Sunday, 24 February 2013

The Wrong Message

Creation of a sterling-zone as trumpeted by the SNP is decidedly the wrong message.

Scotland needs to dump the pound faster than a drowning diver needs to dump his weight belt.

The recent downgrading to Sterling brings only one question, posed by the French almost a year ago, and that is, why has it not happened long, long before now?

In the last week I saw the value of my income plummet. For argument’s sake let’s say I get £725 a month. That’s what it was last month anyway, or last time I drew it out. Today they handed me £688. This was, they said, due to the fact the £ plummeted against the $ after the downgrade.

My account said £725 had been deposited, the bank gave me £688, there’s a problem when my bills are £700. The ends no longer meet in the middle. I’m now worse than broke.

Anyone not relying on foreign exchange rates may see it as a minor thing, but with pretty much everything made overseas these days it simply means, in Scotland, when the current supplies on the shelves run out, the new ones are going to cost more. We are all two months away from losing that real money.

In about ninety days, and much less for many items, that £725 a month in every pocket will soon become £688. It will still say £725 on the statement, so we’ll fool ourselves. But at the end of the day if it doesn’t buy anyone what £725 did a month ago, how can you argue it’s still £725?

Let’s invent a little scenario. You’re selling your car, you want £5,000, but you drove it this morning and had a wee fender-bender and slightly bent the chassis – but it still looks not too bad. Hey, it’s still your £5,000 car. It has a couple of dents here and there that weren’t there yesterday, but you've still got the same sticker on the window, £5,000 it proudly declares. Think you’ll ever get that now?

That dented car of yours is Sterling. These are just the first view visible dents. The difference is it has been ready for the knackers yard for years, the rot was just hidden under the shiny exterior, but any decent mechanic would walk away from it asking if you’re insane. MOT; No chance mate, but there’s a bloke in the next village who, for fifty quid like….

We’re now at the point where even the bloke in the next village won’t touch it.

For the UK and Sterling, it means this time it won’t recover.

Expect the pound to continue to devalue. After all, it has for over eighty years. The ability to devalue the pound and thereby steal our savings is the primary reason that Westminster didn't join the Euro.

We've all heard and seen the unrest in Greece; in many instances the United Kingdom’s press have given the Greek people short shrift in terms of sympathy. The Irish have been the media’s financial whipping boy. The Spanish, Portuguese and Italians have all been slated and derided by the papers. Whereas, for most of the UK’s self vaunted media, the Italian’s have always been good for a joke; the Spanish and Portuguese seem to me largely ignored.

It may take once-mighty Britannia a decade more to be in such a condition that Greece looks like a safe haven. It may only take a few months. The United Kingdom’s per capita and national debt burden is fast outstripping that of Greece. Don’t doubt it, Greece’s debt load stands at less than 70% of the United Kingdom as a percentage of GDP.

What about Italy, Spain and Portugal? They are likewise positioned with debt about 75% of the UK’s. Only Ireland, another favourite punching bag of the UK media, is actually worse. However, we’re entering the home stretch and the nag in green white and gold isn’t the favourite in this race anymore. With the finishing posts ahead, the cuddy in red white and blue is set to come thundering down the home stretch. That poor old Irish nag seems like it hasn't got a hope of staying in front.

Except this is a race to poverty, to national penury and isn’t a race anyone really wants to win, is it?

The reality of the situation is that no matter who is elected to Westminster, the average individual is going to get screwed.

Westminster can barely service its debts right now. If interest rates climbed just a little, say to the historical norms of five percent, then Germany’s old Weimar Republic where wheelbarrows were needed to carry the cash to buy a loaf of bread might look like a wonderful place to have lived. Our debt burden is already worse than that of the Weimar Republic.

So, why has the crash not already happened?

It has begun, but most people want to play the ostrich. Maybe if we stick our heads in the sand long enough, we might fool the lion and he won’t actually bite us on the behind. Sadly, the lion has the luxury to decide when the ideal time will be to bite us. The only thing we know is that his jaws will snap shut someday soon, and when it does out collective behookie is going to hurt like hell.

Social upheaval, no jobs, riots, deprivation and hunger are possibly the nicer parts of what lies ahead, if we don’t get our act together. Mr. Osborne’s current attitude of “it’ll be alright” and Westminster’s continual “Nothing to see here folks, move along” are even bigger lies than Chamberlain’s “Peace in our time” declaration in 1938. Six years of “peace” broke out the following year in September. Chamberlain’s piece of paper had as much true worth as that printed by the Bank of England today.

Consider at the time of the collapse of the Weimar Republic, still in living memory for some, that one pound of sterling bought one pound of silver. At the time of writing the value of silver is £300 per pound. Where did the other £299 go?

It was neatly pochled by Westminster, through that cunning mechanism “inflation”.

