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FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Labour Government Enslaves the British Tax Payer to a Decade of Paying for the Bankers Crimes

Politics / UK Debt May 01, 2009 - 12:38 PM GMT

By: Nadeem_Walayat

Politics

Best Financial Markets Analysis ArticleThe Chancellor Alistair Darling in his recent budget started to come clean on the huge amounts of debt that the country will need to borrow on just its visible official balance sheet as illustrated by the below graph. However much talk by politicians and the mainstream media about how there will now need to be severe cuts in public spending and tax cuts to reduce the level of debt are partially in-correct, in that yes taxes will rise and public spending will be cut to stabilise the budget deficit, but the argument that the level of debt must be reduced is flawed and fly's in the face of over 300 years of history of debt accumulation since the founding of the Bank of England.


Alistair Darlings forecast for government net borrowing over the next 4 years in November 2008 totaled just £120 billion which was in total denial of the collapse of the UK economy that had fallen off of the edge of a cliff during the summer of 2008 and accelerated during the September / October financial crisis. The magnitude of the level of the budgetary crisis is now some six months later being publicly acknowledged by revised forecasts for the budget deficit that the Chancellor now sees totaling £608 billion instead of the £120 billion forecast of November 08. This is still significantly below my forecast total of £735 billion and therefore the expectation remains for further revisions to the upside over the coming years.

The Government Will NEVER Repay the Debt

One thing people need to understand and that is that the Government will NEVER repay the debt that they are borrowing today, NEVER, the amount of debt outstanding WILL ALWAYS GROW HIGHER, Why ? Because our economic system can ONLY function if the total amount of debt and hence supply of money is ALWAYS INCREASING, before the credit crunch debt increased or should I say exploded higher by means of banks creating money out of thin air by means of customers borrowing money from the bank that was turned into a liability AND AN ASSET TO LEND MORE MONEY AGAINST and therefore multiplying original fractional reserves by more than X30 per bank and if taking the whole closed loop banking system into account probably as much as X90, which is why a small % of defaults has resulted in the cascading bankruptcy of the whole of banking sector requiring tax payers liabilities that are expected to extend to more than £2 trillion.

The level of debt is exploding higher, both that which is on the visible balance sheet as well as off the balance sheet tax payer liabilities that now project a rise from £1.75 trillion at the end of 2007 to £3.9 trillion by the end of 2010. As pointed out several times over the past 12 months following the Bank of England's initial £50 billion hand out to the soon to be Bankrupt banks in April 2008 that loan would in all likelihood never be repaid and mark the start of a series of hundred billion pound loans that would put Britain on the path towards a debt crisis that in the first instance would manifest itself in a sterling bear market whilst the Bank of England remained paralysed by the fear of inflation and failed to respond to the housing market crash of 2007-2009 until forced to do so in October 2008.

The current economic state of debt deleveraging as banks go bankrupt as defaults soar due to extremely lax lending standards, the governments of the world are attempting to offset this contraction in the credit supply by engaging in huge amounts of borrowing and printing money aka quantitative easing. Can they succeed ? Well the debt bubble as measured by the size of the derivatives market had grown to more than $600 trillion!, a trillion here or a trillion there is basically an attempt to plug the holes in the debt deleveraging damn, it is too early to say if they will succeed or fail, but the expectations are for ever more panic government spending actions to offset the risks of a debt collapse, the effect of these government actions has the ultimate effect of devaluing the value of ALL currencies, i.e. inflation, and I am talking REAL INFLATION not that manipulated statistics that generate CPI of 2% or 3%, but the real inflation you experience that you find in the shops when your money can no longer buy today to a significant degree compared to what it bought a year ago!

How Can Everyone be in Debt ?

