COVID-19 bulletin 28: Will the post virus economy collapse or emerge leaner and fitter?

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 ….

COLLAPSE?

A clear US-focussed account was written on March 7^th 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”.

 

 

 

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A reader comments. “The FT seems to be taking the prospect of a Labour government seriously”

Over the next week, the Financial Times will be examining the impact of a prospective Corbyn government on the UK economy as memories of the financial crisis have reinforced the public’s perception of a system rigged against them – despite the ongoing exposures of the excesses of the financial services industry.

 FT: “A Corbyn government promises a genuine revolution in the British economy”

It looks at the plans already announced, describing them as “breathtaking in scope”. These include:

• the nationalisation of rail, water, mail and electricity distribution companies,
• significantly higher taxes on the rich,
• the transfer of 10% of shares in every big company to workers (with a maximum annual £500 dividend,
• reform of tenant rights, including a “right to buy” for private tenants,
• borrowing to fund public investment.
• a four-day week,
• pay caps on executives,
• an end to City bonuses,
• a universal basic income,
• £250bn to fund a National Investment Bank to build 1m social homes,
• an increase in the minimum wage,
• higher income tax for those earning over £80,000,
• a new “excessive pay levy”,
• a £5bn-a-year financial transactions tax,
• a corporation tax rise from 19p to 26p in the pound,
• the break-up of the Big Four auditors,
• a ban on all share options and golden handshakes,
• curbs on the voting rights of short-term shareholders,
• the public naming of all workers on over £150,000 a year,
• the nationalisation of parts of the struggling steel industry,
• opposition to the Trident nuclear deterrent and
• delisting of companies that fail to meet environmental criteria from the London Stock Exchange.

Thatcherism reversed

Mr Corbyn’s supporters see rebalancing of control from shareholders, landlords and other vested interests to workers, consumers and tenants, “reorienting an economy that works for those at the top but not for the young, the unemployed or those struggling on zero-hours contracts” as “fairness”. But to political opponents, high-earners, business owners, investors and landlords, it is alarming.

On September 1^st, the FT declared: “A Corbyn government is no longer a remote prospect. With UK politics scrambled by Brexit, the landscape is unrecognisable”.

Lord David Willetts, a former Conservative cabinet minister who now chairs the Resolution Foundation think-tank, comments: “Brexit is so radical and such a massive gamble, breaking a 40-year trading arrangement, that it’s hard for Tories to say to people ‘don’t gamble on Labour”. They just think: ‘who’s the gambler?’”

Brexit as an opportunity: in his speech to the 2018 Labour conference, Shadow Chancellor John Donnell noted: “The greater the mess we inherit, the more radical we have to be.” 

Lord Bob Kerslake, former head of the civil service, who is helping Labour to prepare for government, believes Labour’s manifesto pledges are indeed ‘radical’ but can be delivered. He realises that there are questions about how much of the Corbyn-McDonnell policy platform can be carried out if there is a minority government and stresses the need to make significant progress on it in a first term.

As the FT wrote: “Polling data show that voters currently evince little enthusiasm for a Corbyn government. And yet the existential shock of Brexit, combined with his appeal to younger voters and families fatigued by nearly a decade of austerity, could still deliver the unexpected”. 

 

 

 

 

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Corbyn’s proposals: the Murdoch version – or the FT account?

 

FT: Jeremy Corbyn set out proposals in a letter to the leaders of other opposition parties and senior backbench MPs to form a temporary government which would request an extension to Article 50 in an effort to avoid a no-deal Brexit. 

Sun (‘demanding’ and ‘begging’) Jeremy Corbyn has demanded rebel MPs make him caretaker PM as his price to stop Boris Johnson’s No Deal Brexit. He said he will only strike if they promise to give up on their plot to install a Caroline Lucas-style national unity government and hand him the No10 keys. In return, he would beg the EU to delay Brexit yet again and promise to hold a swift election.

FT: in the ensuing general election, Labour would stand on a platform of holding a second referendum on the terms of leaving the EU, including an option to remain in the bloc.

Sun: Green MP Caroline Lucas was also critical, and called for a new Brexit referendum.

FT: No reference

Sun: Lib Dem leader Jo Swinson mocked Mr Corbyn’s plan as “a nonsense”.

FT: Ms Swinson said: “This letter is just more red lines that are about him and his position and is not a serious attempt to find the right solution and build a consensus to stop a no-deal Brexit.”

Sun: The SNP’s Ian Blackford chucked cold water on his plot, for now.

FT: Ian Blackford, the Scottish National Party’s leader in Westminster, welcomed Mr Corbyn’s proposal and said the party would support any no-confidence motion table aimed at bringing down Mr Johnson’s government. “I will be pleased to meet with the Labour leader and others at the earliest opportunity to work together,” he said.

