition to its outstanding debt- which it can only afford to renew "rollover" rather than repay) Greece's national debt stands at roughly 110% of GDP. Greece must "rollover" debt equivalent to 14% of it's GDP every year, and this "maintenance cost" is rising by the day. The Greek government is still borrowing close to half of every euro it spends. The economy is also crashing fast, with the latest figures indicating an annual decline rate of 6.6%. This of course expands the relationship between debt and GDP. Even though the Greek government is paying a fat load of interest for it's debt, it is still borrowing more than it pays to maintain the debt. Investors may soon become dissatisfied with Greece's unsatisfactory attempts to trim their ballooning deficit. Interest repayments alone could quickly exceed more than 10% of Greece's GDP, acting as an even greater drain on the money Greece could be investing domestically. If the Greek debt crisis worsens- or more likely "when" the Greek debt crisis worsens, other highly indebted countries- Portugal, Italy and Spain better watch their backs. There is only so much money in the bailout fund, and if contagion spread to these, the Europe could rapidly topple into a deep depression.
China
If anything materializes of the apparently brewing "Jasmine Revolt", the whole world will find itself in a great deal of mess. China has been the great miracle of the last decade, enjoying miraculously rapid GDP growth. Some have started to doubt the figures that the government are putting out, and there are growing complaints about food price inflation- partly driven by oil- partly by the population boom- and secondly, environmental concerns are growing, as China's highways clog to the point where it is said that insects walk faster than motorcars. China is probably unlikely to go first, but if Saudi Arabia does, then you never now...
Sunday 6 March 2011
The "Old People Politics" and the fickle Liberal Democrats.
It has become blatantly obvious in recent years that an increasing majority of people share a general dissatisfaction with politics. The tendency has been for this section of society; mostly lower-middle/working class individuals, to back increasingly populist and nationalistic campaigns in a strange sway towards a more extreme form of the conservatism they hate. At the end of the 90s, with the landslide election of Labour Prime Minister Tony Blair, it was perfectly clear to many within the political class that the British Conservative Party was a dead duck. Indeed, in Peter Hitchens' "The Broken Compass", updated as "The Cameron Delusion", he describes the Conservative Party- perfectly rightly- as a "ghost brand"; something that continues to attract a certain section of support from a slowly dying section of society. It seems rare these days to find young people who support the Tories. That is, apart from a certain type of public school boy or businessman's son. The Tory's certainly have an electoral niche, but it is a declining one. The party is now viciously divided over issues such as Climate Change and the European Union. The section of the party that takes a progressive view towards these issues has failed to compete with other parties which frankly take a more progressive approach towards them. On the other hand, the section of the Tory party that takes a more traditional approach has and is ever rapidly losing ground particularly to the United Kingdom Independence Party- a strange mix of right wing think tank managers, regressive aristocrats, climate change deniers, and other cranks of one persuasion of another.
The miracle of the Conservative party, it seems, is that it is run by and for the interests of the rich business classes, but at least traditionally attracted a large slice of the working class population at elections. What is strange is that these individuals who have deserted and are deserting the Conservative party, are not doing so for warmer climbs, but for the populist anti-immigration, economically illiterate, and morally bankrupt negativity of UKIP and the BNP. In some cases they abstain from voting altogether, even though more favorable options may well be available to them.
Political discussion amongst "ordinary people" has become dominated by phrases such as "they are all a bunch of liar's and cheats",and whilst this s sort of understandable, given that it is what they are fed by the toilet paper press every day, an proper response such as "no, just all the ones you know about" is necessary to defeat lazy ideas such as this. It is strange for instance that Liberal Democrat defects have flocked to Labour in the wake of the cuts, when it was both Labour's fundamentally misguided economic strategy that had caused many of the problems we had. They, the Labour Party, did not even have a plan to sort out the mess they had caused. The Lib Dem defects seemed to have been suffering from some sort of political amnesia. At least the Green Party for example suggested a way to reduce the deficit, based on eliminating pointless items of military spending such as the renewal of trident- something which they the Liberal's had long been against. And at least the Green Party opposed tuition fees, whereas Labour actually introduced, and then tripled them. At least the Green Party recognized some of the truths about wasteful public spending, but had rational and progressive solutions to them. If it wasn't for the selective straight jacket of the media classes, perhaps coverage would be given to parties with sensible policies, rather than healthy campaign treasure chests. Of course, we are forgetting that this is the "corporate" media, who are really all for the dominance of money, rather than the dominance of argument. Whilst we can place some blame on the media, some must also go to the fickle Liberal Democrats yet again.
