Zombie Economics - The Past Destroying The Future

Satyajit Das in “Naked Capitalism” has an item about what economics is supposed to be and what is actually going on at present.

http://www.nakedcapitalism.com/2011/04/satyajit-das-dead-hand-of-economics.html

He refers to John Quiggin’s view of “Zombie Economics – How Dead Ideas Still Walk Amongst Us” that suggests that most of our troubles have been the consequence of following theories of the past, not only from economists long dead but some still living.

The other two authors also are trying to rearrange their mindsets as to what is going on at the moment. The three of them are said to be towards the “Left” although what we have had that we thought was “Left” was anything but that.

In the Grauniad today, Lynsey Hanley argues that Labour must shed its need to see itself as a UK working class party and rise above such a grubby and compromised past to be a party of vision. Metropolitan Liberalism rules OK and to hell with the workers.

Personally, I have argued already about the need for us all to ditch all the old “isms” and notions from the past such as “Left” or “Right” because the world has changed so much all they do is clutter up our thinking and lead to poor decisions and poorer policies.

A major issue is that so many of the published economists and their followers today are paid hirelings of one established body or another and obliged to march to the tune played by their sponsors. They are even less reliable than any of the UK Big Four accountancy firms who are long on theory and short on arithmetic.

Anyone for tennis?

Shrinking The Economy

This originated with Bill Shrink and came via Financial Armageddon and was titled "Middle Class Meltdown, Sink or Swim Time".  Essentially, it illustrates the collapse of the USA middle class and the widening gap between rich and poor.  A lot of it is to do with property, formerly the basis of the American Dream.

Where they go there go we, sooner or later.

Enjoy it while you can.

Black Swans

The idea of "Black Swan" events is something I have mentioned before, the original idea being from Nassim Nicholas Taleb.  Simply, it is something out there which you did not think could happen.  Now, in finance and economics they seem to be coming in flocks from cobdencentre dot org - Articles - Andy Duncan 29 March on the title below.

MIKE HAYWOOD’S BANKING CRISIS DIGEST


Independent weekly compilation of current internet articles and blogs relating to Global Banking Crisis

You may not have time to read all the articles. To help you be selective, those articles which I consider an important read or viewing, I have prefixed with X

• Global Debt Clock


Overview Articles


• XXXXX US Petroleum Usage, New House Sales, and the Alleged Recovery


• XXXXX The Utter Failure Of Macroeconomic Theory


• Mauldin: Unintended Consequences (PDF)


Global Banking crisis, economy and systemic risk


• XXXXX Britain’s leaders should come clean on the true depth of the fiscal crisis


• XXXXX IMF Prepares For “Threat To International Monetary System”


• XX Blame Brown, Balls and Miliband for policies that led to the banking crisis


• XX U.S. debt situation at tipping point


• XXX Britain’s £200bn time bomb of debt interest


• X Ireland wants bank bondholders to share the pain


• Is this the endgame for the US dollar?


• America is going broke! Federal Reserve official’s fear as Libya missiles cost $100 million in just ONE day


• Portugal sees further property price falls and lack of confidence in market


• Federal Reserve and the opaque banking syndicate


• 3 Euro Debt Crisis Scenarios


• Looks Like a Double Dip, Smells Like a Double Dip, Must be a Double Dip


• Truck Tonnage Slows in February


• Spectator: Folding money – When politicians devalue the currency, hard assets are the answer


• The Dominoes Are Lining Up, Again


• Euro’s Collapse Is Not Unthinkable: Warren Buffett


• GDP Growth Doesn’t Mean We’re On The Right Road


• Dutch bankers’ bonuses axed by people power


• Ireland’s Hayes Irish Banking Crisis a ‘European-Wide Problem’


• How Germany can avoid a two-speed Europe


• Rethinking Iceland’s Recovery


• Lessons Learned in the Aftermath of the Banking Crisis


• The Japanese Currency Intervention


• Portugal 2010 Budget Deficit Could Be Revised Upward


• A Nation Of Dropouts Shakes Europe


• Eurozone bail-out deal is agreed


• Spain pledges economic reforms


• ECB close to liquidity deal for troubled banks


• Ireland: No easy fix for banking crisis, warns regulator


• French Fin Min: Public Finances Couldn’t Deal With New Banking Crisis


• Land of the Setting Sun


• Ireland 10-year bond spread hits record


• Sovereign debt joins the wall of worry


• Ireland holds talks on bank crisis with ECB


• Big players are no stranger to crises on own doorsteps


Oil and interconnectivity with Global economy


• XXXXX Oil Will Be Gone in 50 Years: HSBC


• Japan Nuclear Plans Derailed, Fossil Fuel Use To Stay High For Years


US Property slump


• XX Sales of new US homes tumble 16.9% to record low


• XX Housing raises US recession alert


• House Prices Will Drop Another 20%


• The Next Leg Down in House Prices


• New house sales are at lowest level in almost 50 years


• America’s Property Market: On A Losing Streak


• Commercial Real Estate on Borrowed Time?


• US house prices fall to 9 year low


US Foreclosure and Mortgage Fraud


• Foreclosure vote could rock the banks


UK Property Market


• XX House Cuts send chill through UK house market


• House prices down 11% since summer


• House prices drop by £45,000 since start of credit crisis


Global Pension “time bomb” and aging population


• X BBC pension deficit is ‘just over £1.5bn’


• South Carolina financial oversight board refuses to accept pension system


• Anglo to stop cost of living increases for pension scheme


• In US Public pension crisis threatens your wallet


• Brendan Keenan: Getting pensions right for posterity


The affect of Austerity measures


• Sign of the times: 200 join queue in Salford precinct – for the opening of a charity shop


Deflation or inflation?


• Cookie Inflation and The End of Quantitative Easing


• The Cost Of Living Just Goes Up And Up


US recessionary trends


• X Massive enrollment cuts at California State University expected


• U.S. Durable Goods Orders Unexpectedly Fell in February


• Rural Oregon counties face bankruptcy without state help


US Unemployment


• X US Real Unemployment Rate 10.2%, Underemployment at 20%


• Unemployment rises in nearly all metro areas


• Why Is US Unemployment So High?


• Current decade of job losses vs. Great Depression


• Most US States Post Unemployment Decline


Eureka articles which challenge the status quo


• X Centralization of power and control by elites in financial markets


• Rich vs Poor: 14 Funny Statistics And 14 Not So Funny Statistics About This “Economic Recovery”


Alternative Currencies, changing the Banking System


• X The Origin of Central Banking and Possible Alternatives


• Federal Reserve and the opaque banking syndicate


• New revelations how the Federal Reserve shrugged off housing crash warnings

Extortionism And A Tale Of Two Pubs

There are two villages not far away that have faced the closures of their remaining pubs. I call them Firstham and Secondham to avoid difficulties, as I often have to say, I have been thrown out of better pubs than this, but that is too long a story.