FT: MP Liz Saville Roberts (left), the Westminster leader of Plaid Cymru, also welcomed Mr Corbyn’s plan and said “the crisis we find ourselves in goes beyond personalities”.

 

 

 

 

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Jeremy Corbyn: brutal Communist, European socialist or mainstream Scandinavian social democrat?

Corbyn smears escalate

Yesterday came a warning: “With a general election possibly afoot, we must all be alert to the orchestrated dirty tricks and the ferocity of the propaganda assault that will inevitably be launched against Jeremy Corbyn and Labour by the terrified establishment”. It was issued by Richard House, after replying to ‘absurd views’ in the Independent alleging that Jeremy Corbyn would usher in ‘a communist government’ of a brutal nature.

Articles in the Murdoch Times today bore these headlines

• MPs launch angry revolt over leaders’ Brexit talks: Breakthrough hopes fade after May meets Corbyn
• Brexit talks: Dark clouds gather as Theresa May and Jeremy Corbyn work out what to do next
• The PM, as we must still call her, was numb — perhaps past caring
• Two-party cartel would regret an election now: The electorate is more volatile than ever and many will be looking for a home beyond the Conservatives and Labour. 

Jeremy Corbyn’s popularity with Europe’s socialist leaders was highlighted some time ago with a standing ovation noted in the Financial Times:

“UK Labour leader Jeremy Corbyn was given a rapturous reception by his Socialist allies in Brussels on Thursday, as he warned that leaving the EU without a Brexit deal would be “catastrophic” for the UK economy. Mr Corbyn was met with a standing ovation by Europe’s centre-left parties as he addressed delegates at the Europe Together conference, just hours before prime minister Theresa May was scheduled to meet her EU counterparts at a European leaders’ summit”. We omit the description of Ms May’s very cool reception. 

Corbyn’s negotiating skills are appreciated by senior EU figures, including Michel Barnier.

 

EU Brexit negotiator Michel Barnier (R) and British Labour Party leader Jeremy Corbyn walk prior to a meeting on July 13, 2017 in Brussels.  

Another perspective: Jeremy Corbyn is a mainstream [Scandinavian] social democrat 

That is the view of Jonas Fossli Gjersø, a Scandinavian who has spent more than a decade living in Britain (full text here), who opens:

“From his style to his policies Mr Corbyn would, in Norway, be an unremarkably mainstream, run-of-the-mill social-democrat. His policy-platform places him squarely in the Norwegian Labour Party from which the last leader is such a widely respected establishment figure that upon resignation he became the current Secretary-General of NATO.

“Yet, here in the United Kingdom a politician who makes similar policy-proposals, indeed those that form the very bedrock of the Nordic-model, is brandished as an extremist of the hard-left and a danger to society”.

British media’s portrayal of Corbyn, and by extent his policies are somewhat exaggerated and verging on the realm of character assassination rather than objective analysis and journalism.

Mr Corbyn’s policy-platform, particularly in regard to his domestic policies are largely identical with the Norwegian Labour Party manifesto. They enjoy near universal support among the Norwegian electorate and, in fact, they are so mainstream that not even the most right-wing of Norwegian political parties would challenge them. They include:

• railway nationalisation,
• partial or full state ownership of key companies or sectors,
• universal healthcare provisions,
• state-funded house-building,
• no tuition fee education,
• education grants and loans

Jonas (right) adds that such policies have been integral to the social-democratic post-war consensus in all the Nordic countries, which. enjoy some of the world’s highest living standards and presumably should be a model to be emulated rather than avoided, and continues:

The whole controversy surrounding Mr Corbyn probably betrays more about Britain’s class divisions and how far the UK’s political spectrum has shifted to the right since the early-1980s, than it does of the practicality of his policy-proposals.

Reflecting this is British media whose ownership is highly concentrated: 70% of national newspapers are owned by just three companies and a third are owned by Rupert Murdoch’s News UK . . . the British media has focused its reporting on the personal characteristics of Mr Corbyn, usually in rather unflattering terms, and shown scant or shallow regard to his policy-agenda.

He notes that a direct comparison of Britain with other similar European states would reveal both the dire condition of British living-standards for populations, particularly outside London and how conventionally social-democratic are Mr Corbyn’s policies.

Jonas Fossli Gjersø ends: “You might agree or disagree with his political position, but it is still far too early to discount Mr Corbyn’s potential success at the next general election – particularly if he manages to mobilise support from the circa 40% of the electorate who regularly fail to cast their ballot in elections…

“(J)ust as few recognised the socio-economic and ideological structural changes which converged to underpin Margaret Thatcher’s meteoric rise in the early-1980s, we cannot exclude the possibility that we are witnessing the social-democratic mirror image of that process today, with a prevailing wind from the left rather than the right”.