Now it is time to return to the issue of the Tory party. It seems that those who have floated away from the left of the party have typically been middle to upper class woolly liberal types, who were attracted to either to a once burgeoning Liberal Democrat Party, which grew from 20 to over 60 parliamentary seats during the last two decades, or to the ever more center-right aligned "New Labour". As I have said, those who continue to float away from the right of the party have selected UKIP, and in some cases the neo-Nazi British National Party as their new political home.
The common problem from all of these different groups of defectors, as well as those who stick like rotten glue to their old party- which whatever it is will have failed miserably in some respect or another- is that they have mostly forgotten what they believe in. Most of those who have not forgotten, seem to have contracted a peculiar case of political amnesia, for they routinely fail to make any link between party policy and party ACTION, when placing a cross in the ballot box. This could, I muse, be a problem of old age. Electoral turnout amongst the older age groups are certain much higher than in the young ones, but in a political scene where it is old people who routinely fail to live up to their promises, and other old people who routinely vote for parties and their representatives on local councils and in general elections up and down the country. Such as the Liberal Democrats and Tories who vote routinely vote against planning permissions for Wind Farms, despite their respective parties alleged "environmental" credentials. Such as the stealth cuts and wasteful bureaucracy of one local Labour regime after another. Then there is the Oxfordshire county council's description of student's as "ugly and badly dressed"- something which was even reported in the New York Times; and the very man- Keith Mitchell, could very well be described as an "old" person himself. The list of political failure's goes on and on, and we all know of a few anecdotes and horror stories, wherever we live.
The case for lowering the voting age to 16 or perhaps younger is a strong one. For the sake of arguement, I will make the case that the voting age should be lowered to 16. This seems a reasonable starting point, given that at 16 you can get married, leave home, leave school, becoming employed, pay taxes, etcetera etcetera etcetera. Firstly, it is hard to argue that people under 18 are somehow incapable of making sensible voting decisions, since this requires comparison with people who do vote, who seem to routinely choose rubbish government's who they are quickly dissatisfied with. If it is the case that 16 and 17 year olds should not be allowed to vote because they lack the ability to make the "right" decisions, then why is it the case that we call ourselves a democracy. Isn't a democracy where there is no such thing as a "right" decision, and wouldn't their extra difficulty in a making voting decisions c actually motivate them to be more interested in politics. If 16 and 17 year old are just "too young" to vote, then surely there must be some people who are too "old" to vote. Most people over say 85, are likely to be less able to make informed voting decisions compared to 16 and 17 year olds. Unlike the youngsters, they probably lack access to, or understanding of the internet. They may also be in the advanced stages of dementia. This is perfectly natural and excusable, but since the slight immaturity of 16 and 17 year olds is also "perfectly natural", so why should it warrant their utter alienation from the political system? Obviously there would be some people over a certain age, over an "upper voting age limit" who are perfectly capable of making properly reasoned decisioned, but this is not the point. There are arguably many 16 and 17 year olds who SHOULD be able to vote, but you have to have a general rule. Obviously I am just being difficult, but if you are a person of the "ageist persuasion", surely an upper voting limit is also desirable?
It is time people saw past the popularity contest which modern politics in Britain has become, and reflected on their mistaken voting decisions of the past. There are positive voting decisions that can be made that do not involve "giving second chances" or "making protest votes". Change which people are satisfied with is only going to happen if they pay attention to both policies and actions, and take responsibility for their failed voting experiences of the past.
