Many people facing the corona virus pandemic are focussing on immediate needs and requirements but some correspondents – and hopefully heads of state – are looking further (shortened version of article on a sister site)
A Moseley resident writes: “Once again, the bill will have to be paid. Expect years of austerity to pay for this virus disaster. I’m guessing that, otherwise the currency will be valueless and inflation will run riot. At the moment we’re in 1918 to be followed by 1920 and then 1930 and 1940 ….
A clear US-focussed account was written on March 7th by Australian-born economist, Dr Steve Keen (right). His article – A Modern Jubilee as a Cure to the Financial Ills of the Coronavirus – is summarised here.
He points out that this is the first disease to compare to the Spanish Flu in terms of both transmissibility and virulence. Europe was embroiled in World War I at the outbreak of the Spanish Flu. Its health and population impacts were huge: estimates of the death toll vary between 40 and 100 million in a global population of 1.8 to 1.9 billion.
But its financial effects were mild, disruptions to the war economy for much of the world were relatively small, with guaranteed employment and wages for military personnel, rationing for the general public and other wartime measures. Crucially, private debt was a mere 55% of US GDP when the flu outbreak began. The private sector was relatively robust.
The situation is vastly different today. Our great financial crisis, the “Great Recession” or “Global Financial Crisis”, lies in the recent past, and its primary cause is still with us: private sector debt.
In addition, we now have “the gig economy” and precarious jobs in industries which are likely are likely to be hard hit by the Coronavirus: health itself, entertainment, restaurants, tourism, education. They could lose their jobs, and be unable to service their debts or pay their rents, or even buy food. Many employers could also be unable to service their debts. Corporations in the USA have levered up during the period of Quantitative Easing, pushing the US corporate debt to GDP ratio to an all-time record. It is also twice the level that applied during the Spanish Flu. Many corporations will find their cash flows dry up and many will find these debt levels crushing.
The production system is also more vulnerable than at the time of the Spanish Flu.
The global economy today relies on long and complicated supply chains, with many goods being produced from components manufactured in dozens of countries and shipped between them on container vessels.
- If manufacturing in even one place (such as China) comes to a near standstill, production elsewhere will do the same.
- “Just in Time” manufacturing methods will run out of inputs, even if their factories are still capable of operating.
- Shipping could be affected if crews refuse to undertake trips that can take weeks with potentially asymptomatic carriers on board, or if crews are quarantined for two weeks prior to departure.
- Shares are likely to plunge in value. We have already seen a 14% fall in the S&P500 (though followed by a 5% rebound on Monday March 2nd) . . . We are clearly in the exponential phase of the pandemic. It will ultimately taper, but at present the number of cases outside China is doubling every 2-6 days, depending on the country.
- Banks will also suffer badly. The asset side of their ledgers includes corporate shares: if these fall in value, banks will find their assets plunging, while their liabilities remain constant. A bank cannot: it must have assets that exceed its liabilities, or it is bankrupt.
A credit-driven, private sector monetary system is not capable of handling a systemic crisis like this. If the rules of such a system are enforced, it will make the crisis worse:
- renters and mortgagors will be evicted, put on the streets, where they are more likely to catch and transmit the virus,
- personal hygiene and public health will suffer, when one is needed to slow the pandemic, and the other must be functional to support its current victims,
- stock markets will crash,
- banks themselves will fail as their shareholdings plunge in value, bringing the payments system to an end
- and even those unaffected by the crisis will be unable to shop.
OR EMERGE LEANER AND FITTER?
It is, on the other hand, possible for Central Banks and financial regulators, once authorised by their governments, to take actions that prevent the medical crisis from becoming a financial one. Other mechanisms may exist, but these are the obvious ones to prevent a financial pandemic on top of a medical one.
First: make a direct payment now, on a per-capita basis, to all residents via their primary bank accounts (most effectively, their accounts through which they pay taxes).
As Quantitative Easing has shown, this does not have to be financed by asset purchases. It is quite possible for Central Banks to put a notional asset on their balance sheets to finance. This is already done by the Bank of England to back the value of the notes issued by Scottish Banks: a bill known as a Titan with a face value of £100 million balances the value of bank notes issued by Scottish banks. The same could be done by any Central Bank to balance a direct cash transfer to the bank accounts of all residents of its country – see People’s Quantitative Easing (Coppola 2019).
This already has been done in Hong Kong. The payment there is HK$10,000, or roughly US$2,000. It does not need to be financed by the Treasury or by taxation: neither were used by the USA to support its $1 trillion dollars per year Quantitative Easing program. There will be no “debt burden for future generations”.
Secondly: boost share prices by buying shares directly.