 

 

 

 

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Just A Little Respect – 2018

“I have treated the EU with nothing but respect” claimed Theresa May last week. Steve Beauchampé thinks otherwise. 

Added to Political Barbs: https://politicalcleanup.wordpress.com/political-barbs/just-a-little-respect-2018/

 

 

 

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Populus poll: public sensibly ignoring anti-Corbyn headlines

Brexit, Boris and Trump head the Populus poll which asked which news story, political or otherwise, the public have paid most attention to during the course of that week.

Will Clothier, a senior research executive at Populus, reports in The Times that no more than 5% mentioned the antisemitism story at any point in the past month. In fact, it has never been mentioned by more than 5% since hitting the headlines months ago. He comments (ruefully?):

“ . . . right now this simply is not a big story for most people”

Brexit was outdone though in the second week of the month by one of its architects: the former foreign secretary. His comments about the burka made him the most memorable story of the week for 27% of people.

In August, with Trump’s former campaign manager and his personal lawyer both implicated in financial crimes, the president became the British public’s top story of the week for the second time this year on 20%.

The public may well have seen through the barrage of baseless allegation and innuendo in reports permeating mainstream media. Is their ‘hidden agenda’ now so obvious to the 95% – and even counterproductive?

 

 

 

 

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Farmers’ leader sends message to Theresa May’s Government

 

Don’t take the UK’s 220,000 farming family businesses for granted

Government Minister Chris Grayling MP (transport) commented on the recent Andrew Marr Show that the UK’s farmers would simply produce more food to keep food prices down in the unlikely event that Brexit discussions result in a no deal situation. A press release responding to this statement has been received from Farmers For Action’s NI co-ordinator William Taylor.

Farmers are receiving receive farmgate prices equivalent to those paid 30 years ago

“The fact is that the UK government is at a crossroads with EU negotiations on Brexit and the UK’s farmers are also at a crossroads: whether Brexit succeeds or fails, they still face the food corporates in relation to poor farm gate prices . . .

“Since the second world war they have got super efficient and embraced new technology continuously and supplied the lions’ share of the food to feed the nation 24/7 to date, only now to receive farm gate prices equivalent to 30 years ago in many cases while corporate retailers, corporate wholesalers and to a lesser extent corporate processors fill their pockets.

“The Government now needs to treat farmgate prices equally as seriously as Brexit, as potential young farmers and their families to be, are not willing to enter an industry only to lose money and work 24/7 by intensively farming.

“The solution for the UK’s farmers, where the average age is now close to 60, if the UK government wants to maintain or increase current food production, is to introduce legislation across the staples on farm gate prices such as that being proposed in Northern Ireland (see The Gosling Report).

“To Government we say the choice – on an issue equally as serious as Brexit – is yours!”

“If this legislation is not introduced, food corporates will continue to force cheap food from our farmers at ever decreasing values leaving more of our farmers bankrupt or quitting the industry.

“For those remaining and wishing to continue farming the alternative would be to go to traditional or organic farming; in short, produce less, secure your farm by keeping off the intensive treadmill spiral of debt and receive a better price by producing less!” 

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Farmers For Action

56 Cashel Road, Macosquin, Coleraine, BT51 4NU

Tel. 028 703 43419 / 07909744624

Email taylor.w@btconnect.com

 

 

 

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Farm Groups seek legislation: the AHDB quango should note their proposal

At the moment, due to imports, this country’s food security ratios are high – see map:

http://foodsecurityindex.eiu.com/Country

But 28,000 farms in England went out of business (132,400 in 2005 to 104,200 in 2015, DEFRA), many due to farmgate prices below production costs.

Meanwhile the AHDB advisers inflicted on them thrive, advertising for Sector Strategy Directors to be paid £62,000 – £76,000 for working 35hrs per week

The farmer drawing attention to this – who works far longer than 35 hours for far less return – comments “How easy it is to spend someone else’s hard earned income. An independent organisation (independent of both commercial industry and of Government)??”

A government website explains that the Agriculture and Horticulture Development Board is a non-departmental public body funded by a compulsory levy on British farmers. growers and others in the supply chain.

 

 

Independent?

It “has a role in the processes of national government and operates to a greater or lesser extent at arm’s length from ministers”.

AHDB advisers working half the hours at more than double the average farming income frequently offer sage advice: their mantra: “improve productivity”. The FT quotes reflections by Phil Bicknell, market intelligence director at the AHDB who sees only three options:

• The most desirable: securing a free-trade deal with the EU,
• The least: putting up protectionist barriers or
• opening up trade to low-cost competition from around the world.

