Consciousness of Sheep
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A tough spring ahead
Central bankers were quick to explain that the recent string of bank failures was no cause for alarm and that inflation remains public enemy number one. Bank boss Jamie Dimon is less sure, warning investors that:
“The current crisis is not yet over, and even when it is behind us, there will be repercussions from it for years to come.”
Dimon is something of an optimist insofar as he imagines that this crisis will one day be behind us. The big institutional bond investors are pointing to something far bigger just around the corner for two key reasons. The first is that, as a result of broken supply chains and post-lockdown real economy shortages, there is a growing collateral crisis – real world investments which might have looked like a safe bet in 2019 – including visceral investment in energy and resource production – look like money-sinks today… not something a bank would want to lend money to. Which is, of course, the cause of the second reason why things are about to get a lot worse – global currency shortages.
Just as in national economies, currency is created when banks make loans, so in the international Eurodollar system, new dollars – entirely unrelated to the US Treasury or the Federal Reserve – are created when offshore banks make loans to corporations and states. The whole system depends ultimately on trust. Banks trust that the corporations and states that they lend to will be able to repay the debt with interest. But what the western bond markets have been signalling – with growing urgency – since last year, is that, faced with real economy shocks, the banks no longer trust either corporations or states to repay their debts. And so, banks and financial institutions are seeking to use currency as a buffer to offset bad loans. Which, in practice, means ceasing lending while hoarding as much cash as they can get their hands on.
This situation will likely torpedo official attempts to manage the unfolding crisis – attempts which, in any case have been contradictory as governments have been pumping currency into the economy even as central banks have been desperately trying to squeeze it out. In the USA, for example, the administration is struggling with yet another debt ceiling which, if history is a guide, will be lifted simply because the political class are unable to contemplate the alternative. Meanwhile in the UK, most of the subsidies designed to keep household costs manageable over the winter are coming to an end in April, even as various arms of government along with regulated utilities fondly imagine that they can continue to increase prices and taxes.
Insofar as 2023 is like 2008, it is not in sub-prime mortgages and under-capitalised banks – the risk of which is now better managed. Rather it is that in the way policy makers continue to ignore the real economy – taking comfort from the lack of widespread lay-offs – while depending upon backward-looking data which only tells us that the economy was doing better than expected three months ago. Remember too, that the widespread lay-offs are always the final stage in the crisis – they come after loans have gone bad and companies have been forced to downsize or file for insolvency.
While it is impossible to predict what will happen with any certainty, it is highly likely that as banks tighten their lending and withdraw cash from the economy, thousands of zombie companies – those which have been able to service their debts (at low interest) but not repay them – will file for insolvency, creating the first wave of lay-offs. It is also likely that this time around, state bodies which avoided the crisis in 2008 will be forced to make sweeping cuts as it becomes obvious that their shrinking tax base makes them unsustainable – this is particularly true for local councils (along with states in the USA) which have no ability to create new currency directly. Even national governments though may face currency crises where international banks calculate that their spending is too high for their tax base to repay – leading to a flight away from the weakest currencies, and possibly even a devaluation of those (like the UK pound) which currently look strong on paper.
The end point of the Euro-dosh gravy train
There is a tendency among a certain group of metropolitan liberals to cast the 52 percent of the electorate which voted for Brexit as unthinking Neanderthals – easily led by Russian social media bots and obvious lies on the side of bright red buses. Both before the vote and in the years afterward, rather than allow the possibility that there may have been something genuine about opposition to an increasingly technocratic and corrupt European Union, the opponents of Brexit have labelled the majority who voted for it “racists,” “fascists” and “morons.”
As evidence for the latter claim, they cite the example of Brexit-voting Ebbw Vale – a declining ex-industrial town at the head of one of the Gwent Valleys… once the home to one of the world’s biggest steelworks. The Guardian’s chief conspiracy theorist Carole Codswallop underlining the stupidity of people who received billions of pounds in Euro-dosh voting to leave the EU:
“Wales isn’t just a net EU beneficiary, EU capital funding has been an essential part of attracting firms to come here. All around town are signs marked with the EU flag for the Ebbw Vale enterprise zone. The website notes that as an EU tier 1 area, ‘companies can benefit from the highest level of grant aid in the UK.’”
