B*llsh*t Debt Statistics

In a pub a couple of weeks ago I tried to explain a crazy fact about the UK's level of national debt to a friend. According to infamous leftie historian Niall Ferguson Britain's most worrying time of national debt wasn't now, or in the 70s, or even after either of the two world wars. The worst level of UK debt as a % of GDP was 200 years ago.


First Graph - what we normally see when the subject of debt is discussed in the media - note the scary graph starts at 2008 

Second Graph - those same figures - debt as a % of GDP shown historically before 2008

Third Graph, for US readers showing what your level of terrifying debt (default! default!)  looks like compared to the record of the UK. Note that AFTER that high peak of debt the UK became the sole world superpower. So much for national decline based on debt eh?

STARVE THE BEAST; Ayn Rand for Europeans

The US credit downgrade was no accident. To understand why the American Right brought the world to the brink of financial collapse by threatening to veto the US budget extension you need to know what their real intentions are, ("the most pernicious fiscal doctrine in history”) and why they they think corporate anarchy should replace elected government.


“This is a manufactured crisis”
Too true. Congresswoman Michelle Bachmann was quite right. The trigger for the U.S. debt rating downgrade, and the disaster we stared at from the largest economy on Earth defaulting, was an entirely self-inflicted wound. But Mrs Bachman’s statement was not just stating the obvious. She was trying to convince the American voter that a budget default could only be good for the U.S. Why would a serving U.S congresswomen and Presidential candidate suggest that?

To understand this you should be aware of political strategy of the far right called Starve The Beast
<http://en.wikipedia.org/wiki/Starve_the_beast>

To quote the Wikipedia link above, 

"*Starving the beast*" is a fiscal-political strategy of some American conservatives to cut taxes, depriving the government of revenue that enables spending on social programs …in an effort to create a fiscal budget crisis that would then force the federal government to reduce spending.”

Economist Paul Krugman: "Rather than proposing unpopular spending cuts,
Republicans would push through popular tax cuts, with the deliberate
intention of worsening the government’s fiscal position. Spending cuts could
then be sold as a necessity rather than a choice, the only way to eliminate
an unsustainable budget deficit."

Sarah Palin is hardly even coy about this  “[Congress], starve the beast,
don't perpetuate the problem, don't fund the largesse, we need to cut
taxes."

If you are anything like me (a naive idealistic European), you will be astounded at the cynicism of this. We might be aware of the naked political cynicism of Soviet Communism or Nazism but the perpetrators in those cases were brutalised gangsters or embittered World War 1 veterans. Not Christians. And many of the American far right claim to be exactly that. What defines the conscience of a devout Christian who is prepared to inflict widespread economic misery across his own nation for political gain?

George Monbiot thinks they are hypnotised by Fox news. It is much deeper than that. To accept what comes from Fox, and to perpetrate what is political cynicism of the highest order, you need to have already accepted a whole new morality based on 'freedom' as 'the law of the jungle'.

Adherents to this new freedom are people living in a moral mirror universe, role-playing that beard heavy episode of Star Trek without any hint of irony. They can bring the world to its knees over a budget crisis but will not pay any tax themselves. They can cry foul at the excesses of Greeks and then perpetuate endemic tax evasion through their own political system (40% of the U.S. budget deficit is Bush tax cuts for the top 1% of Americans. It is growing all the time and fiscal suicide.)

Once labelled a grass roots organisation, in reality, the Tea Party is as much a grass roots movement as the tobacco industry and the Oil Lobby. It has now been revealed a Republican front organisation, each political alter ego of the other. Sharp dressed responsible businessman by day, white hooded pyromaniac by night. If ‘psychopath’ sounds harsh consider the definition “ characterized by a tendency to commit antisocial and sometimes violent acts and a failure to feel guilt for such acts”. And then apply it to recent political acts by the U.S. Republican party.

Those doubters who are unaware of the depths of Republican thinking might
need to read the around The Southern Strategy<http://en.wikipedia.org/wiki/Southern_strategy>, for 40 years dismissed as left wing conspiracy theory, now accepted as truth.

