31 July, 2013

Is it time to withdraw our Bank Savings Deposits?

Given that banks can create money out of nothing through their unique ability to create credit and that our savings deposits are treated as unsecured loans to banks that they can do with as they please without our prior consent or redress in the event of either investment or bank failure, it seems to me that this rather one sided and increasingly risky relationship needs to be shaken up and reformed back in favour of the depositor.
Given also that funds on deposit are earning derisory rates of return that have no relationship to the risk attached to investments made by banks using these deposits or indeed the continuing viability of the bank itself, wouldn’t it be more sensible to withdraw our bank deposits altogether for our own safekeeping or investment elsewhere?
If we did this altogether, it would undoubtedly cause a bank run which would be catastrophic for the industry with painful social consequences but in the end this may be the only way we can get out of the financial mess we are in and start all over again with a clean slate by letting our banks go bankrupt just as Iceland did.
The alternative would be if this could be achieved in stages over the short term which would perhaps wake government up to the very real concerns of savers and persuade government to break up the banks into more competitive smaller retail and separate investment banks subject to market forces and thus not too big to fail.  This would require a much deeper and more thorough reform of the banking system than is currently being proposed by our government to prevent banks milking the system and forming cartels which make them too big to fail leaving tax payers exposed to picking up the bill, thereby circumventing free market forces which, under normal circumstances, would lead to the banks going bankrupt.
I have been pondering this and what the alternatives are for some time now.  I expect that many of you have been too.
Clearly the financial security or solvency of many of our banks is still very much in question as recent events in Cyprus and around the Euro Zone have also revealed.
Given the degree of bank loan / investment inter-dependence that currently exists within the international banking system and that the anticipated collapse of the euro will equally affect UK banks that have loaned vast sums into the euro-zone, there is a very real risk of the whole international banking system collapsing like a pack of cards.
The only bargaining chip that savers have if their governments fail to look after their long term interests is to withdraw their funds on deposit.  Keeping in mind that most savers are either approaching retirement or have retired and that longer living pensioners that have savings represent a growing proportion of the population, that bargaining chip can only carry more weight as our population ages.
Moreover, how can our working population become incentivised to save funds for retirement, especially while in debt or, the burgeoning “baby boomer” segment of the population approaching or already in retirement, finance their retirement if they continue to receive derisory deposit rates?
The conventional answer from financial advisors is to maintain variable investment mix plans including equities or bonds managed by fund managers that they channel funds to.  However, after taking into account financial service commissions, charges, consulting and management fees over the life of an investment prior to retirement it often comes as a shock to discover too late that the net returns over the investment period are all too often insufficient to finance comfortable retirement, especially after also taking into account the effects of inflation on the costs of living during retirement.
This is why most Defined Contribution Pension plans are inadequate because of their unpredictable outcomes dependent on the state of the economy and financial markets over the investment period and at the time an annuity income has to be triggered.  Currently, annuity income rates are the lowest they have ever been and the long term economic outlook is decidedly grim.  Moreover, job security to pay into these plans is being rapidly eroded by the current economic malaise and government austerity programmes leading to the prospect of significantly greater part-time and under-employment in both the private and public sectors.
Defined Benefit Pension plans, particularly inflation indexed pension plans, are a much better option for employees but many firms, institutions and even governments can no longer afford these and they are being capped or closed down at an alarming rate because of the very real threat of plan holders being made bankrupt by unsustainable pension obligations for longer living pensioners.  This is indicative of a general lack of confidence by our financial institutions in their prospects for long term economic growth and explains their focus on short term gains.
Confidence in the financial sector is at an all-time low and only a very few people really understand the investment markets in any meaningful way anymore because of growing extremely complex computerised electronic trading which masks what is really going on with vast and increasingly high frequency transactions that very few individuals and practically no institutions can intelligently follow in real-time.  Consequently, the financial regulators that are supposed to be protecting us from financial collapse are always playing catch-up and didn’t even see the 2007/2008 financial crisis coming.
Moreover, Quantitative Easing by the Bank of England forces annuity rates and interest rates to remain low while devaluing the pound sterling (by essentially printing money) which reduces our ability to afford the imports that our economy is entirely dependent upon in both the consumer and manufacturing markets (commodities and machine components), thus reducing our global export competitiveness and exacerbating our balance of trade and balance of payments predicaments.