Economic growth has become the addiction of modern society, and underpins most of the policy assumptions that the old parties make. The increased competition of distributive growth that has resulted from the breakdown in the wider economy is leading to an unpleasant struggle for more generous political treatment of the different warring sectors of the economy, the public sector and the business sector. Because of important long term constrains in the market, what cannot be done is "growth" in the whole economy, so what has happened is this conflict for growth WITHIN the economy. The failure of growth manifests itself in the volatile oil prices, and the semi-political, semi oil shortage motivated unrest in the Arab world, a feedback loop which is now rapidly worsening the problem that caused it. Another failure of growth is the climate change issue; something that their remains a lack of real political will to tackle without taking an enormous gamble with the futures of the younger generations. The biggest failure of growth is that people have not become more happy, despite becoming much much richer in recent years. In the first decade of the 21st century, the GDP of the UK roughly doubled. At the same time, many social problem became worse, and many people reported becoming more unhappy, and inequality worsened, despite the fact that the country actually became twice as rich. Yet people still want growth. It is a mystery.
People are also repeatedly dissatisfied with the political outcomes of their ballot box behaviors, but seem confused about what kind of change they want. In this book I have argued that what is needed is a proper diagnosis of the real problems that society faces, otherwise a false prescription will be made. It is this false prescription that manifests itself in the electorates uncertain election of the current Tory-Lib Dem coalition government, and their failed attempts to restart economic growth. The failure is because of a fundamental breakdown in the supply side of market economics, and a failure of faith in the old oxymoron of "sustainable" economic growth. It is time for a new kind of "change".
The miracle of the Conservative party, it seems, is that it is run by and for the interests of the rich business classes, but at least traditionally attracted a large slice of the working class population at elections. What is strange is that these individuals who have deserted and are deserting the Conservative party, are not doing so for warmer climbs, but for the populist anti-immigration, economically illiterate, and morally bankrupt negativity of UKIP and the BNP. In some cases they abstain from voting altogether, even though more favorable options may well be available to them.
Political discussion amongst "ordinary people" has become dominated by phrases such as "they are all a bunch of liar's and cheats",and whilst this s sort of understandable, given that it is what they are fed by the toilet paper press every day, an proper response such as "no, just all the ones you know about" is necessary to defeat lazy ideas such as this. It is strange for instance that Liberal Democrat defects have flocked to Labour in the wake of the cuts, when it was both Labour's fundamentally misguided economic strategy that had caused many of the problems we had. They, the Labour Party, did not even have a plan to sort out the mess they had caused. The Lib Dem defects seemed to have been suffering from some sort of political amnesia. At least the Green Party for example suggested a way to reduce the deficit, based on eliminating pointless items of military spending such as the renewal of trident- something which they the Liberal's had long been against. And at least the Green Party opposed tuition fees, whereas Labour actually introduced, and then tripled them. At least the Green Party recognized some of the truths about wasteful public spending, but had rational and progressive solutions to them. If it wasn't for the selective straight jacket of the media classes, perhaps coverage would be given to parties with sensible policies, rather than healthy campaign treasure chests. Of course, we are forgetting that this is the "corporate" media, who are really all for the dominance of money, rather than the dominance of argument. Whilst we can place some blame on the media, some must also go to the fickle Liberal Democrats yet again.
Now it is time to return to the issue of the Tory party. It seems that those who have floated away from the left of the party have typically been middle to upper class woolly liberal types, who were attracted to either to a once burgeoning Liberal Democrat Party, which grew from 20 to over 60 parliamentary seats during the last two decades, or to the ever more center-right aligned "New Labour". As I have said, those who continue to float away from the right of the party have selected UKIP, and in some cases the neo-Nazi British National Party as their new political home.
The common problem from all of these different groups of defectors, as well as those who stick like rotten glue to their old party- which whatever it is will have failed miserably in some respect or another- is that they have mostly forgotten what they believe in. Most of those who have not forgotten, seem to have contracted a peculiar case of political amnesia, for they routinely fail to make any link between party policy and party ACTION, when placing a cross in the ballot box. This could, I muse, be a problem of old age. Electoral turnout amongst the older age groups are certain much higher than in the young ones, but in a political scene where it is old people who routinely fail to live up to their promises, and other old people who routinely vote for parties and their representatives on local councils and in general elections up and down the country. Such as the Liberal Democrats and Tories who vote routinely vote against planning permissions for Wind Farms, despite their respective parties alleged "environmental" credentials. Such as the stealth cuts and wasteful bureaucracy of one local Labour regime after another. Then there is the Oxfordshire county council's description of student's as "ugly and badly dressed"- something which was even reported in the New York Times; and the very man- Keith Mitchell, could very well be described as an "old" person himself. The list of political failure's goes on and on, and we all know of a few anecdotes and horror stories, wherever we live.
