I have already mentioned this morning that I think we remain at risk of another financial crisis. Let me offer another reason for thinking so.
The Times carries a headline article today behind its paywall that suggests one third of ABC1 earners could not meet an unexpected £500 bill without resort to borrowing and that this rises to 46% in the case of C2DE earners.
It is always wise to take these findings with a pinch of salt but my own experience from my practicing years suggests this is likely to be true. I reckoned only 20% or so if my clients were inclined to, or were even capable of saving.
A number of thoughts follow. First, let's not pretend in that case that we are not remarkably close to a debt precipice that any change in rates or impact on the cost of living could trigger. Those voting Brexit in these groups, please note.
Second, this indicates staggering wealth inequality with massive real consequences for well-being. The stress inherent in this statistic is staggering.
Third, this data clearly indicates a country unable to take risk.
And fourth it may indicate a country that is underpaid.
Or one where the pressure to consume is so great it is imoiverishing people (and both these last statements can be true, independently and simultaneously).
However looked at this suggests we have the most extraordinarily thin margins for error and that is what turns crises into crashes.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
If we have entered a world of “peak debt” (in much of the developed world at least), then we must have entered an economy of “peak stuff” and you could fairly safely assume that would mean “peak markets”. In which case there is only one way to go, unless something else changes?
Which if you look at the long term trend of the FTSE and DJIA could well be the case, but there again the financial wizardry to get around this minor inconvenience of no more actual real money in the economy has never stopped capitalism before!
And I agree that having lived through the Thatcher years of my youth and the Blair years of my mid-life, there was never any incentive to save for the future when cheap unsecured debt was being thrown at everyone with even modest (or no) means.
But that is the madness of capitalism as far as I am concerned, forever spending now what you will never be able to repay, because if people didn’t then the private financial capitalist machine would come to a grinding halt!
We are on a giant hamster wheel and the hamsters are having to run a lot faster every day to keep up with the pace of the wheel. Now one day, the real laws of physics and nature will catch up with this stupid game – as people and the planet are already starting to tell us.
The signs are clearly there that “business as usual” is no longer an acceptable response to a growing social and environmental crisis. When the “financial markets” finally accept that and stop propping up a failing system with unsustainable debt creation, that will be the start of the “crash of all crashes” for private financial capitalism in my view.
I do believe peak stuff is happening, if not in developing economies, and inequitably everywhere
Although it is probably the case that the plc’s quoted on world stock markets are not the best measure of the state of the underlying economy as they are easily able to shift financial capital between regions to take advantage of the growth in developing economies while developed markets fester.
And so in a world of near zero interest rates and growth in the “west” and still relative boom times in the “east”, the flow of financial capital is fairly predictable.
The fact that the economies of the “west” have only been prevented from complete collapse by massive central bank intervention in order to try to maintain a modicum of demand and yet still keep pumping up asset prices, is a fairly clear sign to me of an economic and political elite on the verge of being committed to the lunatic asylum!
Peak stuff, may be, but only because people do not have the capital to buy stuff and government don’t want to invest.
The private sector can’t because a very larger fraction of their income is swallowed by debt repayment and or rent, but their desires have not waned.
Two possible reasons for peak stuff. In the private sector, the inequitable distribution of wealth. Technology increases productivity but is this is not shared with the workers, so supply grows faster than demand, people are offered credit to keep the ship moving forward and you get a debt deflation scenario. Marx knew that this was the fundamental flaw with capitalism, but it can be saved by redistribution as happened during the post war consensus.
The second is the reluctance of governments to do what they should. They should have a plan to move to post-carbon energy in 25 years but it not happening in this country. Replacing fossil fuels will need an awful lot of stuff, enough to support a steel industry in South Wales and the Tees Valley plus millions of other jobs.
Brilliant by the ever coherent and succinct Keith fletcher. All I can say is ‘cometh the agenda, cometh the man’.
I do wonder about some of these barbed compliments from Sikh Kofand and the very similar C Kofand?
Almost a sycophant in name and nature!
Apologies if these are your most unusual real names but it just looks too obviously trolling to me.