Welcome to the un-wonderful world of fractional reserve banking. The economy is built on credit that has been created by the banks by means of fractional reserve banking. The reason why the banks are bankrupt is because they have loaned out money many times over that they never had ! The countries banking system through the reserve requirement at the central bank (Bank of England) was supposed to regulate the amount of money or credit the banks created by a factor of 9 to 1. Unfortunately as we are seeing the greedy, corrupt, culpable, and to all intents and purposes thieving banks have been lending many times that, were talking forget X10, forget X20, forget even X30, some of the greedy banks have been lending out as much as X60 of actual reserves, and hence why the British tax payer has woken up to an already £1.4 trillion hangover that continues to mushroom up towards £2 trillion. IF the incompetent buffoons at the FSA and the Bank of England HAD DONE THEIR JOB ! Then the current crisis would be of several orders smaller, instead of £2 trillion+ of liabilities we would be facing liabilities in the region of £500 billion, which is STILL a big number but not so big that it actually threatens the bankruptcy of the state!

Not only would the liability to the tax payer be smaller, but the actual STRESS that the banking system is under would be less and therefore many more banks would be able to survive via capital injections from market place and in the final instance the tax payer. Unfortunately the Bank of England IS incompetent, the Treasury IS incompetent, the FSA IS incompetent the Labour Government IS incompetent, as they allowed those running the banks to turn them virtually all into hollow shells after having banked bonuses for fictional non existent profits, where a loss of a few % on bad loans brings the whole edifice crumbling down.

Whilst the British security services have been busy keeping their eyes on a few turban wearing ethnic minorities, the bankers have perpetrated the biggest heist in history and have clearly got away with it ! £2 trillion of debt thrown onto the backs of tax payers to suffer the consequences of for decades!

My conclusion can only be is that both the Labour party and the Conservative party are deep in the pockets of the bankers, for instead of allowing the bankrupt banks to go bankrupt they have bent over backwards to ensure that the likes of Fred Goodwin can do a runner with millions more in tax payer cash which they would NOT have received had the banks gone bankrupt. As I voiced over 6 months, nay now approaching a year ago ! That the bankrupt banks should be allowed to go bankrupt with the profitable assets restructured and refloated as a retail bank that cannot make any calls on the money markets for funds thereby separating retail banking from investment banking activities. Instead of what the government should have done, the government is handing over literally unlimited amounts of cash in various off the countries balance sheet that ensures the tax payers will suffer the consequences of which for years if not for decades.

How can we Prevent the Banks from Bankrupting the Country Again ?

Firstly REAL REGULATION ! I am talking truly independent regulation along the lines of the courts system, none of this back slapping insiders on the boards of the likes of the FSA, who is in charge of the FSA ? Adair Turner former Vice chairman of Merrill Lynch, that's right a BANKING INSIDER in charge of the regulator. Even if Adair Turner understands the truth of how the bankers run the country, which he probably does, he will never point the finger at his banking buddies and institute changes that take power away from the banks and put it into the hands of those that the British people have actually elected to run the country. The prime requirement should be that the regulator is headed by NONE BANKERS.

Secondly, we need to rethink our economic model, do we really want it to continue as an never ending expanding debt bubble economy that will periodically burst ? and more importantly seeks to enslave EVERYONE to the bankers and I MEAN EVERYONE ! That includes, individuals, corporations AND the GOVERNMENT. BEING IN DEBT EQUALS to BEING A DEBT SLAVE. You Work in part to PAY your Debt Slave Master, the Financial Institution that wrote your debt into existence at the tapping's of a few keys.

Thirdly Fractional Reserve limits must be enforced at 9 to 1. - NO Banks should ever be allowed to leverage to more than X10 capital.

Fourthly, an Independent regulator MUST BE COMPETANT ! The FSA DOES NOT HAVE A CLUE OF WHAT IT IS DOING either by Choice or Design. IT IS INCOMPETANT AND SHOULD BE ABOLISHED and start from scratch. The sole responsibility of regulating the banks should be with an independent and restructured Bank of England, most of the current board should be dismissed, as i wrote a 9 months ago, the MPC committee at the monthly meetings apparently instead of acting sat sipping tea and talked about the weather.