The case for lowering the voting age to 16 or perhaps younger is a strong one. For the sake of arguement, I will make the case that the voting age should be lowered to 16. This seems a reasonable starting point, given that at 16 you can get married, leave home, leave school, becoming employed, pay taxes, etcetera etcetera etcetera. Firstly, it is hard to argue that people under 18 are somehow incapable of making sensible voting decisions, since this requires comparison with people who do vote, who seem to routinely choose rubbish government's who they are quickly dissatisfied with. If it is the case that 16 and 17 year olds should not be allowed to vote because they lack the ability to make the "right" decisions, then why is it the case that we call ourselves a democracy. Isn't a democracy where there is no such thing as a "right" decision, and wouldn't their extra difficulty in a making voting decisions c actually motivate them to be more interested in politics. If 16 and 17 year old are just "too young" to vote, then surely there must be some people who are too "old" to vote. Most people over say 85, are likely to be less able to make informed voting decisions compared to 16 and 17 year olds. Unlike the youngsters, they probably lack access to, or understanding of the internet. They may also be in the advanced stages of dementia. This is perfectly natural and excusable, but since the slight immaturity of 16 and 17 year olds is also "perfectly natural", so why should it warrant their utter alienation from the political system? Obviously there would be some people over a certain age, over an "upper voting age limit" who are perfectly capable of making properly reasoned decisioned, but this is not the point. There are arguably many 16 and 17 year olds who SHOULD be able to vote, but you have to have a general rule. Obviously I am just being difficult, but if you are a person of the "ageist persuasion", surely an upper voting limit is also desirable?
It is time people saw past the popularity contest which modern politics in Britain has become, and reflected on their mistaken voting decisions of the past. There are positive voting decisions that can be made that do not involve "giving second chances" or "making protest votes". Change which people are satisfied with is only going to happen if they pay attention to both policies and actions, and take responsibility for their failed voting experiences of the past.
Economic growth has become the addiction of modern society, and underpins most of the policy assumptions that the old parties make. The increased competition of distributive growth that has resulted from the breakdown in the wider economy is leading to an unpleasant struggle for more generous political treatment of the different warring sectors of the economy, the public sector and the business sector. Because of important long term constrains in the market, what cannot be done is "growth" in the whole economy, so what has happened is this conflict for growth WITHIN the economy. The failure of growth manifests itself in the volatile oil prices, and the semi-political, semi oil shortage motivated unrest in the Arab world, a feedback loop which is now rapidly worsening the problem that caused it. Another failure of growth is the climate change issue; something that their remains a lack of real political will to tackle without taking an enormous gamble with the futures of the younger generations. The biggest failure of growth is that people have not become more happy, despite becoming much much richer in recent years. In the first decade of the 21st century, the GDP of the UK roughly doubled. At the same time, many social problem became worse, and many people reported becoming more unhappy, and inequality worsened, despite the fact that the country actually became twice as rich. Yet people still want growth. It is a mystery.
People are also repeatedly dissatisfied with the political outcomes of their ballot box behaviors, but seem confused about what kind of change they want. In this book I have argued that what is needed is a proper diagnosis of the real problems that society faces, otherwise a false prescription will be made. It is this false prescription that manifests itself in the electorates uncertain election of the current Tory-Lib Dem coalition government, and their failed attempts to restart economic growth. The failure is because of a fundamental breakdown in the supply side of market economics, and a failure of faith in the old oxymoron of "sustainable" economic growth. It is time for a new kind of "change".
Friday 4 March 2011
The debt threat, and Tory nonsense.