I was very close to deleting, I must admit
I have neither read enough of Marx’s writing, nor what I have read sufficiently closely to know whether what the author of the article, Chris Hedges, says can be evidenced in Marx’s work, or wgtger this is Hedges’ reading and interpretation of what is in those writings, but if even half of what is alleged here WAS proposed by Marx, then he truly was the astonishing analyst and prophet many have proclaimed.
http://www.truthdig.com/report/item/karl_marx_was_right_20150531
A remarkable article, very ad rem to the current discussion, and all the circumstances surrounding it.
It is an excellent analysis
It’s Marx with hindsight, I think it fair to say
But so what? To pretend Marx has nothing useful to say is absurd
Absolutely correct about Marx Richard!!
A superb read. Thanks for posting the link, Andrew.
From the many excellent points made I’d highlight this as a summary of exactly what the Tories have been up to in government since 2010:
‘It would in its final stages pillage the systems and structures that made capitalism possible. It would resort, as it caused widespread suffering, to harsher forms of repression. It would attempt in a frantic last stand to maintain its profits by looting and pillaging state institutions, contradicting its stated nature.’
All arguments I made, less succinctly, in The Courageous State
Marx was at heart and education primarily an historian and philosopher, most of his work that I have read has been the most insightful social commentary on human development that has formed the basis of a huge swathe of critical thought amongst the social sciences.
As for economics and politics, we must remember that in Marx’s days such subject were not in any way developed or encouraged as they threatened the dominant hierarchical and hereditary social order. His thinking was not only amazingly prescient in my view, it was clearly revolutionary in its potential. Indeed Marx was for most of his life struggling to understand why all previous social revolutions had failed to overcome the status quo of social domination by those with wealth and power.
His reasoning that the failure of all previous revolutions was due to the inability of ordinary people to take full control and ownership of the “means of production” and the “surplus value” within an increasingly industrialised society forms the basis of all socialist thinking since then.
I don’t think I could even attempt to understand my own experience of capitalist business without an understanding of some basic Marxian concepts. Richard Wolff, Chris Hedges and many other US writers have interestingly been more enlightening for me than most of their UK and European contemporaries, perhaps because they are at the sharp end of the most dominant capitalist nation state which is potentially heading for cliff much faster than the private financial capitalist lemmings believe.
Just to add I do recommend Chris Hedges interviews with Michael Hudson, Days of revolt. Well worth watching.
Keith, you have assessed Marx as I usually do, namely:
a) a VERY great, perhaps the greatest, sociologist, and certainly in the top 5;
b) a great economist, probably in the top 5, CERTAINLY in the top 10;
c) an indifferent practical politician, though a top-ranking theoretical politician, but probably not in the first rank.
Andrew-with your appreciation of language, literature and economics you would find Marx’s writing absolutely spellbinding. People don’t believe me when I tell them how Marx’s Capital is full of the most witty jokes and cutting irony – reading volume 1 (the only one Marx completed himself) one is continually enriched with classical references and literary references that support his arguments and his observations of British society and the class system (read his comments on Bentham and the utilitarians for excoriating wit).
Marx needs to return to the university. His maths is often challenged but his major insight that economics IS a system of social relationships and not a state of nature is quite remarkable.
Even in English translation (Marx spoke English but never wrote in it) the language is limpid, graceful and beautifully ornamented with rich allusion-have a copy on the bedside table!
Ha Ha!
He quotes Gramsci at the end – bless him! I love Chris Hedges.
I’ve heard it like this:
“The crisis consists precisely in the fact that the old is dying and the new cannot be born”
― Antonio Gramsci, Selections from the Prison Notebooks
A dream I have is where Richard, Hedges, Saunders, The Greens, Wolff, Mitchell, Varoufakis, Keen, Corbyn and other men (and women indeed!! ) get together and help with that birth.
What a moment that would be.
The fuel that drives capitalism is cheap Labour, the majority work for less but it’s the majority that consume, to consume we need money, Wages don’t fund this consumption so we accumulate debt through the complex and rigged credit market based on short term logic.
It’s going to require an event like Krakatoa to destabilize the status quo, my Krakatoa is for us to leave the EU.
