Mervyn King said yesterday the UK was facing the biggest crisis since the 1930s, if not ever.
This morning twelve UK based banks had their credit downgraded by up to 5 notches - which is a seismic shift for some of them. Laughably the BBC, ITV and even Guardian, clearly acting on instruction to prevent a bank run developing said this was no indication of there being any problems in the banks in question or in the UK economy. The right wing blogosphere duly agreed.
I utterly disagree: this was clear indication that rating agencies think these banks can fail and if they do they won't be bailed out. For those thinking they're safe because their deposits will be covered by the government - think again. There is no way on earth the government can cover this risk without printing massive sums of money. A seismic reappraisal of the value of cash would at the very least result. The risk warning has been issued.
And tonight Spain and Italy have had their ratings downgraded - which the same journalists who were saying such things did not matter domestically are say matters in these cases. A little integrity and consistency would help.
Oh, and the stock market went up because those with wealth think they are going to be bailed out by governments, again.
Let's state what this means, very clearly. The second global financial crisis in three years is underway. This is #gfc2 as twitter has it.
This crisis is bigger than the nineteen thirties: there is further to fall financially and contagion can spread quicker. The safety nets are in some ways thinner as the expectation of support is higher, the durability to stress if that fails substantially weaker. And I suspect there is little King can do about this. The failure of Osborne for more than a year; the pernicious impact he has had on Europe in persuading inactivity that has destroyed the prospect of recovery and created the current malaise and his intellectual inability to realise that intervention is needed all leave us beyond hope of current recovery.
And that leaves us in a position where incrementalism may no longer be a viable solution to what is happening around us. The risk that money might collapse is now real; the stress that might create unimaginable.
The chance that we will need new currencies urgently in Europe is high. The prospect that significant and rapid revaluation of cash even in the UK is distinct if the capacity to repay debt does not exist: the elimination of that debt requires acts of extraordinary courage and foresight. That's not to say they aren't possible. It's just to say that the people to deliver them are not at the table right now.
We will need states to take coordinated control of banks.
We will need a new Bretton Woods.
We will need gloval reckoning of debt cancellation - but with it the creation of new liquidity that allows normal discourse to continue.
We will need measures to constrain interest. Measures to contrl inflation - which is a real risk with major currency realignmnet - have to be taken. Deflation risk also has to be addressed.
Legal implcations regarding debt settlement have potnetial enormous capacity to creat disruption over coming months.
The need to control order and prevent chaos if any risk of a run on a bank emerges has to be addressed. I remain forthright in the view that much cash will have to be printed - even if all recalled in a year or two before it can cause harm and a massive shadown economy.
Existing structures and structural constraints are going to fail - they were not designed for this scenario. Vince Cable said recently this may be like war: assume it is. Rationing may well be required of some goods. Food on tables is a massive priority right now.
Is all this melodramatic? No, it's realistic. Mervyn King understated what we're heading for.
I genuinely believe what is coming can be managed. I believe the right decisions can be made. Will the people of the courage to make them step forward and be chosen for the job when few are in the ranks of those who got us into this mess? I do not know. I just hope so. A great deal hangs on it.
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:
Osborne is incapable of possessing the “intellectual inability to realise that intervention is needed” because he’s a Tory. Its nothing to do with a deficit of intellect. He doesn’t adhere to the ideal that the state should intervene in the market. His neoliberal morality holds that the market is perfect and those who can’t prosper by it deserve to starve in poverty. That’s why we call them the Nasty Party.
Unfortunately voters have short memories, the Tories have deep, deep pockets and the mainstream media have a business model based on pseudo-analysis and commentary.
I respect your words and heed them well Mr. Murphy but, in reality, what can someone do who has a little money in a bank account?
Just idly sit by while the whole thing crumbles around us?
For the retired people of this land who live off their savings, what can they do to protect themselves?
Speaking through open memos to Mervyn King does them no good.
As usual it’s the people in the middle who will suffer.
So, what to do Mr. Murphy?
I readily admit that beyond putting in some sensible reserves of food in case of chaos there is remarkably little any individual can do
I admit my target is mainly the journalist and politician reader of this blog
What to do?
Take a tip from the professionals, Gain control of other peoples assets through fear based deception, sell them off to your accomplices and then rent them back to the original owners.
Easier said than done at the individual level, but no great problem at the national level.
What was surprising about the round of interviews with MK was how little attention was paid to earlier failed rounds of QE and why this further round was now the answer. While QE was citied as a source of UK inflation, no one mentioned the BoE’s very recent reliance on rising import price as the excuse for ignoring rising inflation. No one seemed bothered to suggest that BoE and Mk haven’t a clue; presumably because this is a prospect is too horrible to contemplate. The BoE’s apparently random interventions, the lack of connectivity with central fiscal policy and spending, all suggest policy makers don’t understand the nature and scale of the problem let alone have a solution.
Oh….I think they do realise the scale of the problem.
Admitting that they do [realise] is another thing.
Central fiscal policy is to lower state spending, giving money to the banks is not seen as wasted. Benefits are [including the state pension].
Mind you, a return to a cash economy would certainly lead to a few bankers having sphincter control problems.
It was suggested to me [this morning] that a return to the barter system seemed to be underway……………………….and that getting window cleaners in a recession was easy, if cash was used.
Hmmmm….