Considering that the UK's total indebtedness, which is what really matters, since it includes debt held by financial and non-financial businesses, and households, in addition to the government itself, actually stands at an almighty £12 trillion, it seems completely disproportionate that the government is worried about holding a mere £1 trillion of this, especially when they have guaranteed revenue streams that businesses do not. Government's can "force" revenue through taxation, and although there is a slight issue of tax avoidance through legal means or not, ultimately the state has much more control over its revenue than businesses do. Whatever the advertising prowess of a business, its revenue is ultimately subject to the performance of the market. Whilst it is true that individual businesses compete for market share (penetration), the total revenue of all businesses in the economy is largely a function of consumer confidence.
The real problem is not Government debt, which stands at about 45% of GDP, and is on average owed over a term length of 14 years at an interest rate of about 5%, meaning that only 4% of GDP must be found each year to meet the government's debt bill. The real problem is that total debt now comes in at approximately 500% of GDP. Because they are generally regarded at less creditworthy than the government, businesses and consumers find it more difficult to aquire long term debt at low interest rates. When we take into account debt that is not held by the government, the nation may well be approaching a strain of nearly 50% of its gross domestic product to foot the mounting bill of debt.
In order to understand why the UK's economy - and most others for that matter - have reached this stage, we only need to consider some basic facts about the banking system. Roughly a decade ago, the UK abolished its banking reserve requirement in order to let the banking system lend more freely, partly as a political strategy pulled in order to fuel New Labour's housing bubble. The reserve requirement is the amount of money that banks must keep in "reserve" from each deposit. Since it does not matter where the deposit came from - i.e. it is likely to have come from another bank - this in effect allows banks to constantly re-distribute money through lending it, and then re-lending it as it is redeposited in the system. Of course, all money works it way in and out of the system, so as long as the banks can maintain asset sheets that exceed liabilities, they always have enough money to satisfy demand for withdrawrals. With the fast transition away from the use of paper money, banks have been subject to less and less risk regarding the threat of excess demand for cash withdrawrals. In turn, this has fuelled the rapid expansion in credit.
In the late summer of 2008 we found out that this was unsustainable, as the banks could no longer manage to keep the balance between healthy assets and minimal liabilities in place. As the economy faltered due to the effect of consumers and firms of high commodity prices, their ability to repay debts, which was in turn predicated on non-inflationary GDP growth, stopped, and bankruptcies destroyed the asset sheets of some major banks, slashing the gap between assets and liabilities and drainig "reserves". Because the amount of outstanding debt includes both principal and interest, wheras the money that has been loaned into circulation is only the principal, in order to provide the interest, there must be constant monetary expansion. If this montary expansion is not backed up by real growth in GDP, the inflationary effect will render the ability to repay debt's increasingly difficult, as profits and revenues in the economy collapse. Because the trend of debt always needs to grow in order to stave off a collapse in the system, it is particuarly dangerous that the economy has not resumed strong GDP growth.
Instead, what has happened is that now that a small amount of growth is back, the economy seems to be overheating, wherby excess aggregate demand again manifests itself in soaring commodity costs. For instance, pretty much every time in history that the oil bill has exceeded five and a half percent of GDP, the economy has shrunk. Right on que, the UK has recently experienced a "shock" contraction in GDP, arguably caused more by the oil price than the snow. Osborne's blaming of this slip on leaves on the track is immature, and incorrect, and he probabaly knows it. In normal economic circumstances, there would be nothing wrong with borrowing lots of money to fuel the economy. Of course, they know that the overheating trap of 2008 is now returning, but they are too timid to admit it, for fear of panicking the markets, so they simply blame the austerity on the debt itself. These are difficult times indeed, and the government are correct when they say so, but their excuse is profoundly incorrect.
The real problem is not Government debt, which stands at about 45% of GDP, and is on average owed over a term length of 14 years at an interest rate of about 5%, meaning that only 4% of GDP must be found each year to meet the government's debt bill. The real problem is that total debt now comes in at approximately 500% of GDP. Because they are generally regarded at less creditworthy than the government, businesses and consumers find it more difficult to aquire long term debt at low interest rates. When we take into account debt that is not held by the government, the nation may well be approaching a strain of nearly 50% of its gross domestic product to foot the mounting bill of debt.