Quantitative Easing was intended to boost share prices. Clearly it worked—but there is no guarantee that it would work in this situation Instead, Central Banks should directly buy shares, as they are also quite capable of doing: Japan’s Central Bank has been doing this for several years already. This puts money in the bank accounts of shareholders, while the shares are then owned by the Central Bank. This could prevent a collapse in share prices, which in turn could prevent a collapse in the banking sector—since if shares fall substantially, many banks will find that their assets are worth less than their liabilities, and they would be forced to declare bankruptcy.
Central Banks can also cope with a share market collapse in a way that private banks and financial institutions cannot. Unlike a private bank, a Central Bank can operate with negative equity. If there was still a stock market crash, a Central Bank holding shares would still be able to operate.
Thirdly: suspend standard bankruptcy rules while the crisis exists
Banks and financial institutions in particular are vulnerable to bankruptcy in this crisis. Non-financial companies which are heavily exposed to the pandemic—health companies, airlines and other transport firms, education providers (including many public universities reliant on student fees), restaurants, sporting grounds—could see their revenues plummet, making them unable to service their debts, and therefore liable to bankruptcy.
Corporations exposed to Coronavirus-driven losses of revenues should also be able to receive direct aid from Central Banks as well. This could take the form of the sale of newly issued shares in return for cash—it should not be in the form of debt, which would simply replace one problem with another.
As Professor Keen ends his constructive and reassuring article, the words of John and Andy, from Moseley and Bournville, have been blended to give their views on a post pandemic future: “If we look coolly, perhaps rather brutally, at our situation, a complete generation may be wiped out, but in the worst scenario most humans on the planet are unlikely to die and the younger members least of all. The NHS will be saved millions by not having to treat the elderly and generally infirm. Pensions will be reduced and a younger, leaner, more focused workforce that realises how soft we had become will take up the cudgels to drive the economy onwards. Human life will go on and maybe the lessons learnt from tackling this infection will help in facing the next”.
Tags: asset purchases, Austerity, bankruptcy, Banks, Brexit, Central Banks, Climate change, coronavirus, direct cash transfer, Dr Steve Keen, Economy, finance, global economy, Government, health, Hong Kong, Japan, Manufacturing, NHS, pandemic, Quantitative Easing, share prices, shipping, Spanish flu, supply chains, Taxation, tourism
The FT reports that senior executives at several of the largest US banks have privately told the Trump administration they feared the prospect of a Labour victory if Britain were forced into new elections.
It then referred to a report by analysts at Morgan Stanley arguing that a Corbyn government would mark the “most significant political shift in the UK” since Margaret Thatcher’s election and may represent a “bigger risk than Brexit” to the British economy. It predicted snap elections next year, arguing that the prospect of a return to the polls “is much more scary from an equity perspective than Brexit”.
Jeremy Corbyn gave ‘a clear response’ to Morgan Stanley in a video (left) published on social media reflecting anti-Wall Street rhetoric from some mainstream politicians in the US and Europe, saying: “These are the same speculators and gamblers who crashed our economy in 2008 . . . could anyone refute the headline claim that bankers are indeed glorified gamblers playing with the fate of our nation?”
He warned global banks that operate out of the City of London that he would indeed be a “threat” to their business if he became prime minister.
He singled out Morgan Stanley, the US investment bank, for particular criticism, arguing that James Gorman, its chief executive, was paying himself a salary of millions of pounds as ordinary British workers are “finding it harder to get by”.
Corbyn blamed the “greed” of the big banks and said the financial crisis they caused had led to a “crisis” in the public services: “because the Tories used the aftermath of the financial crisis to push through unnecessary and deeply damaging austerity”.
The FT points out that donors linked to Morgan Stanley had given £350,000 to the Tory party since 2006 and Philip Hammond, the chancellor, had met the bank four times, most recently in April 2017. The bank also had strong ties to New Labour: “Alistair Darling, a Labour chancellor until 2010, has served on the bank’s board since 2015. Jeremy Heywood, head of Britain’s civil service, was a managing director at Morgan Stanley, including as co-head of UK investment banking, before returning to public service in 2007”.
A step forward?
In a December article the FT pointed out that the UK lacks the kind of community banks or Sparkassen that are the bedrock of small business lending in many other countries adding: “When Labour’s John McDonnell, the shadow chancellor, calls for a network of regional banks, he is calling attention to a real issue”. And an FT reader commented, “The single most important ethos change required is this: publish everyone’s tax returns”:
- In Norway, you can walk into your local library or central council office and see how much tax your boss paid, how much tax your councillor paid, how much tax your politician paid.
- This means major tax avoidance, complex schemes, major offshoring, etc, is almost impossible, because it combines morality and social morals with ethics and taxation.
- We need to minimise this offshoring and tax avoidance; but the people in control of the information media flow, plus the politicians, rely on exactly these methods to increase their cash reserves.
But first give hope to many by electing a truly social democratic party.