In Firstham a number of the local population met together and formed a company to buy out the owner, a Pubcorp, in order to run their own pub as they wish. The cost was several hundred thousand pounds and this was raised. The Pubcorp did not want to get into a serious argument because of the publicity threatened and as the company was paying the asking price it was not worth insisting on it being sold for building use.

Why was the Firstham pub loss making? The former publican had been obliged to face financial requirements and payments to meet the financial targets of the Pubcorp. These in turn had been determined by their creditors, notably their private equity shareholders and other interests in far away places.

They had proved far too much and the former publican had left penniless and having lost his savings. With these burdens removed the company could concentrate its attentions on service, prices and facilities. It might own pubs but essentially it is a company that churns its property portfolio.

The consequence was that now the Firstham pub is trading at a profit. Its asset value has improved accordingly and the members of the company are earning a modest but certain return. The pub has become more valued by its community and is seen once more as something which gives returns rather than just taking away.

In Secondham sadly, it is a different story. The Pubcorp involved there is determined not only to close the pub but to sell it for residential use with a covenant slapped on preventing any use as a pub or food and drink outlet. You see, it has others in the general area, miles away, but they want to eliminate potential competition. The Pubcorp has extracted all it can and is taking its profit.

Secondham has lost its post office, rationalised away by the government, its last shop, thank you Tesco and Asda and every other community provision. The last pub is the last to go. The site is being sold to a developer who intends to put up a shoebox development of eight single bedroom flats which will have only parking slots and will look distinctly out of place. Thank you, Lord Prescott of Little Weighton.

They are laughingly described as “social housing” which are to go to a speculator who specialises in single person places for people on benefits. He has a few in the district and is making a wonderful profit from them. Consequently, there is little or no economic activity in the village. Any money coming into the village goes out somewhere else, to somewhere very distant in most cases.

These days we call the Firstham approach “community action” or “social entrepreneurship” and the Secondham experience we regard as unbridled “capitalism” because it seems to follow on from past Capitalism In reality it is the other way round. Firstham is a true form of capitalism in its early form, a few people pooling savings to invest at a degree of risk for the benefit of their locality and themselves.

What is going on in Secondham is something else altogether. The trouble is that we do not have a name that explains the reality of it. I have been puzzling over the issue of words. The trouble with using words or concepts derived from the past is that they come loaded with the baggage of history. What is happening now is new, totally destructive and means that the many are the losers and the very few the winners.

New Labour may think it is “creative destruction” as in the Trotskyism they were weaned on and admired so much when they were cheering on Pol Pot. But it is neither creative nor progressive, it is a tsunami of greed and grab.

So my word is “Extortionism” and I think it works as well as any other.

Economics - GDP For The Masses

It was busy time when the phone rang, on the Disused Stations web site finding how to get from Walton On The Hill to Knitsley with the minimum number of changes using the July 1922 Bradshaw. The voice was muffled and hoarse, Ed Balls didn’t want me to know. “GDP, margin of error and seasonal adjustments.” Then he was gone probably putting it on his confidential Twitter that was cracked months ago.

Minutes later there was another call, Vince Cable this time talking falsetto. “0.1 is negative if you factor in underlying inflation and PFI, think off balance and shifting liabilities.” I just said “Yeah, yeah” and put the phone, I don’t do dirty, not least because MI5 have had me tapped since 1956. When the weathers bad they even order the groceries delivered without me asking.

Later it was the organic shelf in M&S that really had me worried. A big woman took the last cabbage before I could get to it. OK she needs the fibre, I thought, but the head butt was not necessary. Then I realised, she was no lady and nobody’s wife. It was Supermac, a blast from the past. He had been in the front row of the London Scottish pack in the good days fifty years or so ago. He did not look pretty in a wide flowered skirt, frilly blouse, and long black wig. Also he had not shaved for a few days and had put on a lot of weight.

“You got Ed and Vince?” “Yup” I replied. “Gordon?” “Nope, the last time he said he was going to cut off my annualised returns I reminded him about that business with Greenock Gertie, he hasn’t rung since” “Lucky you,” said Mac “But GDP, “I groaned, “Listen,” he insisted, “QE.” “What or which?” I replied. “Look, Mr. Awkward, if you really want to know about GDP, CPI, RPI, Balance of Trade, Fiscals, and all that you know what to do.” “Tell me,” I asked, keeping an eye on the four hoods at the end of the aisle trying to look like shelf stackers.

“Follow the money,” he said. I shook my head, “You’ve been watching too many old movies, you ain’t Robert Redford, nor Dustin Hoffman, more like Dougal from Magic Roundabout without the philosophy input.” “Just listen,” I did, recalling the time he had gone fifty yards with the London Welsh pack hanging on to his every limb. “Where has the money gone, who have they given it too, on what terms, and how is being used to shore up who and where does the eventual take go?”

“Nice,” I said, “I’ll look it up on Roubini, Panzner and Some Assembly Required when I’ve finished my thesis on rail journeys that nobody ever made, I got a Department of Transport grant for it and they want results.” “Just do it dumbo,” he said, “Just do it, someone has to, just as all that toxic debt is going to going to evaporate all the quantatitive easing does is to money the money figures round and round to make them all look good.” “And then?” “Someone gets left with the body bag when all the others have gone.”

Then Mac was gone, moving as fast as ever as he trampled over the hoods ignoring their screams. I left through the service entrance. Mac had form, he had been in secondary banking and property ramping into the early 1970’s when it all went bad. A local authority treasurer in a Labour council after reorganisation he was sacked when they lost control in 1978 after losing control over rising costs and finished up lecturing on management and finance in an expanding polytechnic now a University with deep budget issues.

He should have stayed but went big on the internet in the late 1990’s emigrating when the bust happened to a Caribbean island setting up trusts for the rich and famous. Then he made friends with Madoff and Stanford as well as consulting for Lehmann. Now he was back in the UK and going strong in Social Entrepreneur outfits in Labour Councils. He had told me that as innovative rackets went it was small time but what else could you expect from people with small minds?

He would make enough to buy a few thousand acres, hire security from Russia and go self sufficient when it all went bad again. He had this deal to bring over Germans and Swedes in long ships to settle on neighbouring lands and take them over under his supervision.

Mac said that this was the way to go so next I try boatyards on Google. The trains will be subject to delays because of line and staff problems.

What's For Dinner?

If you think the queues at the supermarket checkout are a pain then you have never queued for food for real. This kind of thing only happens in other places where there is either famine, some sort of breakdown or where food is scarce and expensive. But it has begun to happen in the USA where many people dependent on food stamps are having to learn how to.