‘The Tea Party’ is a dumbed down political off shoot of Republican Supply Side economics (and ultimately Starve the Beast) in the same way that Nazism was an off shoot of Eugenics. Supply Side (or Trickle down) economics, has all the real world practical advantage for the overall economy and the average person as the English National Opera. Even No.1 Ayn Rand fan Alan Greenspan should be thankful that devotees like Reagan, Thatcher and their heirs were too corrupt or incompetent to completely usher in the ‘share owning democracy’, as the stock market cataclysms since 2008 would have left the world population actually destitute instead of theoretically destitute.

And the less said about their business/service industry vs. manufacturing policy the better. How many times have you watched that Knight of the Chipping Norton Set, Jeremy Clarkson opine about the lack of British industry without bothering with the slightest mention of where it went to? In retrospect destroying our own manufacturing base looks uncomfortably similar to the self destruct button being pushed on our economies.

The ideas behind all this, and their moral base, have become all the more pervasive since the 1980s. The political and economic ideas which were once just ruthless self-interested greed among the haves have become a mean meme running the through the meanest of the have-nots as well.

Starve The Beast, has been a virus handed out in blankets in the corporate breaks between the commercial breaks on Fox News. But economics alone does not climb into peoples hearts and make them this mean.

For that, you need ideas powerful enough to subvert the basic human behaviour (call it Christian morality if you like) given at all, to allow normal people to coexist happily in society without resorting to shooting sprees. To make the morality of the Tea Party Republicanism and policies such as Starve the Beast and the Southern Strategy make any kind of sense you need to understand their cult hero, Ayn Rand.

Ayn Rand is to these people what Wagner was to the Nazis. She would be its heart and soul if they actually still possessed anything in that cavity except for blackened lemons full of spite and negativity. (How do such creatures pro-create? They stare into each other’s eyes and marvel at their mutual self-interest?). Readers in the U.K. may well be unaware of Ayn Rand, a Russian Kulak émigré from Stalin to Hollywood whose two cult novels, Atlas Shrugged and The Fountainhead, defined her philosphy of extreme selfishness, Objectivism.

Atlas Shrugged is the most nakedly political of the two, a science fiction parable in which the talented elite (say, the Chipping Norton Set) "down tools" to re-take the world from the shiftless parasites (you and me).

The real meat though, a brilliant piece of moral subversion, is The Fountainhead. On the surface a Dallas-like saga of feuding architects determined to bring modernism (Art Deco) to the skyline of New York, it is thrillingly bad in four dimensions, like reading a novel written by a J.G. Ballard character, or putting on a great suit once own by Oswald Mosley. It is a novel so intoxicated with its own personal integrity it seems unaware it is flirting with extreme politics like Eva Braun after a bottle of Black Tower.

The Fountainhead is full of fetishistic moral inversion and dark obsessions that have been running through U.S. society for decades. The hero, an almost farcically principled artist, martyrs himself by blowing up a building he doesn't like. He counts among his friends a tabloid press baron, a young protégé convicted of attempted assassination, a love interest that seems to invite consensual rape shortly after they meet, and most chilling of all, the villain, Toohey, a cartoon Liberal manipulator, who uses morals and charity as a tool only to place others in his debt and advance himself.

Toohey is a Bond villain whose tool for world domination, his orbital space laser, is a social conscience.

If I described a flashback from The Fountainhead in which Toohey thwarts and exposes the school bully just to advance himself, and the sympathy of the writer is most definitely with the bully, you would struggle to believe me, but it is there. As seen by Rand the school bully is a free spirit, oblivious to the constraints around him. (Chapter VIII)


Rand is not only a cult hero to the Tea Party Republicans she is the idol of the economists that have shaped our world since the 1980s, and is now regularly featured in U.S. schools forced to ‘balance’ the liberal leanings of their other literature. The fact that Rand ended her days living off the state under an assumed name has been quietly forgotten. Vice Presidential nominee and new face of the Republican Party, Paul Ryan, is in record as being a disciple of Rand. “There is no better place to find the moral case for capitalism and individualism," Ryan told The Atlas Society in 2005, "than through Ayn Rand’s writings and works."

Rand has ushered in a mirror moral universe, where the' freedom' of press Barons in the Chipping Norton set to run tabloid surveillance amounts to a corporate totalitarian state for the rest of us. Here is a headline from the tabloid newspaper in The Fountainhead. Compare with the level of press morality seen by some of Fox News’s paper stablemates at News International.