Errrrr………..James S – one of the things that drives capitalism is also cheap money – or money shall we say that appears cheap at first but turns out to be more costly in the end. A common failing of modern capitalism and also a symptom of the retrenchment of money created by the State.
You are shall we say ‘over-focussing’ somewhat on one variable.
One thing, like oxygen in our bodies gives life to all its organs. So too does excess of labour to the mechanics of free markets. CHINA
Too simplistic, by far
It is simplistic because it is.
The Unite Union submissions to the enquiry into Sports Direct are indicative of the return to Victorian working conditions for a large swathe of the UK workforce.
http://parliamentlive.tv/Event/Index/a870989f-3119-4e2a-9ea7-e6ab094e77d1
All while we’re in the EU. Why an abundance of Labour trumps workers rights everytime.
According to Daniel Alpert in his book ‘The Age of Oversupply’ we are dealing with an excess of Labour and goods combined with market fundamentalism-a recipe for the madness unfolding.
You are right that the E.U as a protection of working rights is largely ‘historical’ and now merely ‘theoretical’. As I’ve said before, the E.U lives with the thundering connotative dissonance of Liberal intentions living with neo-liberal finance management economics -we know which tendency is winning.
Lie you, James, I thought an OUT vote would rattle the rafters and shift the deadlock but now I changed my mind to an ‘abstention’ as I fear the Gove/Johnson/Smith axis of populist charlatanism.
No James S – sorry – you over-simplify like the neo-liberals tend to once again.
The general mode of reduced wages is caused by capitalism – North American capitalism that has reduced wages in the States. The middle class is shrinking in the US – it has since the mid-late 70’s. The trend started there earlier than it did in the UK and EU.
The USA is not in the EU is it? Therefore one cannot say for sure that the wage deflation in the UK is due to the EU.
Rather it is worthwhile considering that what is actually happening is what Corbyn highlighted in his speech – that North American influenced BUSINESS PRACTICE is driving down wages supported by British Governments using their supposedly EU-reduced sovereignty (yeah right) NOT to regulate business practice and also NOT supporting the growth of trade unions which might mitigate these issues.
The trend in wage reduction is a problem of the mechanics of modern capitalism – not a problem of the EU treaty, the United States per se (although too many countries are failing to deal with this).
I also object to rather eristic statement above:
‘It is simplistic because it is’.
Such a statement in a blog of this calibre is simply not good enough.
If you accepted some of the basic tenets of philosophy you would realise that no matter if you vote to Remain or Leave there will be pluses and minuses in terms of consequences afterwards. It is a matter for the individual as to which set of consequences they find acceptable during the simple task of putting a tick or an ‘X’ on a piece of paper as they vote.
This is called complexity James and I suggest you learn to deal with it.
What I don’t understand us this. I believe that in my lifetime there has been a move from the world immediately post WW2 where people by and large saved up to buy things and saw credit as evil and something to be avoided except in the form of a mortgage to buy a place to live, to where we are now where you are effectively a mug if you do not max out on all available credit in all its forms. The latter stage has been encouraged by the ultra cheap credit available since 2008.
Now as I see it this is a one time only move and the funds spent from this transition from where people minimised credit to where they now maximise it.
This move has clearly funded people buying a lot of stuff which has been good for capitalism.
My question is what happens next?
Where will the funds come from to enable people to buy yet more stuff and keep the wheels of capitalism turning?
Richard Wolff describes the developments since 1976 (approx) as a ‘bankers heaven’:
1) Outsource Labour due to increased labour supply (women entering workforce +cheap external labour.
2) Keep wages stagnant so that capital keeps most of the profit.
3) ‘Supplement’ the stagnating wages with bank credit so that the party can continue
4) Flood the market with cheaper and less sustainable products.
5) Extract wealth from land and housing via mortgage lending and buy to let encouraging the use of housing as a pension scheme.
Result: banks do a killing whilst creating debt deflation that is kept going by more lending with the hope that it can continue indefinitely.
You just hit the nail on the head Gareth.
There is a fundamental flaw in the debt based economic growth system and we’re getting close to it reaching the point where something has to be changed in the relationship between labour and capital or else the system as we know it will fail completely.