On December 25, a good day for it, when very many were feasting and putting away enough calories for a week or two, The Market Oracle blog featured an item by Eric de Carbonnel engagingly titled “Global Food Crisis 2010 Means Financial Armageddon”. In brief he rubbished the US Department of Agriculture spin on 2010 production pointing out that on its own detailed evidence the USA could need imports of food with implications for world markets.

Given what is and is likely to be happening in the wider world, a large subject, he suggests that the margins of supply and demand will shift enough to trigger major price rises that in turn will have substantial economic effects notably on financial systems. The EU has been doing its bit towards causing chaos in European agriculture moving resources from where it is needed to where it is not needed.

As for the UK Defra, the Department for Ruination of Agriculture, it has managed to secure reductions in output in key areas whilst its friends in the retailing and food manufacturing industries have driven down farm incomes and production. They have made up the supplies by importing from cheap labour countries with less demanding regulation food quality. These countries may not be exporting quite as much in the near future.

In the mid 20th Century food expenditure in the developed world was a much higher proportion of household outgoings than at present. Although food prices have gone up in the last forty years they have done so at a much lower rate than either the general rates of inflation or other expenditures. The result has been more money in the pockets of most of the peoples in the richer nations to spend on consumer goods, tourism, and other things.

In just about all the predictions I have seen for 2010 food prices do not figure, and whilst they are bullish about commodities in general, they have not taken on board those in very limited supply, for examples the rare earths critical to many high tech’ products. Because everything has seemed so easy for so long, few people are able to comprehend what it might mean if food costs suddenly revert to the proportion of spending of decades ago, or other centuries.

Quite simply for the average family or group you lose around 20% of your disposable income. This would be bad enough if you had been saving a significant amount for future spending as you might in the 1950’s. If you are already running even modest levels of debt it will mean a major contraction in your lifestyle. Amongst the things that have to change will be what goes in the supermarket trolley and how you will have to use and cost it.

The picture above is a 1950’s Domestic Science class. With the introduction of secondary education for all, it was assumed that to be able to manage in the world of that time youngsters would need to be trained in basic cooking technique and the careful management and costing of food use and budgeting. With the big retailers and big manufacturers dominating the food supply from the 1970’s onward this was all dumped and the colleges that trained the teachers closed, as being old stuff no longer needed and ran counter to modern eating and retailing.

For all the noisy flashy culinary and cooking programmes on the TV there is a generation who mostly know little or nothing of how to deal with basic foods, and have been habituated to waste and easy choice. The younger generation may have to start to learn things their parents never knew and their grandparents may well have forgotten. I would like to make jokes about chickens coming home to roost but it would not be in good taste, indeed worse than your typical imported chicken.

My real fear is that after sixty years I might just be back in a two hour queue at the fish and chip shop on the basis of an uncorroborated rumour that they have had a delivery of fish and fat.

Saving The World - The Parallel Economy

In the media there have appeared reports of comments by Antonio Maria Costa the Head of the UN Office of Drugs and Crime to the effect that in late 2008 what saved the world from a complete financial crash was not the activity of governments and central banks.

Their quantatitive easing and issue of money seems mostly to have circulated round a narrow group of organisations. It may have boosted the figures but it didn’t do much else. What did the trick was the real and active substantial liquidity from the cash circulating from the proceeds of crime, notably dealing in banned drugs.

One idea I have been peddling to widespread disagreement and scorn is the notion of a The Parallel Economy. All our established experts, commentators, and media are concentrated on the long standing proposition that there is an official Gross National Product that can be measured, and which can be “improved” or “grow” to the benefit of us all.

To discuss this would be too long a job. It is enough to say that whilst it is a happy idea there are a lot of problems in devising these figures, which The Treasury and the Office of National Statistics know about but say very little. There are many more problems if politicians and others with a close personal interest are left in control of them and with a need to continually massage the figures upward, regardless of the realities of the economy.

The doubt in my mind relates to long ago during the 1940’s in particular when the State had taken control of the supply of food, consumer goods, and the operation of the known economy. During that time there was a huge expansion of barter, the exchange of goods acquired illegally, and the mutuality of services rendered within communities that were not cash based.

None of this was recorded. Nor was the amount of food and goods liberated from the American forces stores, or that went astray in the docks, or that came in from Ireland, often in the high old fashioned perambulators on the ferries with wailing babies perched on top, and the variety of items that came from home workshops and gardens. From engineering factories with lots of bits of metal all sorts of things could emerge, notably cigarette lighters in my experience.

In some urban areas there was increased organised criminal activity that had a significant impact, notably in hard liquor, desirable luxury goods, “personal services” and extra to ration supplies of scarce foods and fuels. In some cases this was self-regulated to all intents and purposes by crime bosses because of the workload on ordinary police forces and their manning problems. This was not helped by the scale of population movement and the disruption of communities.

A consequence was the “regulatory” capture of some forces by the wealthier and more powerful criminals buying protection from the police to help them continue in control of their patches or chosen activities. Is there something familiar in all this?

There are few economists studying The Parallel Economy, there is no career in it, and certainly no research grants from The Home Office or The Treasury. Some brave men have attempted to put a figure on it, but they are the first to admit that any figures are speculative. Given the scale of drug taking etc. alone in the UK it is likely to be a very large figure in any case, and the higher it is and the more extensive the activity, the greater the scope for inaccuracy. This could be almost as much as in the official figures for GNP.

As well as ordinary criminality, there is also the many ways and means of tax evasion and many are at it. The jobs done cash down, for example when I go to the cheap car hand wash behind a shed up the road, I can be sure that little or no tax is being paid. All the money shuffled about here and there, much of it through tax havens that is not registering anywhere. There is quite an irony in this.

After 1945 there were a few Polish refugees around near us many doing odd jobs for cash and a couple were found jobs in a factory where the Chess team were a real force, moving from the then Parallel Economy into the official one. They were very good and major trophies were won. Sixty years later I am round at the Polish car wash helping them to earn a bit. They are part of The Parallel Economy.

Little did I know that last year it was me and the Poles who saved the world, along with the hoodies in town behind the market selling banned drugs.

Economics - Multipliers And Money

You will all be aware of the difference of opinion between those who argue for the Government, Bank of England, and others to increase spending and money flowing into the system and those who take the view that balanced finance and careful control of spending is the only safe way forward. At the root of this is the concept of the Multiplier, that spending will circulate in such a way as to encourage economic activity and recovery from the recession/depression. Those for deficit finance, that is borrowing to spend, argue that this is essential to kick in the Multiplier. Those opposed argue that as excess borrowing was the root of all the trouble, spending should be carefully targeted, and debt restricted to that sustainable in the long term.