Fifthly - Accountable Bank Executives - The laws need to be greatly tightened where the culpable such as Fred Goodwin are actually made to account for their actions in a court of law, instead of being rewarded by ex-banker buddies in the government with multi-million pound cash lump sums on the tax payers backs.

Sixthly - The Labour party Is incompetent and the Conservative Party are in the back pockets of the culpable Bankers where had they been in power then we would already be where Iceland is today, therefore we really need a LIBERAL government that is not tainted by this crisis. The Liberal Party should be given the chance to PUT the DRASTIC but necessary actions into effect that aim to re-balance the financial system in favour of the citizen as opposed to the greedy bankers.

Seventh - INDIVIDUAL RESPONSBILITY - It is NOT ALL the bankers fault, many if not most individuals over a period of time turned themselves effectively into debt slaves, and now cry at the government to do something to alleviate themselves form their debt burden by the government punishing savers by cutting interest rates and devaluing the currency and also making it easier for debtors to default on their debts and wipe their personal slates clean via bankruptcy. The independent institution that overseas the regulation of the banking system needs to also have the duty of educating the population on the dangers of debt, and how to manage personal finances. This is even more important than competent regulation of the banks as once the population understands the value of money, debt and savings then they won't be sucked into crazy 100% mortgages at X7 salaries that set themselves up for default and the banking institutions up for bankruptcy.

In closing, the credit crisis has enabled the general public for perhaps the first time to awaken from a 300 year debt induced coma to see the reality of the way our world works, where most people are born into perpetual debt slavery to work for the bankers and go through the phony process of voting for political parties who are in the pockets of the bankers and pander to their every whim as we have publicly witnessed where our countries future has been given on a platter to the banking industry. Rather than holding the thieving bankers to account, all the politicians have done is to utter a load of hot air, whilst letting the bankers to publically and blatantly rob the countries future.

The so called once socialist Labour party either do not understand the way the world works or those that run the government are deep in the pockets of the bankers seeking their own stake of interest on the back of indebted and enslaved ordinary citizens who will pay for the crimes of the bankers for at least the next decade and thereafter continue to have the debt noose around their necks in perpetuality. The Labour Government is NOT FIT FOR GOVERMNET. The Conservative Party is DEEP in the pockets of the banking industry that perpetuates perpetual indebtedness of ordinary citizens.

What Britain needs is an revolution in the way this country is run.

Is the country run for the benefit of few thousand bankers or for the other 60 million people ?

Unfortunately neither the Labour party or the Conservative party offer the British Public a solution to 300 years of debt enslavement to the banking industry.

Enjoy your May Day BANK Holiday.

By Nadeem Walayat
http://www.marketoracle.co.uk

Copyright © 2005-09 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 250 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Tim
01 May 09, 22:10
labour government enslaves....

could No. 8 be: round up the trilateralistas and throw them all into prison, after expropriate all their ill gotten gains.Go Italy!!!


G. Kaiser
02 May 09, 00:43
Labour Government Enslaves the British Tax Payer to a Decade of Paying for the Bankers Crimes

If the man in the street refused to participate in this circus, we would be able to bring this tragedy to an end quickly. Save in gold, physical gold.

Your savings account gives you an interest, usually way below inflation, which is usually way under actual inflation, and then you are taxed on that!! So you get a return in devalued money, which is further eroded by tax.

Stocks? a casino manipulated by insiders, a game where the house always wins, investing in companies where your influence as a stockholder is insignificant.

In stead, start your own business, live within your means, if you can't afford it now, do without. Educate you kids and invest where you have some form of control.

The banks will be relegated to where they should be, and the country could start progressing from sound foundations.

We need a change in the fundamental way we view the world. Less haste and more living.


Mr Z Nik
05 May 09, 20:33
The Fractional Reserve Ratio is 50

The fractional reserve ratio is 50 for the entire EU including all the non Euro countries. Where did you get 9:1 from?


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