Notably absent is any sustained concern about a fair price deal for food producers and the prudence of supplying the home market first before trading any surplus.

Between 2013 and 2015, according to figures from the House of Commons library, smaller producers left the industry and during that period, milk prices fell by about 30%. 

The Gosling Report finds that for farmers in Northern Ireland the sale price for the majority of commodities they produce does not even cover the input costs; this applies equally to most other British farmers. Paul Gosling comments:

“Meanwhile, large processors, large corporate food wholesalers and corporate retailers continue to maintain their enormous unsustainable profits”.

Farmers in the rest of Britain in the same position should act with those in Northern Ireland. They require legislation similar to that submitted by Fairness for Farmers in Europe (an association of 30 farm organisations in Britain, Ireland and the EU) to the 2010/11 CAP review. This would state that farmers must be paid a minimum of the cost of production plus a margin inflation linked for their produce; if the ‘free’ market moves up the farmer will get the benefit, however, when it falls the legislation is there to provide the safety net limit of drop.

AHDB please note: as a matter of urgency with Brexit negotiations under way, all farm groups could campaign for legislation on just farmgate prices, stating that a minimum of the cost of production plus a margin inflation linked must be paid at the farmgate for all food produced in Britain.

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Readers wishing to know more about NI Farms Groups’ campaign should contact:

William Taylor

56 Cashel Road, Macosquin, Coleraine, BT51 4NU

Tel. 028 703 43419 / 07909744624 

Email taylor.w@btconnect.com

 

 

 

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British MEP: call to (metaphorical) arms

A summary follows: the original text may be read here.

The opposition to hard Brexit, messy Brexit, or any sort of Brexit at all is coalescing at Westminster and across the country. 

Tens of thousands Unite for Europe campaigners marched through central London to Westminster in March – Financial Times

The arrival of the Great Repeal Bill in the House of Commons is the signal for a bitter autumn. Opposition includes:

• the All Party Parliamentary Group led by Anna Soubry and Chuka Umuna coordinating parliamentary opposition, and aiming to keep us in the single market to protect our economy;
• the former Director of Public Prosecutions Keir Starmer (Labour) and former attorney-general Dominic Grieve (Conservative) leading the charge against the granting to ministers of sweeping powers to rewrite laws with minimal scrutiny from parliament;
• when the bill reaches the House of Lords, the Law Lords are expected to back them up;
• across the country there is a coalition of anti-Brexit groups, increasingly working together. A coalition of such groups are raising funds for a ‘Fight Brexit War Chest’;
• marches and rallies to be held at the Labour Party conference in Brighton;
• a rally and street party at the Conservative Party conference in Manchester
• and a mass lobby of Parliament in October.

The MEP, Molly Scott Cato, believes that the future of our country is at stake; those of us who form the majority and who wish the UK to be a welcoming and compassionate society, should continue to challenge ‘poisonous narratives’ around migration, make the economic and social case for continued freedom of movement. and use the power and influence we have to best advantage to limit the damage, soften the Tories’ Brexit, and – if possible – reverse the damaging decision taken in June last year.

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Next: ’50 secret studies’ the government has undertaken into the impacts of Brexit.

 

 

 

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Secret State 19: the government’s secret Brexit impact studies

There has been a lot of interest in ’50 secret studies’ the government has undertaken into the impacts of Brexit. A British MEP, Dr Scott Cato, wrote to Brexit Secretary David Davis after hearing of these alleged studies requesting further details. See her article for politics.co.uk: Why is the government so afraid to publish its Brexit impact studies?

The government refused to disclose the findings but acknowledged in a response, that they have conducted analysis of the impacts of Brexit in over 50 sectors of the economy. Since these studies came to light, she has been urged to get them released through a Freedom of Information request. That she now done.

One study undertaken by the Department of Health was leaked. This revealed that Brexit could result in a shortage of more than 40,000 nurses by 2026. To avoid prevarication on grounds of cost and other spurious reasons, she limited the request to the release of details on this one study. More information here.

The European Movement, with the support of Scientists for EU and Healthier in EU, has set up a new petition, calling on the government to publish all the findings. This initiative is receiving cross-party backing and strong support from the public.

The petition is already on its way to 13,000 signatures. She asks all to add their name if they haven’t done so already and to share widely through the usual channels. Dr Scott Cato ended:

“Whether you voted Leave or Remain, it is surely in the public interest that the Brexit process is as open and transparent as possible. If the government is withholding significant information about the future of our country, then it is working against the very principle of democracy”.
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