In order to understand why the UK's economy - and most others for that matter - have reached this stage, we only need to consider some basic facts about the banking system. Roughly a decade ago, the UK abolished its banking reserve requirement in order to let the banking system lend more freely, partly as a political strategy pulled in order to fuel New Labour's housing bubble. The reserve requirement is the amount of money that banks must keep in "reserve" from each deposit. Since it does not matter where the deposit came from - i.e. it is likely to have come from another bank - this in effect allows banks to constantly re-distribute money through lending it, and then re-lending it as it is redeposited in the system. Of course, all money works it way in and out of the system, so as long as the banks can maintain asset sheets that exceed liabilities, they always have enough money to satisfy demand for withdrawrals. With the fast transition away from the use of paper money, banks have been subject to less and less risk regarding the threat of excess demand for cash withdrawrals. In turn, this has fuelled the rapid expansion in credit.
In the late summer of 2008 we found out that this was unsustainable, as the banks could no longer manage to keep the balance between healthy assets and minimal liabilities in place. As the economy faltered due to the effect of consumers and firms of high commodity prices, their ability to repay debts, which was in turn predicated on non-inflationary GDP growth, stopped, and bankruptcies destroyed the asset sheets of some major banks, slashing the gap between assets and liabilities and drainig "reserves". Because the amount of outstanding debt includes both principal and interest, wheras the money that has been loaned into circulation is only the principal, in order to provide the interest, there must be constant monetary expansion. If this montary expansion is not backed up by real growth in GDP, the inflationary effect will render the ability to repay debt's increasingly difficult, as profits and revenues in the economy collapse. Because the trend of debt always needs to grow in order to stave off a collapse in the system, it is particuarly dangerous that the economy has not resumed strong GDP growth.
Instead, what has happened is that now that a small amount of growth is back, the economy seems to be overheating, wherby excess aggregate demand again manifests itself in soaring commodity costs. For instance, pretty much every time in history that the oil bill has exceeded five and a half percent of GDP, the economy has shrunk. Right on que, the UK has recently experienced a "shock" contraction in GDP, arguably caused more by the oil price than the snow. Osborne's blaming of this slip on leaves on the track is immature, and incorrect, and he probabaly knows it. In normal economic circumstances, there would be nothing wrong with borrowing lots of money to fuel the economy. Of course, they know that the overheating trap of 2008 is now returning, but they are too timid to admit it, for fear of panicking the markets, so they simply blame the austerity on the debt itself. These are difficult times indeed, and the government are correct when they say so, but their excuse is profoundly incorrect.
Thursday 3 March 2011
The beginning is nigh.
This in an extract from the last chapter of my soon to be released e-book, entitled
"The Real Crisis".
Instead of referring to this chapter with the clichéd apocalyptic proclamation that "the end is nigh", I will instead offer a more positive tone, that in fact society faces a new beginning, and that there remains hope to develop a more resilient economy and more constructive political system from the coming collapse. If you have been paying any attention to the news recently, the world has turned bottoms up again, and it is clear that after a short period of recovery, we are again faced with the same barriers to growth that hit us in the recent crash.
To most people, the nature of our predicament is viewed only in the hazy distortions we are fed by the media. The news articles that shape public opinions are academically stratified between and gang of different journalists, each specializing in a particular area- covering geopolitical developments, the economy, politics, the environment and so on- but almost none managing to make the vital links between the breakdowns in each of these areas that we are beginning to see. This "failure of stratification" needs to be replaced by a holistic approach; one that takes into account a far wider world view rather than a narrow obsession with one field or another.
Western society's unhealthy obsession with hedonism manifests itself in its un-sustainability. Citizens have become so driven towards achieving financial wealth that they have come to confuse "cornucopia" with "utopia"- they think that money and possessions will make them more happy, even though they routinely do not. Citizens have become so "busy" with their careers, that they lack the time to learn about how the world really works. They are pacified by easy sex (as a result of rampant sexual liberalization) and cheap entertainment, of which most mainstream news coverage can be seen as. We only have to look at rapidly declining electoral participation, as well as the uncaring attitude of most western adults towards issues such as climate change and debt, to conclude that there is mounting evidence that people do not actually care about the future.