Is the rainbow suggesting a new party logo?
Tags: American investment, Banks, community banks, Donald Trump, Economy, Employment, finance, Government, Jeremy Corbyn, Margaret Thatcher, media City of London, Morgan Stanley, MP John McDonnell, New Labour, offshoring, Tax avoidance
Times journalists Alex Ralph, and Harry Wilson present and comment on material collected by the Times Data Team: Tom Wills, Ryan Watts, Kira Schacht. Links have been added by PCU’s editor to enable readers to learn more if they wish to do so.
“FTSE 100 groups, including banks, defence contractors, tobacco manufacturers and telecoms companies, have spent more than £24 million on lobbying in Brussels and about £335,000 funding all-party parliamentary groups in Westminster”.
They add: “There is no suggestion of any wrongdoing or rule-breaking by companies”.
FTSE 100 political spending (over the last two years)
The Times first focusses on All Party Parliamentary Groups (APPGs)
APPGs are run by and for Members of the Commons and Lords who join together to pursue a particular topic or interest. Many involve individuals and organisations from outside Parliament in their administration and activities – or as the journalists put it, “help to push industry agendas in parliament”. Read more here.
Unsurprisingly, BAE Systems, which spent £37,000 on a group “to promote better understanding of the Her Majesty’s armed forces in parliament”, is among the biggest backers of the parliamentary groups.
The writers comment that parliamentary groups have proved contentious because of the large amounts spent on reports that often support the views of industry and which grant access to parliament for companies and lobbyists.
BT’s £53,000 included backing the parliamentary internet, communications and technology forum, known as Pictfor, whose members include Tom Watson, the Labour deputy leader and Lord Birt, former Blair adviser and director-general of the BBC. A list of funders may be seen here.
Note: ’Donations to APPGs’ shows spending between Jan 2015 and Mar 2017 as declared on the Register of APPGs. ’Spend on EU lobbying’ shows companies’ minimum estimates for the most recent financial year declared on the EU Transparency Register at the time of research. Here is a snapshot taken from one of 10 pages listing donations/other spending and the companies’ rationales for these sums being given.
The Times’ second focus is on the denial of information to shareholders
Less than £10,000 of identified political and lobbying spending in the EU was disclosed to shareholders in the companies’ recent annual reports. ompanies are not required to disclose details to shareholders and little information on corporate political and lobbying activities is revealed in annual reports, which are published before shareholder meetings. The tens of millions of euros spent each year in the EU go largely undeclared to shareholders.
Corporate Europe, which campaigns for greater transparency in EU decision making, has spent years tracking how the business world moulds policy.
Vicky Cann, the group’s UK representative, said that the banking and energy industries were the most active lobbyists. “The financial services industry is a huge spender and even then we think the real scope of their spending is probably bigger than we can currently see,” she said. Her colleague gave the example of recent emissions legislation that was the subject of intense lobbying by BP and Shell.
As Peter van Veen, director of business integrity at Transparency International, said, “Corporate transparency over political activities is important to ensure the public can have the confidence that their politicians and industry leaders are conducting business ethically . . . If companies are not voluntarily willing to disclose their political activities and funding of these, then stronger legislation should be considered and a possible starting point may be to broaden the definition of political activities and expenditure in the Companies Act 2006.”
Posted in Arms trade, Banking, Banking and finance, Conflict of interest, Corporate political nexus, Defence, Democracy undermined, Economy, Energy, EU, Finance, Government, Lobbying, Media, MPs, Parliamentary failure, Reward for failure, Secret State, Trade, Transport, Vested interests, warfare
Tags: APPGs, BAE systems, Banks, Baron Birt, BP, Corporate Europe, corporate shareholders, corporate transparency, defence contractors, EU, FTSE 100 groups, MP Tom Watson, Shell, telecoms companies, tobacco manufacturers, Transparency International, Westminster
PCU: the ‘captive state’ – a Britain organised under successive governments to suit the corporate few – grossly mistreats people like the late Stephanie Bottrill
Following posts on Birmingham and Solihull websites, readers who have responded fall into two categories:
Some – living on average or above average incomes have been quite unsympathetic:
- In her place I’d cut my coat according to my cloth
- Would losing £20 be such a big deal?
- These people are always whining.
- The son’s approach to the Sunday papers was motivated by financial gain.
- Think of the mothers and children cramped in one-bedroom accommodation.
- She didn’t care about the trauma she would be inflicting on the lorry driver
- are thankful that this issue has been raised,
- have written about similar problems they are facing,
- say that their grand-children will not be able to stay with them if they move,
- point out that to a person with a disposable income of £77 – £20 is a 25% cut,
- and that for a single person, £20 is the amount a person will spend on food bill – not including fresh meat.
PCU sees the captive state – Labour and Conservative governments alike, in thrall to the rich and powerful.