 *“Hell is said to be paved with good intentions” said The Banner “Could it be we’ve never learnt to distinguish what constitutes the good? Is it not time to learn? Never have there been so many good intentions proclaimed in the world. And look at it”* (from XIII)

Ayn Rand herself was fiercely anti-religious, a fact conveniently forgotten by most of her followers, who seem unaware that her message of extreme self is not unlike that of a near contemporary.

"Do What Thou Wilt Shall Be The Whole Of The Law".

That the political and economic message of the Tea Party seems closer to the ideas of Aleister Crowley than anything in the Bible has to be an irony that will keep amused whatever replaces us on the surface of this planet. Perhaps the human race is lucky to have got this far. With Tea Party levels of social co-operative behaviour 50,000 years ago the human race would never have made it out of the caves, in fact we would probably have sold each other out
to the Neanderthals.

With the Tea Party, the Republicans and the Party Whose Job It Is To Fail (the Democrats) pushing the U.S. face first into an extreme experiment with gangster economics and plutocracy, it all seems very dark. There is only one horrible blood red light on the horizon. What was that quote about capitalism and rope?

"The Capitalists will sell us the rope with which we will hang them."

Are we sure Lenin never worked as a Republican strategist?

TIME TO MAKE THE BANKERS PAY BY DEFAULT

Bankers didn't pay the first time. We need to make sure they pay this time round

For all the talk we've had about making the bankers pay for the first bailout, now we are looking at a second bailout resulting from the lending to southern European economies. Once again public money has to be used to stop a toxic debt problem, this time it is to prevent a default on Greek national debt.

The world economy has been described with a variety of cultural models since 2008, allow me to suggest another.

The world economy now is much like you feel when you have come back from drinking lousy beer all night in a really rough bar.  You stagger homewards knowing you need to eat something to soak up the alcohol and only make yourself worse by speed eating a curry on the way back. Sitting on the sofa at home with a stomach in violent revolt you know you want to go to bed,  but also that to crash out having failed to digest this boiling mess there is a high likelihood you will wake up vomiting during the night. You could even choke to death on it.

You know, from everything your body is telling you, that you have to throw this up, get it out of the system, and then you'll feel a whole lot better.That toxic stuff inside you may have cost a fortune but really it is doing you no good. If it comes out while were asleep and unprepared it will be
horrible, or you can march yourself to the toilet, slide two fingers past our stiff upper lip (or similar national equivalent), down our throats and after some extreme unpleasantness deposit this toxic stuff where it belongs before flushing with divine relief .

This is the dilemma we have now. The world financial system, for the most part the same generation of bozos that either profited from or completely failed to predict the crisis, suggest that we just have another drink of something and go to bed. Don't worry about those credit default swaps backing up into your throat (again), lie back and close your eyes...

The latest bout of financial sickness is an inedible Greek meal.

There is a general assumption that a Greek default on it's national debt it will usher in another incarnation of the Great Depression, but nations defaulting upon their sovereign debt is not exactly rare.

National, or sovereign, defaults were a regular occurrence leading up to World War II. Amazing as it may seem from their recent posturing, Germany and France have both defaulted eight times on their national debt during their history. England defaulted pre-Bank of England.. Even communist states in Europe have gone that way; Poland and Romania (twice) defaulted in the
1980s.

It is not an old world problem. Latin America was unable to pay its debts in the 80s and in 1994 Mexico massive national debt caused an emergencydevaluation of the peso that could be seen as a default. Even the US has flirted with it. In 1933 and 1971 the US manipulated the price of gold creating what many consider to be de facto national bankruptcy. More recently Argentina and Russia have walked away from national debt.

It is the southern Europeans who lead the way. Spain has defaulted on its budget 13 times in its national history.

Greece has defaulted or rescheduled its debt five times since gaining independence in 1829. Greece can be considered a serial defaulter, having spent roughly half of the years since its independence in default or debt rescheduling.

We could take a tour around Mediterranean Europe and look bitterly at the borrowed money spent on empty highways, stylish suburbs and museums while our neighborhoods in the north are filthy and run down, but eventually you thoughts turn to the bankers who were stupid enough to lend the money to economies that have such a reputation for almost perpetual default.