The financial sector appears to me to be out of control so why would you want to invest with them when the only winners in all this appears to be the fund managers, financial services agents and investment bankers that increasingly control the markets with computerised trading using your money?  The winning odds are stacked in their favour, not yours.
These circumstances are exacerbated as the investment markets become over-valued (like they seem to me to be right now) when there appears to be nowhere else to invest – until the investment bubble bursts and another stock market crash is triggered.
The situation can only get worse as populations age and the workforce shrinks which is predicted before the second half of this century in UK and much earlier in some other countries like Japan and Germany.
In the last decade, the previous UK government turned a blind eye to excessive net immigration that put pressure on the UK workforce to keep wages low while maintaining high demand for consumer goods and services including in particular housing that led to a credit funded economic boom and the biggest bust ever.
There is just so much credit available that eventually must be repaid before debtors reach a point where they can no longer service their loans.  That point has come and gone and it is now payback time.
There are also limits to just how many immigrants a country can accept and support economically without undermining national cultures, settled population work opportunities and standards of living in general, with dire social consequences as a result.  It stands to reason that the more consumers (people) there are the less there is to go around in a world or nation with finite resources, until a point is reached where resources become so diluted that our civilisation is tipped, irreversibly,  into rapid and catastrophic decline.  We are fast approaching or may even have passed this tipping point.
Higher net immigration is unsustainable in this already overcrowded small island nation that can no longer feed itself and is not the answer to our predicament especially when energy and food poverty start to erode national wellbeing as they are beginning to now.  Energy security remains the highest priority in UK, particularly as the nation will starve without reliable and affordable access to oil and gas.
So what can the average saver or investor (i.e. most of us) do and where can they safely place their savings or investment funds in these circumstances?
The answer is that in our current circumstances there is no conventional safe haven for savings or investments worth considering, other than under your mattress.  Our regulatory and finance sectors have screwed up royally, lost all credibility and exposed our future and that of our grandchildren to the prospect of financial ruin.  We can no longer depend on the so called elites within our government and financial institutions that are responsible for leading us into this catastrophic financial and economic state of affairs and must begin to grasp what we can do to help ourselves.
We need to take control of our destinies and become more self-sufficient by building community resilience to a growing prospect of rampant energy and food poverty by adopting Social Enterprise models to begin with until we can redefine a workable free enterprise model that embraces an ecologically sustainable Steady State Economy that can successfully replace the current dysfunctional bank owned capitalist economy.
The values of fiat currencies within nations adopting fractional reserve banking systems are being devalued causing currency wars in order to deflate vast unsustainable sovereign debts or external debt created within these systems over the past couple of decades.
The growing UK sovereign debt amounts to more than 406% of GDP or a horrifying c.£100,000+ per capita while the National Debt represents 90% of GDP or c.£21,000+ per capita.  How did this happen without our knowledge or consent?  Who are the culprits for all this debt and who was in charge while this horrendous debt spiral was going on and allowed it happen?
Consequently, we could be heading for a very long financial de-leveraging and deflationary period where the only assets worth investing in will be those that provide some useful direct benefit including acquiring skills, tools and land that enable sustainable living and bartering in a world economy that could easily collapse overnight.  You will need to acquire the knowledge, skills and assets for this over the short term while continuing to do what you are paid to do now – just in case everything collapses and it is everyman for himself in the worst case scenario or we become more local community orientated and dependent with a much greater chance of survival over time.
As we can no longer rely on our financial institutions for either short or long term savings or investment growth it makes more sense to me that we should eliminate debts and withdraw our savings for local investment in community social enterprise opportunities in local services, energy or food production where we can have more direct control, influence and benefit.
In an increasingly digital world, the growth of alternative financial services to those provided by conventional large banks, include Crowdfunding, Zopa’s peer to peer lending and Bitcoin which raise the prospects of making banks irrelevant in the medium to long term as the next generation of consumers and entrepreneurs become familiar with a greater choice of integrated on-line network services that facilitate the freedom to bypass traditional bank middlemen so that people can source and deal directly with whomsoever they trust to conduct transactions with.

