By F. William Engdahl, 22 January 2009
During the end of the
1970’s into the 1980’s British Conservative Prime Minister Margaret
Thatcher and the City of London financial interests who backed her,
introduced wholesale measures of
privatization, state budget cuts, moves against labor and
deregulation of the financial markets. She did so in parallel with
similar moves in the USA initiated by advisers around President
Ronald Reagan. The claim was that hard medicine was needed to
curb inflation and that the bloated state bureaucracy was a central
problem. For almost three decades, Anglo-American university
economic faculties have turned to Thatcherite deregulation of
financial markets as ‘the efficient way,’ in the process, undoing many
of the hard-fought gains secured for personal social security,
public health care and pension security of the population. Now
the ‘poster child’ economy of the Thatcher Revolution, Great Britain, is
sinking like the proverbial Titanic, a testimony to the incompetence
of what is generally called Neo-liberalism or free market
ideology.
As the Neo-liberal
revolution began in the economies of the USA and UK, it should not be
not surprising that the epi-center of catastrophe in the global crisis
now unfolding also lies with the
economies of the USA and UK, as well as a handful of economies,
including Ireland Canada, Australia, New Zealand and Iceland, all of
which embraced the free market Thatcherite agenda most
strongly in recent years. Notably, the man who personally
implemented Thatcherite financial market reforms and deregulation during
the era of Tony Blair in Britain was Gordon Brown, then Treasury
Secretary.
A sample of most
recent British developments is instructive. Britain‘s economy is about
to suffer its most vicious slump since 1946, shrinking by a drastic 2.8
per cent this year, according to EU
latest estimates. The UK is predicted to suffer the worst
recession of any large European economy.
The consequences for
the UK will include soaring unemployment, while the economy also teeters
on the brink of full-blown deflation. Unemployment will rise by more
than 900,000 people over the
next 12 months, driving the jobless total to 2.55 million by the
end of the year, or 8.2 per cent of the workforce, from 5.3 per cent at
present.
In parallel, the
currency, the Pound, which is not part of the Eurozone currencies, has
fallen dramatically against the Euro and even the US dollar in recent
weeks over growing fears of the
collapsing UK economy and banking system. Sterling has fallen
below $1.40 to its lowest point in seven and a half years because of
concerns about the depth of Britain‘s banking crisis and the
Government‘s rising debt levels. This coming year the UK
Government‘s borrowing levels may exceed £118 billion, equal to 8 per
cent of GDP.
Britain will not be
able to reap much benefit from a lower pound for exports because, as
part of the Thatcher Revolution, the national economy has out-sourced,
de-industrialized and turned to
a service economy where, as in the USA, finance and banking
became the motor of economic growth the past two decades. That motor has
now broken.
Public debt soaring
Fuelled by the cost of
state bank bailouts, the UK‘s national debt is set to rise to £1.06
trillion, or 72 per cent of GDP, by 2010, a sharp rise of more than 70%
from present levels.
Yesterday, the Gordon
Brown Government, only three months ago hailed as the place which was
taking effective action to control the global financial meltdown, was
forced to introduce yet another
new bank bailout package of measures designed to rescue the
country‘s banking sector. He refused to put any ceiling on the amount
that he might ultimately need, creating great distrust in the Brussels
and across the EU.
Combined, British
banks have some $4.4 trillion of foreign liabilities. That is twice the
size of the British economy. UK foreign reserves are virtually nothing
at $60.6 billion. Little wonder that
savvy currency traders and hedge funds have decided the British
Pound can go only one way, down. Swap markets for CDS now price in an
alarming 10% probability of Britain having to default on
state debt obligations in the next few years as public debt
explodes.
The last time England
had a default on state debt in the early 14th Century when King Edward
III decided to declare default on his then huge debts to the large
Italian banking house of Bardi &
Peruzzi, taking the large bank down with it and spreading ruin
across Europe.
‘…giving the kiss of life to a corpse‘
The Brown Government
admits it does not know whether the second bank rescue package it just
launched will work, senior ministers admit. One minister is quoted
anonymously in the British
press, ‘The truth is that we can‘t be sure whether it will be
effective. We have to look calm to try to instil some confidence in the
system. But we don‘t know what will happen next. No one can
be sure that this is the end of it. We are in completely
uncharted waters. The position is changing all the time.’ In brief, the
authorities have lost control in the UK.
Gordon Brown and
Treasury Secretary Alistair Darling claim the second bailout did not
mean the first package they unveiled last
October had failed. That deal, they insist, was about preventing
banks from going bust; this one was about ensuring they had the
confidence to lend to businesses and the public.
The Government refuses
to reveal how much it would cost taxpayers. Officials dismissed talk of
a £200bn bailout, saying some measures had a low risk and figures were
still being
calculated. Labour backbenchers conceded it would be difficult
to „sell“ the rescue plan to an increasingly hostile public. Not
surprisingly, polls have turned dramatically against Labour and
Brown, now showing that were elections held today, the
Conservative Party would win a gain over Labour of 9% to 13 %. An
astonishing 49% of all Brotins fear losing their job this year as well.
A major impediment to
swift and consequent Government action to contain the impact of the
banking crisis has been the dominance of Thatcherite ideology as an
almost religious dogma that
permeates even Labour, where Tony Blair was portrayed as a
Labour version of Thatcher. The ideological absurdity of the situation
was underscored recently when the Conservative
opposition offered broad support for yesterday‘s measures, even
though their concern over soaring borrowing led them to oppose the
Government‘s £20bn fiscal stimulus designed to keep the economy moving.