As to what happens next and when, I’ll leave that to the futurologists and astrologers. But I am certain it is not a sustainable model, just as feudalism and slavery and mercantilism and imperialism and communism became unsustainable so at some time will this current form of private financial “crapitalism” in my view.
Keith
Thanks for your comments
What should have happened is that after 2008 those with debts should have ceased the moment, the lowest interest rates in history, to economise on their consumption and to repay their debts.
Instead of course, buoyed on buoyed on by the capitalist 24/7 advertising machine, that Sorrell typifies, to buy yet more stuff.
Crazy or crazy.
I would like think that it is possible for people to rediscover the old ways regarding the importance of savings, frugality and the avoidance or minimisation of debt. Then make the gradual and inevitable painful way back.
I am obviously a dreamer as I am sure that this is not possible.
As I have argued elsewhere, ironically what people need but do not want, is for interest rates to rise. When this happens asset prices will fall.
If I was a first time buyer, I would prefer to buy a house at say 7% interest for £30000, than as currently, the same house at 3% for £500000.
Am I alone in seeing this?
I see this
BUT banking would collapse again
So we need income but not asset inflation
That is possible
Gareth – I believe it is easier to change man made financial systems developed over a few centuries than it is to change human behaviour ingrained in our brains and bodies for millions of years.
Tackle the source of the problem, not the symptoms. It is not easy, but it is easier.
I would take a guess that 99.99+% of the human population have had no formal financial training. And yet they are being pumped up with debt by a 0.01% of the human population who know EXACTLY what they are doing.
I will equate it to the East India Company pumping the Chinese population with opium in the 1800’s, the tobacco industry pumping up the whole world with lung disease since the 1700’s, the oil industry pumping up the world with air pollution and CO2 since the 1900’s and now the banking industry pumping up the world with debt since the late 20th century.
The people behind these industries know EXACTLY what they are doing, they are preying on human addiction and desires and milking them for all they are worth, irrespective of any social or environmental consequence.
So my target is the 0.01% of people who drive these evil and iniquitous businesses, and the political and economic and financial machinery that allows them to prosper at others expense.
I have no issue with the 99.99% who may or may not yet have fallen for the traps they have been set. I want those traps removed, for the sake of my children and everyone else’s!
There is a lot of evidence to suggest that the growth of credit goes hand in hand with the decline of wages Matt.
As Richard Wolff put it – instead of companies paying their workers a decent wage, they paid them less and lent them interest bearing money through their banks instead. Modern capitalist nirvana!
The reduction in wages also reduces the likelihood of saving – something much more prevalent in the past too.
I read that in Germany – one of the biggest net savers as a country in the EU – if not the world – the Schroeder administration followed Thatcherism and negotiated lower pay rises with workers in the 1980’s.
One way of looking at the result of this was that the reduced amount of savings at its disposal as a result of this impeded the ability of Germany to contribute to helping out in the Eurozone after the 2008 crash.
Psr, the systems that operate capitalism are complex but they originate from basic principles. Many factors play a key role in driving down wages, and at the moment western government’s believe the market is everything and abstains from the other regulation is so clearly needs. If they carry on down this road it will destroy itself like a motor does without sufficient torque (torque being regulation)
Globalisation has happened because the market,that being big corporations and multinationals needs a constant supply of resources and with factors such as information technology and robotics it has had the tools to spread its ideology around the globe. My point has been that cheap Labour has and still is top of the tree in cost reduction and the market knows this, that’s where complex financial institutions play their game in keeping wages low in developed countries backed up by most major multinationals outsourcing labour to countries such as China and India, if cheap Labour was not an issue, why does business do this.
I don’t think there is an omnipresent conscience to neoliberalism, its self feeding. It was an idea to bring about prosperity and crush the ideology of communism. It has obviously strayed way beyond its initial concept, it will either die a slow death over time or explode in a world revolution
Sorry but that is just wrong
Read about the Motpnt Pelerin Society
This is a very deliberate construct
Open your eyes
There are, of course labour cost transmission mechanisms. It would be absurd to deny it
But to claim the principles on which capitalism is based are simple is wrong if you are referring to Econ 101. They’re not simple; they just do not hold true
James S
Look – I think that we are at crossed purposes here. And once again you seem to be being too reductionist in your approach.