14 June, 2013

Museletter 253: La Décroissance Interview | Richard Heinberg

Museletter 253: La Décroissance Interview | Richard Heinberg
In this newsletter and the keynote speech that follows it, Richard explains where we are now, how we got here and how the future is likely to unfold, in his own exquisite style and common sense approach to very tricky subject matters that many people would rather not acknowledge or deal with...

28 May, 2013

Capitalism, Population, Energy & Food - The Next Steps

If you have read any of the articles I have written before this, you might have gathered that western civilisation has reached a turning point in history as our economies flounder and population growth transitions towa­­rds the downside of a bell curve with life changing consequences for western society as a whole over this century.  This will influence how conventional capitalism evolves or fails; to be replaced by something hopefully much more holistically rewarding and equitable in order to avoid chaos and the collap­se of civilisation.
The current form of western capitalism has developed in favour of global tax dodging corporations that can play one nation off against another, as well as a very small elite that control 95% of global wealth and resource distribution.  This is unsustainable within the medium to short term.  Moreover, with rising global competition for dwindling resources, radical change is inevitable as non-renewable resources become increasingly depleted, prohibitively expensive to extract and exploit or become inaccessible.
Declining and ageing populations in the west in conjunction with accelerating global resource depletion by new consumers in the emerging BRICS nations will inevitably result in weakening demand for goods and services in older mature western economies as commodities become less affordable resulting in dwindling consumer confidence in the economy and ensuing economic decline.  This should change the focus of our attention from economic growth towards debt elimination, vigorous resource conservation and transition towards a more resilient ecologically sustainable Steady State Economy where raising quality of life has priority over raising western standards of living aggressively marketed by corporations on behalf of their shareholders, so that a more equitable sharing and distribution of remaining global resources can be achieved in order to avoid international conflict and resource wars.
Our policy makers and politicians have not yet accepted or even recognised this reality and are desperately pursuing a course to stimulate economic growth in order to raise taxes to pay down unsustainable national debts created over the last 20 years and provide for future financial obligations including state pensions for a growing number of longer living pensioners sponsored by a shrinking workforce. 
Our economies are entirely predicated on energy security and population growth to fuel demand for economic growth, neither of which have a long term future on a planet with limited resources.
The elite would like us to believe that new discoveries in science and technology may come to the rescue but my experience is that all advances in technology require greater amounts of energy and may even accelerate resource depletion and the inevitable collapse of civilisation as we know it.
The only possible exception to this would be if we rapidly develop commercially viable space flight technologies and Artificial Intelligence that can facilitate  reliable, unlimited,  clean and secure Space Based Solar Power as well as remote controlled automation and semi-autonomous robotic enabled resource exploitation of the asteroid belt and planets close by.   Colonising the Moon and Mars could then become a reality within this century.
The use of robotics, already prevalent within industry, will also become essential in farming and assisting in the care of the elderly and infirm as our populations continue to age and decline.  However, all mechanical or electrical devices are dependent on energy security to be of any reliable use and so energy security must become the highest priority.
The next priority is to develop sustainable ways to feed ourselves as fossil fuels and the essential ingredients of modern agriculture become scarce and generally unaffordable.  Richard Heinberg in association with the Soil Association has some useful insights as to how to go about this.  We do not have long to fundamentally transform agriculture and implement a more sustainable farming methodology – 20 to 30 years at most.  
Demand for resources, including in particular energy for food production and industry, is directly proportional to population size and attainable standards of living.  If our civilisation is to survive beyond this century it is imperative that all nations urgently stabilise their populations and then allow natural attrition to reduce populations to sustainable levels.
This means that each country must establish what size population it can realistically feed with the resources at its disposal within its borders and then plan to control its population size to an extent that enables sustainable standards of living for its people in perpetuity.  We all share a social responsibility and duty to ensure this happens so that future generations may inherit sufficient resources that guarantee on-going survival of the human race on planet earth.
The current scale of globalisation characterised by the transport of huge volumes of manufactured goods, commodities and agricultural produce from nations on one side of the world to the other will become increasingly less viable as BRICS nation production costs (rising commodity prices and wages) and transport costs escalate while the energy return on energy invested in extracting and refining oil rapidly declines.  There is no substitute for oil where transport is concerned.
Transition towards developing more resilient community focused local economies, built on new worker owned mutual or social enterprise models will become mainstream as we find ourselves having to become more self-sufficient and independent while we learn how to financially and materially live within our means once again.
“Solving the Earth's environmental problems means addressing the size of its human population, says the head of the UK's Antarctic research agency.”  See Population size green priority.
“The population of the UK will rise from 61m to 71.6m by 2033 if current trends in growth continue, the Office for National Statistics (ONS) has said.
Just over two-thirds of the increase is likely to be related directly or indirectly to migration to the UK.”  However;