What these pearl-clutching metropolitans failed to notice was just how little of the Euro-dosh made its way into the hands of the ordinary folk in Ebbw Vale. As Stephen Young, one of Cadwalladr’s respondents explained:
“I’ve lived in Ebbw Vale all my life, worked in the steelworks and ran my own business for many years. Whilst you can go out on any street anywhere and get the answers that suits your agenda, there are also voices to the opposite if you look hard enough. This town has a new learning zone, new roads and some other EU funded projects… it doesn’t have jobs. The steelworks at one time employed 13,000 and the mine about 800 I think. Heavy industry has gone and our town has no air pollution and heavy lorries running through it constantly, which is good, but it has no money either, little has been done to replace the jobs that were lost, we have been in austerity before the rest of the country heard of it. Recession? We think that is our way of life. We see billions spent in London and the south east, we see billions spent in Cardiff… in comparison we, and a lot of Wales and large tranches of England are feeding off crumbs from the table.”
In a BBC Newsnight item about Ebbw Vale, Phil Edwards, leader of the Ebbw Vale Business Forum made a similar point:
“You can’t complain about it in one sense. But it is pretty, that’s all it is, it’s cosmetic. If someone is dying you don’t give them cosmetic surgery to keep them alive, that’s not going to help. The town is dying, the borough is dying and it needs employment. It doesn’t need pretty bollards and wonderful-looking dragons and a clock that doesn’t tell the right time.”
The problem with the Euro-dosh gravy train ran far deeper though. As former Tory – and latterly Plaid Cymru – politician Gutto Bebb pointed out in a 2013 lecture to the Institute of Welsh Affairs:
“[My] lecture today is not on the failure of Brussels or Europe. Wales’ failure to profit from huge European investment since 2000 falls on our shoulders as Welsh people and reflects the political leadership and major deficiencies in the Assembly’s strategy to utilise these funds.
“Indeed, the whole European jamboree has become a monetary fund for local authorities, education and third sector bodies, with the private sector, that sector of the economy which should be contributing to economic growth, getting virtually no portion of the financial cake.
“It is hardly surprising that having neglected the very part of the economy that exists in order to create wealth, we have seen Wales’ relative economic performance regress rather than develop for the better during a period that now extends over fifteen years of funding projects throughout Wales that should have contributed to our economic benefit but which did nothing of the sort.”
Wales may have been a particularly corrupt example of the grift at the heart of EU-funding, but the reality for ordinary people in the ex-industrial, rundown seaside and small-town rural parts of Britain that Euro-dosh was supposed to raise out of poverty, is that the people continued to fall behind even as those usual suspects mentioned by Bebb continued to grow fat on the proceeds. Moreover, the grift had a very big downside for ordinary people – Euro-dosh mostly came in the form of one-off grants for capital projects. As such, it was only useful if invested in viable business enterprises which could stand on their own feet once the funding came to an end. Funding education, local government and non-profit activities served only to place a millstone around the necks of local taxpayers once the funding came to an end. The EU might, for example, part-fund the by-pass, but local council taxpayers have to fund its ongoing maintenance. The same goes for the new college, the street art and the clock which doesn’t tell the right time, and most iconic of all, the cable car between the railway station and the town centre… which the local council has finally cut now that the costs outweigh the benefits. We can only guess at the number of similar white-elephant Euro-dosh projects across Wales – and, indeed, the UK as a whole – will be coming to a similar end now that cost-of-living pressures have made local council cuts inevitable.
To many of the people who voted to leave the EU, Euro-dosh was always a scam. Something that was summarised by a Tyneside car worker in response to then Prime Minister David Cameron’s warning of the effect of Brexit on the economy… “Yeh; Your economy!”
Perhaps if the Euro-dosh system – ostensibly intended to raise the ex-industrial regions out of poverty – had not been used by the metropolitan liberal class as a public lifestyle subsidy, things might have turned out differently. But we are where we are. And those who fondly imagine that a re-run of the Brexit referendum would produce a different result, would do well to consider that this economic divide between ordinary “somewhere/physicals” and metropolitan liberal “anywhere/virtuals” continues to widen… it is just that within the social media echo chambers, the voices of the majority are seldom heard.
As you made it to the end…
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