Surely, we may think, the value of silver has just risen incredibly? No, it hasn't At that time five hundred pounds, sterling or silver, bought a modestly sized family home. Five hundred pounds of silver today will still buy that £150,000 home. And what about the £1 note from 1932? Well there is not a coin small enough in the treasury’s inventory that I could now trade it for. It is worth a fraction more than one old ha’penny. They have legally devalued that £1 to nothing viable in today’s currency; only in Westminster.

Remember, in the five centuries prior to World War One, inflation was by all comparisons, nonexistent.

The only way the United Kingdom is surviving today is by borrowing. Where do the banks get the money they lend to the government? Essentially, it’s invested savings. You put your extra cash (if you are one of the lucky folks to have any) in the bank to save. The bank loans it to the government at less than 2%, sometimes less than 1%. Inflation has swung from over 5% to less than 3% in the last seventeen months. That means your bank is loaning to your government at a guaranteed loss.

There have even been instances of late when some governments have been able to borrow money at negative interest rates. Although, not Westminster, they’re not “safe enough”. Effectively, the investment firms supplying that money have been willing to guarantee their investors i.e. you, an instant loss for the so-called safe keeping of your money. In other words, well managed economies are actually being paid to borrow your money.

The United Kingdom passed the point of no return about five years ago and has been hovering around there, barely surviving, making payments, but not cancelling debt.

The problem is those interest payments, those billions upon billions paid every year are our new hospitals, schools and our infrastructure. Our future.

Westminster is bankrupt, arguably it’s fiscally, morally, and intellectually bankrupt. Like the destitute old lord in the crumbling manor, it is time to sell the family silverware. Except, we are the only silverware Westminster has. Our savings, our pensions, our health service, our children’s education. Like any government in history, Westminster has only one option; its people and their pockets.

This fiscal tsunami will be released in the not too distant future.

Hopefully it won’t be released until after the 2014 referendum. If Scots vote YES, which appears to be the intelligent course of action, it could well be released with early. After all, the release of this tidal wave will only require a very modest 1.5% change in the interest rates, and we've all seen that happen on countless occasions in our adult lifetimes.

Any way you look at it, promoting a “Sterling Zone” is insanity incarnate.

The Scots Pound is already in circulation. We need to resurrect it as a world currency once more. As many economists have pointed out, it wouldn't be difficult. Let our money float, or tie it with other currencies, any currency - except Sterling.

Our choice is simple, since no nation in history has ever recovered from the UK’s debt load; we have to vote Yes to survive or we vote No for long term debt, poverty and bankruptcy.

9 comments:

  1. I'm cashing in the premium bonds

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  3. Glad to see some more of your writings,and the piece is so true jus need to pull some heads out of the sand.

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  4. The SDA has some well thought out plans on just this issue. It is compelling reading! http://scottishdemocraticalliance.org/policies-section/economy/financial-services

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  5. Good piece Hazel, glad to see you back hammering away at the keyboard :)

    PS I spent a good part of my life working in finance and foreign exchange and I agree that we can and should have our own currency. Inflation caused by London and the South East and the resulting high interest rates have been a major factor in destroying businesses in Scotland and the North of England

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  6. "essentially it's invested savings"? You got that one wrong Hazel - the clearing bank merely create the money through the touch of a keyboard.

    Essentially the government/BoE have appointed the clearing banks as their agents and custodians of the UK economy.

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  7. You know what Hazel, I don't have a clue about money-talk.

    I know the price of fish has gone through the roof and that we're being taxed into oblivion - hidden like, so we don't notice and we don't really make anything to sell, so we can't bring money in and it's all getting bloody desperate, at least to those who look - but the fact we're blessed by absolute numpties at the control levers, who can't and won't and just don't help one iota - we're better cutting those cords that bind, pronto!

    There's no shades of gray no more - it's starkly black and white.

    Good to see you back.

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  8. You talk a great deal of sense Hazel, I can only hope in Scotland we will take the sensible option and vote Yes and get out of the sinking ship of the UK. Who would've thought the return of the world of Charles Dickens was the future rather than the writings of George Orwell, though it seems both esteemed writers are becoming the prophets of life to come very shortly in the UK, as is well proven by the ever increasing divide between the haves and have-nots.
    I would be happy if we did opt for our own currency, but no matter what it is, as long as we vote in majority to gain independence, life will improve in Scotland I'm sure, for everyone, not just the rich (that's my prophecy!).

    Keep up the good work :-)

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  9. But Hazel, isn't it a barrel to hold Westminster over? And a clever one as it's purely temporary while the negotiations last. Westminster gets to save face by pretending to still have some control over sterling while the SNP gets what we want our of the independence negotiations by agreeing to be in a currency union. Which, because of our assets and our strong fiscal position, shores sterling up and saves Westminster from open financial meltdown i.e. total disaster.
    And we are going to need some barrels to hold Westminster over as anyone who thinks they will remotely play fair is clearly deluded.
    Now, your argument that Scotland would be better off with our own currency is of course sensible and I agree with it. But we do that anyway later, once we get what we want.

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