“The Optimum Population Trust (now Population Matters) believes that Earth may not be able to support more than half its present numbers before the end of this century, and that the UK's long-term sustainable population level may be lower than 30 million.”  Please Watch the BBC documentary – “How many people can live on Planet Earth?

17 January, 2013


At the risk of repeating myself, the current situation as I understand it is as follows:

Over the past 40 years, western economies, between economic boom and bust cycles, have generally speaking prospered and experienced exponential growth with the introduction of Fiat Currencies and Fractional Reserve Banking that have provided readily available credit to an extent that debt sponsored growth has become regarded as the normal course of events and is taken for granted.  However, if we take a look at the history of economic growth it becomes clear that exponential growth is in fact a phenomena enabled by the discovery of legacy fossil fuels that were cheap to exploit over the past 250 years in order to generate energy to drive machines and thus the economy.

Before this discovery, economic growth was relatively flat or sporadic being constrained by the availability of the only other forms of energy then known being human energy or manpower provided by slaves or an unorganised paid peasant workforce, unreliable wind mills or water mills and ox or horse power.  Exponential growth could take place only when we were able to reliably generate a surplus of energy that could be allocated for growth enterprises beyond that required for essentially subsistence economies and sustainable lifestyles that previously existed.  This first occurred with the invention of steam power fueled by wood and then coal which enabled the industrial revolution when timber became scarce.

Debt sponsored economic growth took off with de-regulation of the financial markets in 1986 and climaxed with the 2007/2008 Financial Crisis when the banking systems would almost certainly have collapsed were it not for timely government intervention and the injection of public funds to bail out the banks.  Banks became too big to fail, knew it, and took advantage of the implicit guarantee that governments would underwrite their misfortunes.  Consequently, banks became reckless with other people’s money on the basis that profits could be privatised while any excessive losses would be socialised via public funded bailouts.  Urgent reform of the financial markets is now essential to prevent a recurrence of this and for the future prosperity and wellbeing of our nation in the wake of government imposed austerity and ongoing global economic uncertainty.

The wealth gap between the rich and poor is as great as it has ever been with the result that 1% of the population now control somewhere between 80-90% of global wealth.  This is unacceptable as well as unsustainable while too few people can afford to participate in the economy because of a lack of disposable income to do so.  According to Karl Marx, this will lead to the inevitable collapse of our economies unless we can radically address these inequalities and redistribute wealth to stimulate demand for goods and services and thus growth in the economy.  Moreover, corporations throughout the world are sitting on large amounts of cash which they are afraid to invest because of prevailing economic uncertainties largely brought about by the 2007/2008 financial crisis and impending collapse of the Euro.

Our financial systems are now essentially bankrupt and it will take a very long time to unravel the full extent of existing and potential global banking toxic loans within shrinking economies, in order to de-leverage debt.

Coinciding with the financial crisis we are also confronted with a confluence of other inter-related fundamental uncertainties created by accelerating depletion of already diluted non-renewableresources and the rapid economic development of emerging markets (BRICS nations) coupled to exponential population growth in these regions, accelerating climate change due to growing global CO2 emissions and rising political uncertainty as food and energy poverty become pervasive.

The situation embraces an explosive cocktail of uncertainties never before experienced at any one time by humanity!  So, in these circumstances, what can we do to both reform financial markets and adopt a more positive and ecologically sustainable approach to economics for the long term?  The question also arises, can we even get out of this mess or is it going to get a whole lot worse before we can begin to make things better?