Much of the debate revolves around the validity or not of applying the theories of John Maynard Keynes to the current situation. To reduce it to its barest level, it is said that he was in favour of deficit financing in times of economic recession to stimulate the economy. Unluckily, when the world changed after 1939, whilst he was heavily involved in the war effort and in rescuing the world economy in 1945, he died in 1946 and never had time to write up and publish in full how his thinking had developed since the early 1930’s. His ideas were taken up by Nicholas Kaldor (1908-1986) and Joan Robinson in what was known as the “Cambridge School”, which were highly influential in the UK in the period 1950 to 1980. Their influence on the one hand, and the Marxist-Leninists on the other, more or less wiped out the middle ground and other schools of thinking in the period.

Putting complex ideas, however, in the hands and minds of politicians is even more dangerous than allowing them to determine their own expenses, or to run a scheme of agricultural or other subsidies. The concept of the Multiplier is such an idea, to a politician and their special advisers facing a bad downturn in the economy it is a powerful psychedelic hallucinogen. Briefly, the idea is that when economic activity slows or turns down to avoid the risk of a major decline, there should be monetary and other “pump priming” injections into the economy. Because this money will them go from one activity to another, if the circulation takes place as expected the total economic effect as it goes through the system will multiply the several sectors involved to the total health of the economy as expressed in the Gross National Product. This will generate added tax revenues etc. and balance can be restored.

Necessarily there are a number of assumptions embedded in Keynes ideas. One is that there is a moral ethic involved in policy decisions and expenditures. This may have been the case in the 1930’s, when morality was a touchstone of much of public and welfare policy, but in recent years has been overtaken by other ideas, that of serving particular interests represented by lobbyists where it is access and power that matter. Another is that as far as possible the statistics and data used for the process of decisions should be as reliable as possible and honestly derived. As the figures given out by government, and the indexes and basic data are now more often works of political fiction, and sometimes fantasy, there are real problems.

Other assumptions in Keynes were that essentially, all the more prosperous in the population would pay taxes, all the companies and other economic entities in the UK would pay UK taxes, all the financial sector would be included in the tax base would be taxable, there would not be a major criminal element in economic affairs, and the public sector would be the minor spender as opposed to the real economy. Also a government would not stoke up a boom by grossly inflating any market of significance. In recent years this has been the property market, and the huge bonuses being tolerated, even in reality encouraged, in broken nationalised banks at present are designed to try to rack the London market back up as fast as possible if only for the sake of the politicians own property portfolios and their trusts and special accounts offshore in tax havens. If you attempt to factor all this into Keynes ideas, then you have very serious problems.

Which brings me back to the Multiplier, and the high point of Keynes ideas on the subject, the 1960’s and 1970’s. These involve painful memories of the anger and resentment I caused when I asked questions like “What if does not work?” or “Is the money being spent on the right things.” Or “Are you sure that you can control and hold inflation to a level of only 3% if the pound declines or the trade unions persistently win pay deals at higher levels.” Had burning at the stake been permitted, I would have been one of the first up, a John Rogers of modern age.

In the 1960’s the UK and the world was a very different place. Where did my money go at the time? The house I was in was built by local builders, from UK materials. My current property was built by a firm with offshore financing and the service charges and freehold payments go to people with offshore private trusts. My power suppliers were British gas and electricity boards, but now is French. The railway was British Railways, now it is owned by the French. My food came from small local shops, with most of the supplies, seasonal, from within the region. For most people now it is a local supermarket now, and you have to look for the British produce. My clothing and footwear were always British made, now it takes time and effort to find a British product, most people do not bother. My insurances, once British, are now in the hands of an offshore based Private Equity Company. And so on and so on.

The upshot of all this is as with Lord Mandelson’s cash for cars programme a large proportion of the money going in as “quantatitive easing” or “pump priming” is not circulating in the UK economy, it is going somewhere else in the world. In short to produce an effect in the UK similar to that of the 1960’s or 1930’s, a proportionately vastly greater amount of money has to be spent, and therefore borrowed because of the nature and extent of the leakages abroad at all levels. Additionally the UK financial system is entirely different from the times of either Keynes or Kaldor. It is geared to operate extensively outside the UK on a far greater scale and much of it under foreign ownership, albeit using the City of London as its base. So much of the money going into that system will not appear in UK pockets.

A largish chunk of the money that does remain goes into the pockets of money men at multiples comparative to ordinary people hugely greater than those of the past, and certainly of my own, my parents, and my grandparents time. As I suggest one modern multiplier effect is to sustain property prices, and therefore to help keep most of our politicians and their associates personal wealth at high levels.

The idea of Keynes Multiplier was to benefit us all. The multiplier of today will only impoverish the great majority of us, and further enrich the few.

Economics Today, Maybe Tomorrow, Perhaps Yesterday, And Vice Versa

What do we know? Probably not much if its economics and finance we are talking about. This may seem about as off the wall as you can be with the huge amounts of information and the effort poured into finding out what goes on and why and retailing it for general and other needs. But all this information is about what happened yesterday, or longer ago, or months and years ago. Or rather what we think happened. We have only the figures, the methods of analysis, and the theories from which draw our ways and means of dealing with all this.

These are in the past and we are trying to understand the future now and now is when we do not know what is going on. Was yesterday just how you expected it to be, and is today going as planned? It is reported that the Governor of the Bank of England is summoning economists by the thousand to tell him what to do. “And shall quantatitive easing live or quantatitive easing die? Here’s twenty thousand economists will know the reason why!” does not quite have the ring of the Cornish National Anthem, and Trelawney was a Bishop, albeit a believer in the sound money policy of King William III and his Dutch advisers, but it will have to do for the time being.

Keynes died in 1946, Ludwig von Mises in 1973, Karl Marx in 1883, Lenin in 1924, Adam Smith in 1790, and there are other figures of economic theory from either a more distant past or from those reaching into the present. In all cases their thinking has had to be revised and reinterpreted as time has moved on, and in some cases the foundations no longer support the structures built on them. Mathematical economics or the “science” of econometrics is based on very complicated sums, numbers and ciphers intended to carry meaning. But they are based on data, and the statistics, runs of figures, and calculations are often not as good as we think they are or would like them to be. Also governments have a nasty habit of manipulating numbers they do not like, and the ways of dealing with them.

Also, there can be assumptions about action and reaction, behaviours, dependent and independent variables, and “worth” which become dodgier the more closely you inspect them. It was mathematicians, allied to computers operated by men in unregulated and uncontrolled environments, allied to the psychology of the casino that helped to give us the best of the latest bust. Amongst other things were those governments persuaded by economists by the thousand churned out with high qualifications from business schools and universities who assured us that the figures could only go higher and higher on the basis of their up to date interpretations of all this theory and the reams of data inputted into the computer servers and outputted through dedicated terminals. One forgotten feature was that the theoreticians of old did not take account of bankers who would lend massive credits that could not be sustained to poor people in order to extract charges and liabilities that would allow enough short term profit to fiddle the figures to keep the racket going.