I would advise you to deconstruct/reduce and then reassemble the complexity again so that you understand it more deeply. You simply do not pick one bit of an issue out and then focus on that – you need a holistic view.
Wage arbitrage is a market concept – it originates from the market – actors in that market such as businesses behave like this locally and globally under the guise of ‘competition’ – a most wasteful exercise.
The State did have a role in dealing with this such as making sure that public sector employees were not treated like this (as a means of supporting good wages in the economy) and bodies like the Low Pay Commission and others who would intervene and set a proper wage in the market.
Working in catering in the mid 1980’s for example I got a pay rise because of one of these interventions by a State body. I was earning £67 a week and then went up to £90+ as a result. We were also provided with free taxis home as well on late night shifts as part of our improved conditions of employment.
This body was then later scrapped by a Tory administration.
Could you imagine what happened to me in the 1980’s happening now?
BTW – before you mention the minimum wage – where I live (a more rural area) the minimum wage is not policed at all and many wages remain well below the minimum – especially for agricultural workers.
Any growth in wage reduction is because the State has become less proactive in protecting workers pay and conditions and it has also kept trade unions at arms length. Witness zero hours contracts.
This is because Government is now infiltrated with politicians who actually represent their former colleagues in banking, economics etc., and the lobbyists who out-number others in parliament. And those who also fund certain parties and want their pound of flesh.
My point? Government has not always agreed with low wage economies. Well organised neo-lib operators have now ensured that is does not intervene.
This can be changed and we can have a future government that we can believe in and tries to manage the country for the benefit of ALL is stakeholders – not a chosen few.
One day…………
Peak stuff is a good term, I’ve found myself in recent years more and more examining what I have and what I buy. I find myself making comparisons to when I grew up in the 60s/70s to now and what has actually improved. My conclusion, not a huge amount, and a heck of a lot of technological advances have hit the landfill in the intervening years.
Marx is mentioned a lot above but we rarely really think about the three basic pillars of labour/resource/capital. Labour is self explanatory, resource includes the means of production and both of these are real tangible things. A lack of either produces real tangible problems that need to be managed. Capital/money is the tool we invented to allow us to manage the tangible more effectively.
I can’t think of a better tool but that doesn’t mean it can’t be misused, including trying to treat the imaginary as tangible. Thus we end up with austerity and rampant rent seeking and privatisation. All thanks to a deficit of the imagination.
http://www.dissentmagazine.org/online_articles/left-case-brexit wrong article Simon. Read this one
I am by no means a supporter of most of what is said on here but I do agree with the fact that “the masses” (I couldn’t think of a better phrase”) spend cheap money all for immediate gratification without an understanding of the long term impact, e.g the fact it is not cheap! The best illustration I can give is bridging finance in property. There are numerous lenders (essentially loan sharks) who will lend money to someone to buy a property at what looks like okay rates considering the usual lender has numerous issues. Security is provided in multiple forms. Is the lender building his model around the interest rate of return? Absolutely not, instead they are waiting on the borrower to default so they can take the property purchased and any other security provided. There’s always a reason for cheap money (especially for those with bad credit) and it’s made too easy for people to borrow blinkered by the short term gratification.
I would say one thing. To use my phrase again the masses need to stop being so stupid. If you don’t have the money don’t buy it! Yes I know there is media pressure/social pressure but surely even the village idiot can understand if you don’t have the money you shouldn’t buy it.
You have fallen victim in my view to simple minded thinking yourself if you believe it is the fault of the foolish consumer to accept what is being constantly advertised, promoted, pushed and rammed down their throats by a rapacious machine of stuff/debt marketing. You need to go and study human psychology and the predatory system of selling to fulfill unnecessary desires.
Oh the humanity, if only so many people weren’t so stupid…or is that thankfully so many people are stupid? Otherwise there’s no way the system could produce such winners and losers. Thank goodness there’s such a surfeit of ‘common sense’ that allows the blame to be firmly placed where it belongs on the victims.