If Spain has defaulted 14 times in its history how sympathetic should we be to the bankers who invested there?

Now we know that Greek debt is something like 160% of it's actual ability to pay is and still is unable to collect the majority of it's taxes how much should we defend the expert financial opinion that enabled them into this mess in this first place?

Greece has such fundamental problems with budget that perpetuating their problems with further bailouts only makes things worse. The Greek protestors screaming fascists and imperialists at the EU budget firefighters are not too far from a particular truth; that for the EU to truly fix Greece's domestic problems would require impossible levels of foreign intervention.
Greece needs some tough love, but not abuse.

A Polish person will tell you his country was sold out by the Western allies at the end of World War II when Churchill and FDR handed his country to Stalin on a plate. In fact Churchill was forced to do a deal. Stalin was offered influence in Poland in return for similar British control of events in... Greece. That's right, the country in Europe that has done the most discredit to capitalist finances only avoided full blown soviet communism because Poland was offered up in its place. (Doubly ironic as six months of soviet economics would do probably do Greek public debate a power of good)

I am not suggesting default on public debt as a universal solution.

US default is not required. We know from history that when responsible Democratic administration is able to fix the fiscal damage created by the last Republican round of tax cuts the US economy rebounds like Thor on Asgardian mead.

(Who was last Republican President to balance the US budget? Dwight Eisenhower. The Republican Party is to fiscal responsibility what Michael Bay is to Oscar Wilde.)

With responsible leadership US budget deficits can disappear with supernatural speed. In the late 80s I was in a student Union bar discussing the terrifying US budget deficit in a scene that could have looked a lot like the contemporary UK sitcom The Young Ones (I would have been Vivian or Rik depending on mood). Opinion was that the US was finished and would never come back from paying for Star Wars (the weapons program - for younger readers)

After just four years of Bill Clinton that apocalyptic budget deficit had turned into a surplus.

The US economy is a force of nature and will rebound in some form. The UK economy may also but I wouldn't want to bet my house on it. (I've just remembered. I have literally bet my house on it with a mortgage. Oh well)

Unless it became an option in some future crisis I am only referring to a budget default in states which already have a long history of experience in that area.

We are being told by the current generation of financial experts that Greece, 1% of the EU economy, is somehow vital to the world economic system, apparently because of the continuing toxic mess of interconnected collateralized debt obligations and credit default swaps in the system. Yes there they are again, those crooked financial instruments rising up to the back of our throats. This time, I would suggest, it is time the bankers put their heads down the toilet.

The worst scenario is that there will be a chain of defaults - Spain, Portugal, Ireland, Italy and the whole banking system will go. Financial investors suggest life in these countries will be the Big Rock Candy Mountain when they run away laughing from their debts, but default will be painful enough. It wont be an escape from their problems, it could involve economic collapse and mass unemployment, but it would give them hope for the immediate future instead of the same dragged out over 25 years in the form of economic austerity imposed from outside.

Greece and the other defaulting nations would certainly suffer for a while. There certainly would be none of the moral hazard that the financial wizards have managed to create for themselves in our banking systems by ensuring any mistakes they make henceforth are covered by public money.

We are told national defaults would provoke a banking collapse, but the evidence since 2008 suggests that this probably happened some time ago and those economists who didn’t run away from the problem have spent the time since covering it up. We swallowed the collateralised debt problem but cannot digest it. We may already face a world were the political fallout from mass austerity imposed by our financial experts could be considerable worse than the economic fallout. How bad could that be? Read some European history before the EU. I'll give you a clue - we pretty much invented ‘war’

In effect a ten year economic disaster is being turned into a 25 year economic disaster to protect the careers of financiers who caused the problem in the first place. After three years and one huge bailout already, their time for sacrifice has arrived.

One of the main scare tactics given to us on national defaults is that "our pensions will be worthless" How do you think your pensions currency will be worth after 25 years of currency collapse and hyper inflation? Can you even afford to pay into your pension right now?

The story of the last big default in Argentina, tells us a lot. When Argentina defaulted in the 1890’s it was the bank Baring Brothers that took the pain, and was bailed eventually by fellow bank run by the Rothschild family.

A century later and in 2001 at the next Argentinean default (post 1980s economics) the banks had somehow hid in the background behind the IMF. The International Monetary Fund bailed Argentina twice in January and May 2001 but when Argentina asked a third time in December the IMF said ‘no thanks’.

