The failure of a second state bail-out to resuscitate the corpse of British banking, as Lib Dem spokesman Vince Cable so eloquently put it, is a dramatic indication that the entire financial system is close to the precipice. With this looms the increasing possibility of state bankruptcy and an end to what now passes for conventional politics.
An authoritarian national government of the major parties is an outcome that cannot be easily ruled out. Such a regime could use existing draconian powers to suppress dissent alongside the declaration of a state of emergency. It would have to rely heavily on the police and the army to maintain order.
Those of you who think this is simply a fantasy projection of someone who has read too many political thrillers have to answer the following questions: What happens when the state is unable to influence economic and financial events to the extent it can’t prevent the collapse of the banks, even by writing them a blank cheque? What are the consequences if Britain becomes “Iceland-on Thames”, needing a loan from the International Monetary Fund, or goes bankrupt, as economist and writer Will Hutton and others are now suggesting?
What will be the impact on social order if millions are thrown out of work overnight? And what are the implications of an unstoppable run on the pound, which gathered pace today, with Jim Rogers, the co-founder of Quantum fund with George Soros, telling Bloomberg News that “I would urge you to sell any sterling you might have”?
The fact is that we have entered a period of the unknown in British and world politics, where conventional or even unconventional policies cannot alter the course of the recession, which is now rapidly turning into a slump. Who could have predicted that the Royal Bank of Scotland’s shares would fall by 65% in one day to 12p each and that its losses for 2008 would total £28 billion? Or that banks which financed loans to British consumers and companies by borrowing on global markets would no longer be able to do so?
As Anthony Hilton, leading financial commentator for the London Evening Standard, put it: “The fall from grace not just of the banking system but the global economy is unprecedented in its suddenness, its pace and the extent of the decline. There is no bottom in sight yet. In this regard, today's developments, momentous though they are, will not change much. To avoid economic disaster you need solvent banks. But on its own, those are not enough. You also need confidence.”
Government ministers may rage at the banks for their reckless behaviour but the long and the short of it is that the expansion of the financial system ran alongside the rapid growth of the global economy, where consumers had access to buy goods they could barely otherwise afford. At the same time, the financial sector carried the economy – while producers of commodities struggled to make a profit – rewarding shareholders and providing employment for millions.
New Labour cheered at every increase in house prices and consumer spending, claiming that capitalism had entered a new golden age. Well, it turned out to be a new iron age. Cheap and easy credit vanished and that exposed almost immediately the unsustainable nature of corporate-driven globalsation and the capitalist economic model.
Now ordinary are people paying the price, whether they are taxpayers, workers facing the dole, people losing their homes, the retired dependent on interest from savings or pensions, or the school and university leavers without a future at all. The government has given the Bank of England permission to start printing money, the so-called nuclear option, in an attempt to get people spending and revive the economy. When that desperate last throw of the dice fails, as it surely will, the political and economic crisis will merge into one with all that implies.
AWTW communications editor
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