After 30 years or more of accelerating globalisation and rapid economic development of the BRICS emerging nations, we have reached a turning point in history where consumers in western economies have essentially squandered their wealth and that of future generations as a direct result of conspicuous consumption and financial mal investment in the private sector as well as economic and financial mismanagement in the public sector made possible by leveraging debt to unsustainable levels over this period.  Now it is payback time and consequently, wealth, influence and power has quickly shifted to the east and BRICS nations as it will take many years for western economies to de-leverage their debt burdens and favorably re-adjust their balance of payments.

The potential for economic growth in western economies is weak while economic prospects in the BRICS nations remain buoyant as their burgeoning populations seek to enjoy the same standards of living and quality of life enjoyed by the west.  This will require BRICS economies to increase wages so that their consumers may have sufficient disposable incomes that allow them to buy more and more goods and services in their own economies, thereby stimulating or maintaining domestic economic growth in the face of dwindling demand from bankrupt overseas western economies.

Eventually, in a few decades, wages in the BRICS economies may generally reach parity or even surpass those in the west at which time the west, resources permitting, may even have an economic advantage, provided current unsustainable debt levels have been eliminated or substantially reduced which seems unlikely if Japan's debt elimination track record over the past two decades or so is anything to go by.

Meanwhile, international corporations in the west who have been the main promoters and beneficiaries of international trade are wondering what to do with the vast amounts of cash they have accumulated during the last ten bonanza years of globalisation.  These companies include international investment companies, oil and gas energy companies, mining companies, logistics and freight transport companies, defence, aviation and aerospace companies, auto manufacturing, shipping and ship building companies, software, electronics and media companies that have enabled and promoted globalisation to an extent that our economies have become entirely integrated and dependent on one another as well as these companies.

Herein lies our greatest vulnerability as by accelerating economic development in emerging nations we exacerbate climate change and primary resource  depletion, including fossil fuels and financial capital in western economies because capital resources always fly to where there is the greatest return on investment.  We will eventually reach a point when catastrophic failure in the supply chain of one resource area or another leads to the collapse of entire economies and we will become less and less capable of feeding ourselves.  The Euro-zone is fast approaching this point of no return as illustrated by recent events in Greece, Ireland, Spain, Portugal and Cyprus.  The mantra of unlimited growth at all costs may just cost us the earth.

Growth dependent "business as usual", i.e. Plan A, simply has no long term future!  In a world with finite resources, this is an in-escapable fact so why don't our policy makers and politicians wake up to this and instead look for sustainable economic growth in Plan B as called for by a growing number of ecological minded economists?

The more our politicians see our future becoming even more greatly integrated into the  global market place the more diluted our position and influence in the world becomes as BRICS nations, with huge populations by our standards, become dominant providers of resources and manufactured goods.  We will become even more dependent on imports and even more vulnerable to increasing competition for global resources as a result.  Better that we should do so from a position of resilience through self-sufficiency in terms of energy and food than from military strength which we can no longer afford.  All this bravado about "punching above our weight" in military or international political terms illustrates hubris and delusional thinking in the extreme by our ruling classes as our role on the world stage dwindles into insignificance.

Britons need to start making things again and the surplus exported.  After having sold off 50% of our companies to foreigners, including many manufacturing industries, it is high time that we re-generated our manufacturing capabilities for both low and high tech products that promote and enable sustainable living within our means.  This is the greatest area for growth in the short term.

We can kick-start this process by repatriating UK manufacturing in China or India.

Outsourcing abroad has not done us any favours by creating hordes of unemployed in the settled population while a few investors grow rich at their expense.  Outsourcing simply undermines the nation’s skills, knowledge and tax base', costs the nation dearly in terms of unemployment and welfare payments and consequently, should be discouraged.

Our politicians and policy makers should be looking after our strategic long term national interests, particularly where UK employment and re-skilling of the workforce is concerned by protecting our borders and preventing economic migrants from taking the jobs that the settled unemployed or growing under-employed should have in preference to anyone else.  Otherwise, there is little incentive for UK unemployed to re-skill if they perceive that jobs will go to migrants anyway and the burden of welfare will escalate out of control!