Economist Niall Ferguson explained what happened next in The Ascent of Money;

“After painfully protracted negotiations ...the majority of approximately 500,000 creditors agreed to accept new bonds worth 35 cents on the dollar, one of the most drastic ‘haircuts’ in the history of the bond market. So successful did Argentina’s default prove (economic growth has surged while bond spreads are back in the 300-400 point range) that many economists were left to ponder why any sovereign debtor ever honors its commitment to foreign bondholders”

It is accepted now that the Argentine default was a good thing and that the banks and speculators (eventually) took the hiding that they deserved, and that foreign investors have been subject to such losses for nearly the entire of financial history. To do assume otherwise would introduce the exactly same moral hazards we introduced to our banking systems by the first bailout. Or are we to say from now on that (like the banking system) foreign investors in whatever dodgy foreign state are protected from loss by their tax payers at home?

This is only the start however. Once the financial gamblers have paid up for their mistakes and we have flushed the system of their toxic crap, we need to organise a world afterwards in which people actually pay their taxes.

Is it surprising that nations are defaulting on debt when the entire top strata of business and society has lifted itself into a non- taxing paying super elite? We can all get angry at the Olympic levels of tax avoidance in Greece but perhaps we should look again from their perspective. Only 400 people pay the top rate of tax in Greece. If the wealthiest in society can find it so easy to ignore the Greek tax system why should the middle class pick up the bill?

The Bush tax cuts are the most obvious example of this (40% at least of the US budget deficit) but this is an international issue going back to the 1980s and the same politics which de-regulated the financial system and laid the foundation for the crash of 2008. How much more discredited do the economics of the 80s need to be?

Avoiding national defaults is almost an endorsement of the new financial world where the (responsible) middle class pays to support society and indirectly protect the rich from the wrath of the poor.

I'm a proud to pay UK tax at a rate my parents could not dream of. My proudest moment as a UK tax payer was when Top Gear used BBC license tax money to turn a Robin Reliant into a space shuttle. I have never felt more like standing to attention and singing the national anthem.

Going forward, after these inevitable budget defaults, we have to be proud of our societies to make them work. There is a sliver of difference between a carefree rebel living on the wild side of legal and a deadbeat parasite living off the backs of his neighbors. Fair contributions will have to include the rich and the financial world, unless they want to ensure national budget defaults are a regular, instead of infrequent, feature of economics in future.

To avoid all of this pain and unwanted attention the rich and the financial elites will do what they’ve been doing for years, gnash their teeth and point at the financial irresponsibility of others. “How can we let the lazy Greeks/Spanish get away with reneging in their debts etc etc” We all need to get over that, and the collective blame for the last decade in general.

We need clear heads to face tomorrow, so instead of wailing a song of sorrow on the bathroom floor let me suggest a coping strategy for this crisis, oddly enough inspired by ancient Greek perceptions of time.

Though we regard ourselves as striding forward into the future with the past behind us, the ancient Greeks thought of us as walking backwards into the future, with only the past visible as we leave it behind. As a variation on that I have a mental exercise that I try on drunken depressed friends I call Retrospective Fatalism.

In Retrospective Fatalism everything you did wrong in the past was always going to happen that way. Fate. Or God. Circumstance or human behavior, whatever, there never was any way to escape that mistake you made. It was always going t happen; so get over it.

Your future - now that's different. "Nothing is written" said Peter O’Toole in Lawrence of Arabia, and that has to be true. Mistakes you make in the future are completely your responsibility, particularly if they are repeats of stupid behavior you made in the past. But as they become the past... It wasn't your fault. So stop wining and get on.

You can debate until the end of your life how actually true this is.. Whether Greece should have been kept out of the EU with it's dodgy practices etc.. Whether I should have got that mortgage at the height of the housing market ...But the truth is that it has happened and the only really sensible solution is to accept the problem, move on. And make sure it doesn't happen again.

So we accept the lessons of history without blame, let them default and suffer the consequences. We're not staring into the abyss, we are staring into the toilet bowl, and with a bit of courage and determination we can flush away the past. We will all feel so much better in the morning, so let's wipe away yesterday and live our lives in the future.