There were madmen about, wittering on about the uncertainty of complexity, that the data was often on too short a run and inherently unreliable, that official entities were faking their figures to justify their desires, the nature of cyclical events, and what happens to the bath water when you lose the plug. Beyond them were the clinical apocalyptics attempting to apply the collapse dynamics of physics, the chaos of the universe of astronomers, the Book of Revelations, the games theories born in the poker schools of 1950’s colleges, or uncertainty principles, climatic variations, or the final insanity, the application of pure reason.

In the early 1960’s Professor Phillips of the LSE created his “Phillips Machine”, a laboratory device of glassware that demonstrated the flows of money, investment, and consumption according to Keynes Theory. It still exists, and it was possible to make a “road map” to see how it worked allowing for the fact that he had originally worked on probability theory. But today when going over this map the roads have changed radically. Some have had diversions imposed, others have too many pot holes, the destinations have been changed, but most important computers have created freeways where once there were only footpaths and ordinary roads. Some roads have tolls now, some have gone and others are roads to nowhere. Also, the weight of economic “trucks” and “traffic” have greatly increased with the rapid expansion of credit. I tried to revise the “road map” but there were just too many squiggly lines going in altogether unexpected directions and finishing up off the page.

So what is next? I have not been invited by the Governor to dine, although I cannot claim to be wiser or better informed than anyone else, despite the desperate trawling of the net and such. But as I have been going on a bit here we go.

My sciatica tells me it could be rates of interest, but as Lyndon Baines Johnson once said, “economics is a pain in the butt”.

The Invasion Of The Jelly Men

On The Hill in Washington DC on 24 July, a Congressional Briefing took place in which the representatives of Global Financial Integrity, Citizens for Tax Justice, and the Tax Justice Network (TJN) (see their blog) made presentations about the effects of rampant and increasing tax avoidance and evasion both through tax havens and inadequate and corrupt tax regimes in the developed world, I name no names, but take the District Line.

In a TJN presentation (Ms. Sarah Lewis of TJN-USA) the concept of Rock Jelly was introduced. It means a bowl of jelly with a small rock. When pressure is applied the rock simply moves and the jelly is rearranged to compensate for the pressure. So when the USA decides to push at the Swiss bank, UBS, all that happens is that UBS starts dumping its American clients, and shifts its attention to other places. In the case of UBS it is the Latin states of South America.

The concept may be a derivation of the idea of Rock Soup, known as Stone Soup in its several earlier versions. It’s most famous exponent was General George Smith Patton of Second World War fame, “Old Blood and Guts”, who applied it to securing the means of initiating and forcing attacks on the enemy, when he was supposed to be holding the line. Wikipedia has the details. Perhaps the idea can be taken to another stage.

Quite simply it is that as far as the political and economic management of both the USA and Britain are concerned there has been an Invasion Of The Jelly Men. This is not a horror film or story, it is the horror of reality. Essentially, we are ruled by Jelly Men. When you try to finger them, they just spread, or slip from your grasp, and then spring back, only dirtier and nastier. If you do manage to swallow them, they block your system, putting your interior economy in a state of chronic constipation.

Who rules the USA? The President? Well he might think that, but who else does? Congress? Pass the smelling salts. The Executive? Cue canned screaming laughter. It is the Wall Street Annexe in the money departments, and they are Jelly Men. How else does Goldman Sachs, and JP Morgan Chase etc. and a few others control all that happens? Goldman Sachs even owns a major pipeline. Thumb on the artery indeed.

In the UK, however, the Slickers of the City and the Hedge Fund Financiers of inner Mayfair may hold the reins and crack the whip, and the Government may think it owns the banks, but in reality they are all in hock to the representatives of a group of international companies, largely based in tax havens, and oligarchs of one kind or another, who have only to phone one of very few numbers to get what they want and when they want it.

We have a government of Jelly Men, and a Political Class and Media of Jelly Men affiliates. Pressure them for justice, morality, or decency and they will simply bend, slip, or slide away, to retain their ability to evade, lie, and then to take all they want. The Jelly Men in the public sector are taking enormous amounts, not in declared income or expenses, but in all their other activities, all or most of salted away in tax havens with secrecy jurisdictions. The UK judiciary is creating such a jurisdiction in the UK under the civil Libel laws, one breath or hint of criticism and you are up before the beak, guilty as charged, and your innocence impossible to prove. The wealthier elements in the UK private sector have long gone offshore. Almost all the rich and well connected are paying virtually token taxes.

To pay for the fiscal deficits and huge debts created for the benefit of The Jelly Men it will not be the owners of wealth and the powerful who are the ones responsible for the mess, it is the working population who cannot avoid taxes, and most of all the poor that will be left to pick up the bill. It is already happening, pensioners in sheltered housing have been facing rises in charges of close to 10% compound for a year or two now, and it is getting worse. This is not for public services, but for a range of prestige projects and private obsessions of the powerful.

In the UK, it is clear that the twelve years of Labour government have significantly widened the gap between the rich and poor. The Jelly Men have had everything they asked for, and much more than any past Tory government would have dared to give them. Any new Tory government themselves will be in thrall to The Jelly Men.

In the USA, they have been given the keys to Fort Knox, the Federal Reserve, its allied offices, and all the currency printing presses, so they control the government in that they control the money systems, the regulation and issue of money, and the nature of the money in the markets. Through this they control the administration and by that the Presidency. Congress does not even control itself. All the voters get is a theoretical choice between the flavours of jelly, and they are synthetic. You are either with them or subject to them, make your choice.

So, either The Jelly Men will destroy the nation states, or the nation states will have to destroy The Jelly Men. Don’t miss the next episode, in fact you can’t.

Your Tax Break Is My Tax Increase

The UK government has just installed Direct Rule over the Turks and Caicos Islands as a result of a report to the effect that there has been widespread corruption, and extensive malpractice in its governance. The Islands are one of a number of tax havens in the region dependent on the finance sector, tourism, and all that goes with these activities. Wikileaks has a good deal of information. There is little or nothing to be found in the UK Media, despite so much of our wealth being churned around the many computer servers on the Islands.

Many of the locals are not happy, and have declared their opposition to British Rule. Quite how far they will go is yet to be decided. It all looks very messy. They now want to throw off the yoke of colonialism, and the last thing our Government needs is another messy potential military commitment, especially in the Caribbean.