Gramsci – my man of the moment – had this to say about common sense:
“Common sense is a chaotic aggregate of disparate conceptions, and one can find there anything that one like.”
― Antonio Gramsci, Selections from the Prison Notebooks
I’m such Lynton Crosby knows this only too well.
Mark Greaves: how does the fact that housing repossessions being down dramatically year on year (down 26% last year) equate with your view of lender’s preying on borrowers?
They have finally cleared out the 2008 residue?
Can I just say that since 2008 the BoE has widely praised the banking sector for being more lenient and prepared to work harder – be more patient – with those who have defaulted on their mortgages since that time (the word used by the BoE to describe this was ‘forebearence’).
If you consider what happened in previous crashes where the interest rates went up and repossessions shot up too and how some banks became estate agents in order to sell off repossessed properties – it is obvious that some sort of deal has been struck between the banking sector and the government of the day post 2008 (the BoE is still an instrument of Government after all).
One of the reasons why I think the Major government lost to New Labour was because of the repossession boom in the 90’s which was quite serious. So a way of nullifying the political consequences of mortgage arrears in economic crises seems to have been reached.
Richard, not only do I not think the 2008 residue has been cleared but I think the dot.com crash has never fully unravelled.
Pilgrim Slight Return may believe that they have discovered forbearance whereas I think it’s merely a side effect of kicking the can down the road. It’s not good enough just to recognise failings around neo liberalism. Unless active steps are taken to reverse things then it’s just a kid with his finger in the dyke and an ever mounting pressure.
PSR and Keith Fletcher understand the manipulative psychology behind the divide and conquer erosion of neo liberal ideology. Wage slavery has made a big comeback.
Banks are reluctant to foreclose as that would require recognising losses
Leaving the underpaying customer in place avoids that
That is another reason for holding back
There is an interesting moral hazard situation for the banks and other lenders who knowingly pumped up house prices and consumption by relaxing lending criteria and going on a feeding frenzy. I would like to see their right to foreclosure and bankruptcy challenged in court or parliament under such circumstances where it could well be argued that as financial experts they were the primary cause of the problem not the inexperienced borrowers.
I think you will find that banks provide for losses on non-performing loans (which are the ones where repossession is in point). Therefore, avoiding the recognition of losses is not a reason to hold back as they already have recognised (estimated) them.
No they do not
I am right
How do you know you are right? I worked in the finance department of a high street bank for 6 years and was heavily involved in the quantification of their bad debt provisioning and the methodology used. I would guess my experience trumps yours.
Accounting does not allow for provisions until realised
Those are the pay 2005 rules
They have a lot to answer for
Which has been corrected by IFRS 9
It is now being corrected
We are talking past tense on bank action
Correct. So there’s no benefit in the banks holding off so deferred recognition of losses does not explain the dramatic reduction in repossessions.
There was
http://morningstaronline.co.uk/a-155b-THE-EU-ANTI-SOCIALIST-AND-ANTI-DEMOCRATIC#.V1evaZYVHIU another great article. Amazes me Richard wants to remain
It is all too easy to blame stupid and uniformed consumers for buying stuff they don’t really need. More attention should be given to the role of the marketing industry in all of this. It is joined at the hip to the neo-liberal agenda. It’s a highly developed, scientific and sophisticated industry. Global market research revenues, alone, are worth around $45 billion. PR approx. $14 billion. And the world-wide advertising spend is estimated to be in excess of $600 billion ($25 billion in the UK). These are no small potatoes. Corporations don’t spend this kind of money on something that doesn’t generate the results they seek. Consumers have no concept as to how their everyday purchasing patterns are influenced. It’s simply brainwashing on an industrial scale. For anyone living in an urban environment there is no escape. Putting the genie back in the bottle is probably impossible. In the meantime, Sir Martin Sorrell is set to trouser one of the biggest pay cheques in UK corporate history – a £70.4m cash and shares package for 2015 as the “result of an outstanding set of returns to share owners”. Food for thought?
I address this in The Courageous State
Oops. ‘Uninformed’ not ‘uniformed’!