Many politicians are eager for the crumbs falling from these corporates – not usually in brown envelopes but in the form of declared directorships and also undeclared lucrative opportunities for family employment.
Two of many examples where the ‘captive state’ is easy on the affluent but bears down on people like Stephanie Bottrill:
The government commandeered taxpayers’ money to bail out other affluent bankers and HMRC created a “bespoke” tax arrangement for Goldman Sachs in order to resolve a “huge relationship issue” with the bank. It excused Goldman Sachs from paying £10 million interest on tax it had not paid. The government also commandeered taxpayers’ money to bail out other affluent bankers.
No parallel desire is shown to create relationships and help the poor and powerless.
The case underlines the need for a new (cross-party?) incorruptible politics designed to offer equality of opportunity and security to all its citizens – not just the affluent few.
Do readers know of any energetic and innovative, public-spirited politicians likely to make a difference? Three named in the West Midlands are pictured above.
“All I can see is a monster opportunity,” said Mr Paterson, before heading to China.
In the Financial Times, Louise Lucas describes DEFRA minister Owen Paterson’s steering of the latest attempts to ship food from Britain as a move “redolent of selling snow to Eskimos”.
She added “Britain is gearing up to sell more cheese to France, land of Camembert and hundreds of other sorts of cheese, and pork to China, home to half the world’s pigs”.
Who set this merry-go-round spinning?
In the mid-1990s, following heavy lobbying by banks, hedge funds and free market politicians in the US and Britain, regulations on commodity markets were steadily abolished. Contracts to buy and sell foods were turned into “derivatives” that could be bought and sold among traders who had nothing to do with agriculture. In effect a new, unreal market in “food speculation” was born.
Devon farmer Pippa Woods (FFA) and Kath Dalmeny (Sustain) disagree in “A Better CAP”: “The natural pattern of food production is for each country to use its own resources to feed itself as far as practicable”
3.5 Doctrinaire theories that farming is just another industry and should be subject to international trade regulation to suit multi-national companies are causing untold misery all over the world. They completely distort the natural pattern of food production, which is for each country to use its own resources to feed itself as far as practicable.
Lancashire farmer Tom Rigby re the World Trade talks:
The World Trade talks have ended in chaos. Outside the hall hungry farmers from across the world had been banging at the gates all week, the security fence just about held and thankfully there was little bloodshed . . . the only consensus seems to be amongst the farmers themselves, from the gates at Cancun to the FFA picket line, that the system does not seem to benefit us – so what is going wrong?
. . . They had come to protest at the injustice of using their markets as a disposal ground for our unwanted surplus, creating glut then famine, and despite all the recent reforms our detested system of intervention buying and export subsidies remains in place. (Farmers Guardian 19.9.03)
So who does benefit from the “mindless vortex quite unrelated to any conscious national purpose?” Cornish farmer Michael Hart, seen visiting US farmers on Transition TV, names a few:
- Farmers don’t export anything but international traders do, so they are the ones who will benefit.
- Processors and exporters are paid export subsidies to get rid of surplus production in the EU and USA caused by low farmgate prices which cause farmers (the world over) to increase production in order to survive and stay farming.
- Major processors and retailers of the developed world want to deal with a few large farms – it makes their life much easier.
- PCU adds another rich and powerful driving force: parasitic speculators. John Vidal explains: “The same banks, hedge funds and financiers whose speculation on the global money markets caused the sub-prime mortgage crisis are thought to be causing food prices to yo-yo and inflate. The charge against them is that by taking advantage of the deregulation of global commodity markets they are making billions from speculating on food and causing misery around the world”.
A resounding conclusion is provided by Peter Cruttwell quoting Paul Kennedy: “It is now beyond argument that it is the furious drive to manufacture and to export in order to finance imports, in a mindless vortex quite unrelated to any conscious national purpose, which is responsible for environmental destruction and resource depletion; and it is these distortions of the natural state which are largely responsible for fuelling the population explosion and for the seismic uprooting and urbanization of people by the billion around the world as they seek to respond with mesolithic brains and bodies to the twin imperatives of economics and technology”.
Tags: · Major processors and retailers, Banks, Commodity markets, Cornish farmer Michael Hart, DEFRA minister Owen Paterson, Derivatives, Devon farmer Pippa Woods (FFA), Exporters, Exports, Financial Times, Food speculation, Free market politicians, Hedge funds, International traders, Kath Dalmeny (Sustain), Lancashire farmer Tom Rigby, Paul Kennedy, Peter Cruttwell, Processors, Resurgence Books, Transition TV, World Trade talks
Powerful American banks spending lavishly on lobbying are more likely to engage in high-risk lending and their shares have performed less well than others, a groundbreaking study by the International Monetary Fund has found.
More on The Guardian website