What is not mentioned is one of the other local difficulties that came to light this week with the lost of a Haitian vessel full of refugees off the Islands. The tragedy of Haiti has led to large numbers of its people taking small boats to reach other places and the many other communities in the area and Florida now have a substantial Haitian underclass who do the low paid work and live in very poor conditions. But at least they can find food.

Just before the crisis emerged the Institute of Directors urged upon the Government and the Chancellor of the Exchequer that instead of clamping down on tax avoidance (and evasion) the UK should actively compete with tax havens in a race to the bottom for tax breaks for the wealthy and the high rollers.

This is what they mean, culled from a Turks and Caicos web site:
NO INCOME TAX
NO REAL ESTATE TAX
NO CAPITAL GAINS TAX OR CAPITAL TRANSFER TAX
NO VALUE ADDED TAX
NO ESTATE DUTY TAX OR INHERITANCE TAX
NO GIFT TAX
NO LAND TAX
NO WITHHOLDING TAX
NO TAX TREATIES AND THEREFORE NO EXCHANGE OF INFORMATION WITH FOREIGN COUNTRIES
NO EXCHANGE CONTROLS, NO RESTRICTION ON HOW MUCH CAN BE BROUGHT IN OR OUT OF THE COUNTRY
ECONOMICALLY & POLITICALLY STABLE
STRICT SECRECY LAWS
BRITISH DEPENDANT TERRITORY
IDEAL CLIMATE & GEOGRAPHICAL LOCATION
EXCELLENT COMMUNICATIONS SYSTEM
LAWS CONDUCIVE TO CONDUCTING BUSINESS IN A TAX FREE ENVIRONMENT

Oh my word, if the Government followed the Institute of Directors recommendations that our nation should follow the example of the Turks and Caicos Islands just how would UK budget be managed, notably the large fiscal deficit, given the impact on revenues?

But if we now have direct rule, perhaps the Government should make it a UK local authority, and part of the UK, much as the French do with some territories, freeze all the accounts and levy taxes accordingly. Then things will get really interesting.

Are the Royal Marines on standby?

Paying The Pensions Piper

Long ago, there was a radio programme “Round The Horne” in which one character was Rattling Sid Rumpole, a Kenneth Williams skit on TV and Radio gardeners and rural types. His catch phrase was “Arrgghh, the answer lies in the soil.” Applying this philosophic principle to pensions comes up with “demographics” in place of soil.

I have said about many things, “But we saw this coming….” Alas, many except the politicians and media types. For the public sector pensions, finance thing, it is “Been there, done that". Many of the pension schemes were in place many decades ago, and whilst they did allow people to leave early, there were no added years except in the case of serious illness, when a modest number were allowed. In those days it had to be terminal or nearly that to get one. By and large employees were expected to serve their time.

A good many did not make it to retirement age; and of these the men lasted only an average of about 4/5 years Pension Payment Years after 65, and the women 14/15 after 60. In any case many men did not get in the full years of entitlement because of military service or some such and few women did the full number of years or anything like it in an age when marriage and children meant that you did not work.

By the beginning of the 1980’s because of money and staff reductions the question of early retirement came to the fore. With the strength of the unions, one means of relatively easy staff reduction was to let staff go early, often with added years and extra lump sum payments. Additionally, the medical conditions for departure for illness was relaxed, which added to the numbers drawing invalidity benefits. So when early retirement came onto the agendas as an easy and popular way of getting the numbers down, there was a Gadarene rush by unions and politicians to go for it, and to hell with the figures, the future would take care of all that.

By the 1980’s, however, the demographics certainly were changing in several ways, a key one being the increase in the expectation of life and it was clear even then to those who could do basic arithmetic that the various pensions schemes were going to come under pressure. Quite simply, the total of Pension Payment Years for all those on the books was already rising steadily and the trend was likely to last for some time. Add on almost automatic early retirement, and given that many of the early retirement schemes allowed people to go at 50 instead of 60 or 65, you can see what was going to happen. Then relax the rules and criteria for “sickies” and away you go.

So a man who goes in his early fifties might get 25 or more years of retirement in, and a woman 30 to 35 often at close to full entitlement. Whilst in the past the monies paid in by those in post could cover the totals needs, in a world where very many will not go into such a job until their early 20’s, or even later, then the sums paid in will not go near the sums paid out.

So it is not working any more and huge deficits have built up nationally and locally. Instead of facing this and putting in place some sort of controls the Government has simply given away more in the public services and all the schemes are technically insolvent. Government borrowing will have to take the hit one way or another, because the money is not there from taxation, nor from the existing employees.

It adds to all the other severe pressure on borrowing, and cannot be covered by forcing captive banks to buy treasury bonds, although the government have been leaning heavily on those public sector pension schemes with funds to do so, but some operate on the "running bath" principle. However, this only means that the returns to those funds are impaired by effectively lending to the government at below real market rates. This “Enron” tactic is at best only a quick temporary fix. It cannot be a long term solution.

After the Government hit the private pension schemes (except for the seriously rich) and tinkered with other parts of it, the old occupational pensions have almost gone, as the actuaries, accountants, and others have calculated the consequences. The present government are unlikely to do much because a remarkable number are entitled to public sector pensions as well as their political ones, often at levels that are augmented by their previous employers to way beyond the actual level of work they did. Also, a good many of their relations and friends are set to benefit as well.

So if you think that those parliamentary expenses were a profitable racket, think about their extra pension funds and entitlements from before they were elected or appointed to Parliament, and protected by convenient privacy arrangements.

Scottish Economics - A Fable

Evelyn Waugh writes to his wife Laura, 31 May 1942;

No. 3 Commando was very anxious to be chums with Lord Glasgow, so they offered to blow up an old tree stump for him and he was very grateful and he said don't spoil the plantation of young trees near it because that is the apple of my eye and they said no of course not we can blow a tree down so it falls on a sixpence and Lord Glasgow said goodness how clever and he asked them all for luncheon for the great explosion.

So Col. Durnford-Slater DSO said to his subaltern, “have you put enough explosive in the tree”.

“Yes sir, 75lb.”
“Is that enough?”
“Yes sir I worked it out by mathematics it is exactly right.”
“Well better put a bit more.”
“Very good sir.”

And when Col. D Slater DSO had had his port he sent for the subaltern and said, “Subaltern better put a bit more explosive in that tree. I don't want to disappoint Lord Glasgow.”

“Very good sir.”Then they all went out to see the explosion and Col. DS DSO said you will see that tree fall flat at just that angle where it will hurt no young trees and Lord Glasgow said goodness you are clever.So soon they lit the fuse and waited for the explosion and presently the tree, instead of falling quietly sideways, rose 50 feet into the air taking with it 1/2 acre of soil and the whole of the young plantation.And the subaltern said “Sir, I made a mistake, it should have been 7 1/2 lb, not 75.”