As well, it is clear,
following the nationalization last year of Northern Rock and the forced
state share of 70% in the large Royal Bank of Scotland, that a type of
approach is increasingly
urgent along at least the general lines as that used in the
early 1990’s Swedish banking crisis, in which the State nationalized
banks that were insolvent and unable to raise private capital.
Sweden then split the banks into ‘good bank’ and ‘bad bank.’ In
the good bank, business of lending to the real economy continued
unabated. The assets in the bad bank, largely illiquid Swedish real
estate holdings, were held by the state until economic growth
again allowed the government to sell the assets in a healthy market. The
ultimate taxpayer cost of the Securum model were
estimated to have been zero or even a tiny profit when all costs
were factored.
The ideological Labour
government is stubbornly refusing to admit the logic of the situation,
and ends up ‘cutting the dog’s tail off by
inches.’ As certain Labour MPs call for the full nationalisation
of the banks the Government says that is not its goal. Chancellor
Darling stated, ‘We have a clear view that British banks are best
managed
and owned commercially and not by the Government. That remains
our policy.’
John McFall, Labour
chairman of the Treasury Select Committee, who believes full
nationalisation of the banks is inevitable, asked Darling in recent
House of Commons debate if the Government
would take a 100 per cent stake in the banks if the new package
did not restart lending. Vince Cable, Treasury spokesman for the Liberal
Democrats, said, ‘The Government increasingly resembles
somebody who is trying to give the kiss of life to a corpse. The
Government now effectively controls one of the largest banks in the
world. It will almost certainly have to put more money in; it
may well acquire other banks.’ Cable had also predicted the
bursting of the house price and personal debt bubbles – and the
nationalisation of Northern Rock.
Royal Bank of Scotland next
The same day Brown’s
Government announced the second bank bailout attempt, Royal Bank of
Scotland issued a statement revealing it expects losses of £28bn for
2008, far greater than
anyone was expecting, and triggered further selloff in all major
British banks. The huge losses announced at RBS were mainly the result
of its acquisition of ABN Amro in 2007. RBS paid a high price
for ABN and yesterday admitted that the business was worth
around £20bn less than it had previously thought. This unexpected
announcement resulted in a 67 per cent fall in its shares.
Brown, in a pathetic
attempt to deflect blame, has said that he was particularly ‚angry‘ at
the record losses racked up by the Royal
Bank of Scotland, and the large write-offs of foreign debt.
Lloyds Bank is rumored to be the next bank in need of emergency help as
the economy of Britain goes into free-fall, the tragic eulogy to
Thatcherism.
Origins of the neo-liberal model
The so-called
neo-liberal finance model which was espoused by the Thatcher government
after 1979 had its origins in a decision by leading Anglo-American
financial powers and their circle that it
was time to begin a wholesale clawing back of the concessions
which they had granted under, as they saw it, duress, during the great
depression of the 1930’s and in the case of Britain the postwar economic
difficulties.
The origins of the
effort in the United States go back to a seminal little known book by a
scion of the vastly wealthy Rockefeller
family, the late John D. Rockefeller III, titled The Second
American Revolution. There, amid soporific rhetoric about creation of a
‘humanistic capitalism’ he calls for drastic reduction in the role and
size of government in the economy. That theme was then
propagated through the efficient propaganda apparatus of the Rockefeller
imperium, aided by the economist guru of the Rockefellers’ University
of Chicago, Milton Friedman.
Amid the misnamed
‘stagflation’ sluggish growth high inflation era of the late 1970’s into
the 1980’s, that propaganda machine, conveniently ignoring the pivotal
role of the manipulated oil
shocks, shocks incidentally manipulated and brought about by the
same Rockefeller family, as I detail in A Century of War:
Anglo-American Oil Politics, blamed all ills on ‘big government.’
Rockefeller protégé, Paul Volcker of Chase Manhattan Bank was
sent to Jimmy Carter on orders of David Rockefeller, to ‘wring inflation
out of the system’ in October 1979, the same general time
Thatcher’s Bank of England imposed its own form of economic
‘shock therapy.’
True economic
causality was obscured and reams of press copy from the Friedmanite free
market camp, during the Reagan and Thatcher era claimed that the
‘defeat of inflation’ had been due to
the ruthless discipline of Volcker and Thatcher. That was, we
were told, again and again, the reason why the market should be
unfettered from government regulation, freed to the devices of its
own unbounded innovative genius. The results of that unfettered
‘humanistic capitalism’ or what Alan Greenspan approvingly called the
‘revolution in finance’ is now bringing both meccas of neo
-liberalism, the United States and Great Britain to economic
ruin. Somewhere between this and Stalin’s Soviet central planning there
lies a better way.
So instead of the blood tests costing about $80 each at the insurance
rate, they would have cost only about $15 dollars each, or about one-fifth the cost, at the cash rate — a substantial savings.
![Chinese Premier Li Keqiang (C) and German Chancellor Angela Merkel (R) in an informal interaction before the fourth round of China-Germany intergovernmental consultation before their meeting at the Summer Palace in Beijing, capital of China, June 12, 2016 [Xinhua]](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_tA1mlmFsMT_iOIw5XlAC9MWfjrWxxwqi8nEUmPn5oyK7IBNqkYI0eAO3-8B6mtSmndquF2HQKcABpYDQ-Kd9t7Gc0BtjI9e8TRSY6fMIM6QPLHB9ZDfAfUG4TYolX0lNORSlCQSU4=s0-d)
