The UK is already in a de facto recession – only the fiddling of the data to count GP appointments as a value-adding activity led to a paltry 0.5 percent GDP growth in May. Discretionary spending has already plummeted, and it is only a matter of time before we see widespread business failures and debt defaults. Indeed, this is likely to be one reason why Britain is experiencing a wave of strikes – provoking a strike to save on energy costs and the wage bill was a common response to inflation in the 1970s and is likely to be one of the few similarities today (the big difference being that we no longer have nationalised industries, so nobody is going to give in to workers’ demands).
Internationally, there is a global dollar shortage – which the Federal Reserve is exacerbating – which threatens a sovereign debt implosion beginning with developing economies dependent upon a single commodity for foreign exchange, but eventually dragging down any economy which trades in dollars… which brings us to the ill-advised sanctions salad imposed on Russia and China in response to the war in Ukraine. This has brought forward the establishment of an alternative BRICS currency system which will cover around a third of global trade, and in the process crush the economies of Europe. As if that wasn’t bad enough, Russia seems to be finally responding by halting its supply of gas to Europe, causing capital flight and industrial closures – including of the wind turbine industry which is supposed to save the day – across the continent.
In Britain, the “curse of oil” means that the unfolding collapse will be all the harder – since the 1980s, Britain’s neoliberal governments have used oil and gas revenues to underwrite the explosion of debt – and profits for the few – generated in the City of London. But the cost of this was too strong a currency, resulting in what remained of Britain’s export industry being uncompetitive, and either offshoring or closing entirely. Since UK oil and gas peaked in 1999, and particularly after the UK became a net importer of oil and gas in 2005, the UK has relied on foreign investment and government borrowing to secure the dollars needed to continue importing everything from fast cars and designer clothing to food and fuel.
The massive rise in the cost of essentials like food, fuel, gas and electricity, which have wrongly been called “inflation” – in reality they are a supply shock resulting from two years of lockdown, exacerbated by sanctions on Russia – are creating a massive crisis of affordability, as half of all households no longer have enough money to get to the end of the month. And within a year this is expected to rise to a staggering 90 percent of us. This signals a massive switch from discretionary to essential spending which will devastate the economy. As Tim Morgan explains:
“The ‘cost of living crisis’ is the biggest challenge that has confronted households, and governments, in decades… But an affordability crisis is much more serious for the system than it is for the individual.
“Customers can decide to holiday at home rather than abroad, but the outlook for airlines, cruise operators and travel companies is grim if they do. Households can get by without entertainment subscriptions, but the providers of these services cannot survive if this happens. Motorists can hang on to their current vehicles for longer, and put off buying a new car, but the automotive industry is at grave risk if this happens.”
The greater fear is that large numbers begin to default on debts, triggering a cascading banking collapse bigger than 2008. Indeed, both Tim Morgan and Martin Lewis have raised the very real threat of a massive “can’t pay won’t pay” wave of civil disobedience which would implode the economy.
Notably, just as Marcus Rashford had to step in as de facto leader of the opposition to prevent widespread child hunger during the pandemic, so Martin Lewis is increasingly standing in for an absent Keith Starmer, in pushing the government for an appropriate policy to ameliorate the coming economic crisis. Those within the walls of Versailles-on-Thames though, are content to tell those who can’t afford bread to eat cake instead. The hopefuls in the Tory leadership contest are talking tax cuts. The Governor of the Bank of England is talking default-inducing big interest rate rises. Meanwhile the Labour opposition (sic) has committed to an Osborne-style austerity aimed at cutting government spending just when it is needed most. And one would struggle to find a single special advisor or civil servant who begins to glimpse the scale of the economic storm which is about to engulf them, still less have the first idea how to respond.
Perhaps the most insane thing about this tragi-comedy though, is that millions of people still believe that swapping a Sunak, Mordaunt, or Truss for Boris Johnson, or swapping a neoliberal Labour government for a neoliberal Tory one is going to make a blind bit of difference. Involuntary as the process will likely turn out to be, the growing energy crisis means that a decade from now central government will have been forced to shrink back to something equivalent to its nineteenth century size, with the most important day-today decisions having to be taken by local councils as the largest governing units our declining surplus energy can sustain.
As you made it to the end…
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