Lord Glasgow was so upset he walked in dead silence back to his castle and when they came to the turn of the drive in sight of his castle what should they find but that every pane of glass in the building was broken.So Lord Glasgow gave a little cry and ran to hide his emotion in the lavatory and there when he pulled the plug the entire ceiling, loosened by the explosion, fell on his head.

Tax Havens Again

Returning to the subject of tax havens http://taxjustice.blogspot.com/ on 19th June in a post "Tax Havens and Development - A Damning Report" deals with the complex effects and distortions arising from the movement of monies through these banking locations. Further down the listing is another item "Tax Havens - Macro Relevant" dealing with the general economic impact across the globe. They take a little study, but are another insight into what has been going wrong and why. A gentleman on the beach above, a local preacher, told me firmly that the sand grew on trees far below the waves. The local bankers must have been listening to him.

Figures For A Change

Soon I am due at the dentist's and the old fingers tremble above the keys. It is not for fear of the man, he is a very capable decent professional. It is the size of the bill that worries me. So I thought that the only consolation would be to worry everybody else. The debt figures were taken from The Economist of 13th June, via Financial Armageddon. The tables come from Economic Road Map (When Giants Fall). Both sites are by Mark Panzner.

Sic Transit Gloria Mundi

LDV has gone into administration, the potential buyers having withdrawn. So what do we do about Vauxhall Motors? Never having bought one, I have no sentimental attachment to the marque, nor has my interest ever strayed in that direction. But there are difficult decisions to be made. At one time the economic planning of the UK government entailed redistributing the manufacture of cars, vans, engines, and parts from the engineering heartlands to all those districts which were alleged to have development needs.

Many of these needs were far more political than economic, with the result that too many firms for whom policies of concentration and strengthening were needed ended up weakened and scattered. Vauxhall was one, sent to Merseyside to compete with Ford on the other side of the Mersey in a race to reduce productivity and enhance labour requirements.

When there was still growth and expansion in prospect the ensuing problems were met by the globalisation of the car industry, and the UK government were happy to see any foreign investment, and therefore ownership and finance taking the strain, and the responsibility for decisions. As time went on, other countries entered the market with new plant, new models, better engineering, and much cheaper labour.

In the world there is now more car making capacity than needed, and if there is any expansion it will not occur in the UK. All we can do is to hang on to what we have, and hope maybe to be able to supply parts to any of the survivors, if any want to source from us; I suspect only if they are cheap enough. But it looks as though to do this will entail massive subsidies. So we will be subsidising foreign car makers.

If the UK government saves Vauxhall, it means supporting US and German car makers one way or another. If it does not save Vauxhall, then there will be fewer cars being made in the UK. If the people of the UK buy far fewer cars that matters less, but if pushing taxpayers money into the consumers pockets keeps the demand for cars going, again we are subsidising other countries manufactures.

Then there are oil prices. My pet theory is that these are now in a pre-chaotic state; that is unpredictable and wildly variable. So staying in the car industry may be a bad move for any government.

Where’s my train timetable?

Inflation, Expenditure, And Elections.

The CEO was doing the family accounts, and muttering things that no well brought up lady would normally mention. Meanwhile, the soccer and rugger seasons having ended my eyes were now straying beyond the comics and sports pages to other stories. “At least we have had stability of prices in the last few years, and they are coming down now” I said, reading some intern’s interpretation of a Downing Street Press Release masquerading as a lead article in a quality paper.

I was hurled a baleful look, “Not in this house, and not in many others” was said through bared teeth. “But the Bank of England and the government statistics experts all say so, look at the indexes.” I claimed. “Fine,” she said, “so how is it then that in the last twelve years our service charges have nearly trebled, the council tax has more than doubled, the rail fares have doubled, the water bill and the electrical bill has more than doubled, the real food costs have doubled or more in some cases, car running costs have more than doubled, the TV License doubled, and extras here there and everywhere we didn’t have before, and as for the bank…”

I interrupted her, the CEO does not like bankers, in fact her feelings on the subject are stronger even than grandfather’s about the Kaiser, and he was a stalwart of his local Hang The Kaiser Association. “But a lot of things are cheaper, frocks for example!” Another mistake, the CEO does not wear cheap frocks that fall to bits in the first wash, and are made by slave labour. “Well, telecommunications!” She reminded me that while I get a great deal from the net and all that, we still pay a little more, and the mobile charges are far from cheap.

I tried to trump her by telling her about white goods, complex financial products, insurances, and all those lovely items of mahogany, teak, and other timbers in the furniture shops. The sofa shop’s sales are still going strong after thirty years, alright, the sofa’s smell funny and bring you out in a rash, but they are dirt cheap now. She reminded me that it is over twenty years since we bought furniture, the white goods are rare purchases, as is all the stuff marketed in the name of modern lifestyle. In any case barely any of this is made in the UK, and has depended on sterling being sound, oil being cheap, rain forests being removed and all the rest. And if I wanted to eat junk food packed with refined sugars dodgy salts and carcogenic flavourings, that was my problem, and if I started using other stuff that was in the indexes then I must be insane, or something.

She went on to remind me that the council had stopped repairing pavements and clearing out drains, had reduced refuse collections, had cut care for the old and hefted the prices, put money in Iceland, and was now charging to park on the street. We were getting much less for our money. The rail company has cut services, abandoned passenger safety, and rarely cleans its coach stock. We have to read our own electrical meters, and pay more to do so. Were we to take advantage of Direct Debit, the utility would force us to have large credit; that is giving them an interest free loan, and then quietly put the prices up so we would not really notice it on the bill. All in all we are getting much less for our money, even where prices are said to be stable.

Of course she had missed the big picture, and that is what men are for, or so the chaps in the queue at the Social Security say. “Aha, but property prices have all gone up!” As snarls of contempt go, the CEO is Premier League. “That was an inflation, we exported it Europe wide, and it helped create debts we cannot pay.” “Oh no, it was the economic growth that made us all rich and happy, our Prime Ministers have said so.” Oops, “We are less rich than we were, and a lot less happy after we have paid our bills. All the politicians have been playing the property market with our money, and with loans, from amongst others, Northern Rock, RBS, and others that we are now paying to stay open. This wasn’t growth, it was mad bad inflation.” “But all the newspapers said it was wonderful growth.” I riposted, “And now we are all doing our best to support and restore never ending fifty per cent a year property price rises.” I was on the end of a long look, “So when did you last get a present from Santa Claus?” she asked. There was no answer to that.

I tried a last throw of the dice, “At least our pensions go up.” The jeer could be heard down the street. “They go up according to the government indexes, and they hardly go up at all, and I would remind you, our savings interest has gone down a lot more than any pension has gone up.”

What did hurt my feelings was her parting comment that people like me should not be allowed to vote. Just for that I will stay at home for the elections on June 4th. That will show her.