The media now seems to hold so much power over people's minds, that the latest whimsical obsession of the journalistic intelligentsia will quickly become the obsession of the worker zombies. I know that the word "zombies" may seem rude, but something desperately needs to be done to wake up the masses to see past the dream inducing veneer the news put out.
It is time we asked ourselves whether it is sustainable that we live in a world where carbon emissions are now increasing not because of greater human pollution (although we are polluting more), but because we have quite possibly triggered a systems wide ecological collapse that is reducing nature's ability to "breath back" what we "breath out". This is the carbon deficit. Ask yourself whether it is sustainable that the world uses 88 million barrels a day of oil equivalent liquid fuels when the world only extracts 85 from the ground. This is the oil deficit. Ask yourself whether it is sustainable that when government and private borrowing is taken into account, a very large percentage of our GDP is borrowed, thus predicating its annual repetition on growth to supply the extra money needed to repay ever growing debts. As yourself whether it is sustainable that the design of our financial system is such that the amount of debt owed will always exceed the amount of money in circulation. This is the financial deficit. These are the worst deficits that currently exist, and there are many more.
There are some "deficits" that will in the future occur, some of which will have terrifying immediate consequences they occur. One of the most important is the point where we can no longer increase the supply of electricity to meet the growing demand caused by an ever growing capital base. (Capital such a machinery and consumer electronics.) There is a tendency amongst consumers and firms not to worry about the electricity supply when they buy something that uses electricity. Even if the threat of shortages exists, it would not cause significant price rises, since prince is largely a function of the cost of supply to the utility firm. The cost of electricity could in theory go down even if supply did not go up, because even though there might be a supply demand imbalance, unlike oil, electricity can be generated in a variety of very cheap ways. In order to "get off" the oil we use for transport fuel, the use of electric cars may become very important. What's more, even if electricity demand declines, much of the UK's power generation capacity will need to be decommissioned in the coming years, and it does not seem as if we have remotely near the amount of projects designed to replace these, and provide a buffer in case of higher demand. For those who do not already know, when demand outstrips supply in the electricity system, there is no such thing as "stocks" that can be drained. To put it very basically, the impact is felt immediately as the result of inadequate supply is a blackout, as the system becomes overloaded, and "circuit breakers" cut the power to avoid damage to our infrastructure. An electricity crisis could easily lead to an oil crisis, since oil is pumped using electricity. It is easy to see that the situation could quickly spiral out of control.
As industry and services shutdown, the stock markets would nosedive, firms would collapse, everything from benefits to pensions and public sector salaries would stop getting paid as the government would lose its tax revenue from the by then dead private sector. Riots and pestilence would become commonplace, and the country would quickly descend into anarchy. Without electricity, transport and communication would become either very difficult, or impossible. Food would stop getting delivered, and for that matter produced. Even milk is pumped from cows using electricity these days. The water system also ultimately depends on electricity. Those on life support machines would have a certain amount of backup power, if they were lucky, in the form of a diesel generator- as is typically found is hospitals- or if they were unlucky, in the form of a quick draining batter pack. Of course, the diesel generator would run out of fuel within a certain amount of time, and it would likely be difficult to replace it if the fuel can't be pumped because of the blackout. The longer it lasts, the more of these apocalyptic consequences would result.
But there is hope... (coming soon)
"The Real Crisis".
Instead of referring to this chapter with the clichéd apocalyptic proclamation that "the end is nigh", I will instead offer a more positive tone, that in fact society faces a new beginning, and that there remains hope to develop a more resilient economy and more constructive political system from the coming collapse. If you have been paying any attention to the news recently, the world has turned bottoms up again, and it is clear that after a short period of recovery, we are again faced with the same barriers to growth that hit us in the recent crash.
To most people, the nature of our predicament is viewed only in the hazy distortions we are fed by the media. The news articles that shape public opinions are academically stratified between and gang of different journalists, each specializing in a particular area- covering geopolitical developments, the economy, politics, the environment and so on- but almost none managing to make the vital links between the breakdowns in each of these areas that we are beginning to see. This "failure of stratification" needs to be replaced by a holistic approach; one that takes into account a far wider world view rather than a narrow obsession with one field or another.
Western society's unhealthy obsession with hedonism manifests itself in its un-sustainability. Citizens have become so driven towards achieving financial wealth that they have come to confuse "cornucopia" with "utopia"- they think that money and possessions will make them more happy, even though they routinely do not. Citizens have become so "busy" with their careers, that they lack the time to learn about how the world really works. They are pacified by easy sex (as a result of rampant sexual liberalization) and cheap entertainment, of which most mainstream news coverage can be seen as. We only have to look at rapidly declining electoral participation, as well as the uncaring attitude of most western adults towards issues such as climate change and debt, to conclude that there is mounting evidence that people do not actually care about the future.
The media now seems to hold so much power over people's minds, that the latest whimsical obsession of the journalistic intelligentsia will quickly become the obsession of the worker zombies. I know that the word "zombies" may seem rude, but something desperately needs to be done to wake up the masses to see past the dream inducing veneer the news put out.
It is time we asked ourselves whether it is sustainable that we live in a world where carbon emissions are now increasing not because of greater human pollution (although we are polluting more), but because we have quite possibly triggered a systems wide ecological collapse that is reducing nature's ability to "breath back" what we "breath out". This is the carbon deficit. Ask yourself whether it is sustainable that the world uses 88 million barrels a day of oil equivalent liquid fuels when the world only extracts 85 from the ground. This is the oil deficit. Ask yourself whether it is sustainable that when government and private borrowing is taken into account, a very large percentage of our GDP is borrowed, thus predicating its annual repetition on growth to supply the extra money needed to repay ever growing debts. As yourself whether it is sustainable that the design of our financial system is such that the amount of debt owed will always exceed the amount of money in circulation. This is the financial deficit. These are the worst deficits that currently exist, and there are many more.
There are some "deficits" that will in the future occur, some of which will have terrifying immediate consequences they occur. One of the most important is the point where we can no longer increase the supply of electricity to meet the growing demand caused by an ever growing capital base. (Capital such a machinery and consumer electronics.) There is a tendency amongst consumers and firms not to worry about the electricity supply when they buy something that uses electricity. Even if the threat of shortages exists, it would not cause significant price rises, since prince is largely a function of the cost of supply to the utility firm. The cost of electricity could in theory go down even if supply did not go up, because even though there might be a supply demand imbalance, unlike oil, electricity can be generated in a variety of very cheap ways. In order to "get off" the oil we use for transport fuel, the use of electric cars may become very important. What's more, even if electricity demand declines, much of the UK's power generation capacity will need to be decommissioned in the coming years, and it does not seem as if we have remotely near the amount of projects designed to replace these, and provide a buffer in case of higher demand. For those who do not already know, when demand outstrips supply in the electricity system, there is no such thing as "stocks" that can be drained. To put it very basically, the impact is felt immediately as the result of inadequate supply is a blackout, as the system becomes overloaded, and "circuit breakers" cut the power to avoid damage to our infrastructure. An electricity crisis could easily lead to an oil crisis, since oil is pumped using electricity. It is easy to see that the situation could quickly spiral out of control.
As industry and services shutdown, the stock markets would nosedive, firms would collapse, everything from benefits to pensions and public sector salaries would stop getting paid as the government would lose its tax revenue from the by then dead private sector. Riots and pestilence would become commonplace, and the country would quickly descend into anarchy. Without electricity, transport and communication would become either very difficult, or impossible. Food would stop getting delivered, and for that matter produced. Even milk is pumped from cows using electricity these days. The water system also ultimately depends on electricity. Those on life support machines would have a certain amount of backup power, if they were lucky, in the form of a diesel generator- as is typically found is hospitals- or if they were unlucky, in the form of a quick draining batter pack. Of course, the diesel generator would run out of fuel within a certain amount of time, and it would likely be difficult to replace it if the fuel can't be pumped because of the blackout. The longer it lasts, the more of these apocalyptic consequences would result.
But there is hope... (coming soon)
Subscribe to:
Posts (Atom)