Some of us know how to protest.

Hyperinflation & The Hypermarket

It is alleged that the increase in spending of the Federal Government of the USA has led to a dramatic increase in the amount of borrowing it has to do to fund it, especially as tax revenues are decreasing. Inevitably, this has led to the bond yield curve in the markets rising to match the consequences. All this is very boring and technical stuff, much less fun than all the other media obsessions of the day, so I will not go into the rest of it, just to say we in the UK may have the same problem.

So I must remember to add to my shopping list a good stock of cartridges for my printer, as well as boxes of high quality paper. Because when I go shopping at some time in the foreseeable future, I may need to carry a great deal of paper with me, and my debit and credit cards will be no use at all. Perhaps it might be sensible to buy a couple of back up printers as well.

Money Playing Footsie

The other boot has just dropped. Whilst many of us have enjoyed the thrill of the chase in the last few days, someone just shot the fox. The problems of the last year were the first boot to drop, and those of us with an inclination to pessimism and the expectation of disaster have been waiting for the second. Standard and Poors have now obliged with their down grading of the UK sovereign debt.

As some have said this is based only on the visible debt that the government admits to. On top of this are lurking all sorts of other liabilities, all those unfunded pensions to meet as the baby boomers retire, and all those shifts and devices to keep debt off the books. The IMF do not like it, the markets when they have stopped trying to find excuses to massage the indexes upward will not like it, others do not like it. I like it even less than they do, because I am going to have pay for some of it.

In the USA the states of the Union are each chasing their budget deficits without too much success and the commercial property market is following the domestic market down. In Germany and Japan the exports are down and have further to go. Around the Mediterranean are a number of broken economies, which could damage the Euro. In one of them, Spain, are over a million UK citizens and pensioners, most badly hit in the pocket. What would happen even if only a quarter decided to pack up and come back to Blighty?

In the meantime the UK Government bodges, fudges and tries to move things by throwing money around. Quite where it is going is not certain. A good deal is borrowed back by the Government which will do no good at all. A lot is going off shore to reduce the losses of the London magnates who profited so much in the past. Inevitably, a good deal is following a lot of past government expenditure into the various rackets that have added to all the troubles, notably the housing benefit scheme, invaluable to the rented property sector owned by money launderers and those living on a purely cash basis for various reasons. Unless someone gets a grip it is all going to be very difficult. Just what is going to be cut and by how much? In the 1960’s Harold Wilson had to declare that the UK could no longer afford to be a power East of Suez. Someone may have to revive that policy very soon. In fact we may not be able to afford to be a power East of Great Yarmouth.

So the hounding of Sir Peter Viggers, MP for Gosport in Hampshire, who installed a Duck House in his lake paid for by the members allowances is almost quaint in comparison. What puzzles me is why he should have provided his ducks with their own detached property with taxpayers money, as no housing benefit was available. Perhaps he was genuinely trying to provide a market opportunity for all the growers of watercress in his constituency. But if the economy goes the way it might do, and the UK debt ratings go down for good, there may be only one option for him.

He will have to eat the ducks, of course after the watercress soup.

More Taxing Problems

On Wednesday 25 March I posted an item on “A Taxing Problem” referring to The Bahamas, which was a revised version of my letter in the FT in February 2000, long ago when I could afford to buy printed newspapers instead of blinking at a blinking screen, and naïve enough to believe that writing to the papers had some sort of logic. It suggested that dealing with the Tax Havens might not be a simple business.

The Tax Justice blog of the Tax Justice Network had this item on Thursday 30th April:

“Tax Haven Seeks Taxpayer Compliance”

From The Nassau Guardian yesterday (29th April 200)

Prime Minister Hubert Ingraham said the revenue shortfall experienced this fiscal year is so drastic that collecting "every dollar" that it is owed to the government will not be enough to remedy the situation."The hard reality of revenue shortfalls is hitting this Caribbean tax haven hard, and it's having to borrow $200m from a consortium of banks:"If you are not making the money, how else do you recoup it? By taxing you more? How else [do we] do it other than taxing you more?"

Ingraham asked. "There are only (so many) ways to do it: Cut back on services, which means you cut back on people and the delivery of services; increase taxes; or borrow; or a combination of all three."He might take a moment to consider the revenue costs that offshore centres like the Bahamas force on other developing countries. Then the newspaper reported this:"According to the 2007 Auditor General Report tabled in Parliament earlier this year, the government is owed nearly $400 million in outstanding real property taxes, an amount which should be sufficient to compensate for revenue lost in the 2008-09 fiscal year.

The report revealed that in total $563,261,853.75 in various taxes were owed to the government, an amount it labeled "exorbitant" . . . "We recommend that immediate measures be implemented, whereby delinquent taxpayers are made to settle their debts in an expeditious manner." With a probably unintended twist of offshore irony, the newspaper also reported:"However, the report did acknowledge that money might be hard to recoup.

"A contributor to the Tax Justice Network site added this:"Wondering if some of those delinquent debtors to the Bahamian Treasury on their real property taxes include wealthy individuals who have bought their luxurious behind-locked-gates residences to acquire economic residency, in order to avoid paying taxes due to their original home state? Are there individuals double-dipping on the cheating? And what about the foreign owned banks and trust companies whose very existence there is to provide tax-cheat services? ... Do they have an obligation to pay taxes and are any delinquent?"

Just above this blog on the same date, 30 April was a post “Grimy Panama – New Report” and on 27 April was a blog “Climate Of Fear In A British Tax Haven” from a matter raised in Parliament.

None of this makes comfortable reading, especially as in some places the “Haven” has a rich mobile elite owning property in fortified and heavily guarded settlements serviced by cheap, often migrant, labour and luxury commodities supplied from abroad. The great majority of the people live in real poverty, and also lose out because much of the tax base is regressive sales taxes and other charges. It could all become highly unstable.

If the government of the Tax Havens collapse because they cannot fund themselves, then who is going to bail them out? There is a ticklish problem here, because whilst the ordinary people will need all the help they can get, simply to hand over funds entails giving huge indirect financial support to mega rich celebrities, show biz, billionaire financiers, sundry Ponzi scheme operators, and of course all those lovely people engaged in free market medication, narcotics to you and me.

If it all gets very bad and the problems are spilling over into nearby territories and migrants are fleeing the worst, then who’s Marines will be sent in? Will it be those singing “From the halls of Montezuma to the shores of Tripoli” disembarked from the most modern equipment fully equipped and inspired by noble purpose. Or will it be something too obscene to be mentioned sung by a motley crew of scruffs, flown in on an unused tourist charter plane with little equipment, because they are expected to pay for their own baggage, followed by accountants bearing PFI schemes?