Wednesday 6 June 2012

The Government Is To Grow Turkeys

The Chancellor has mooted the idea of “Growth Bonds”.  This is a wheeze by which The Treasury will entice savers, the few that are left, into buying a financial product from the government where the money will be used for “growth projects”.  The details at present are obscure.

When they are finally marketed the chances are that they will be even more obscure.  The likelihood is that a good many of these projects, being government inspired, are guaranteed to be money drains that cause capital destruction.  When the money is flowing out this will be called “growth”.

But when the project is completed, probably way, way, over estimates it will be realised that the revenues, real or imagined, will not cover the capital obligations and if experience is any guide, may not cover running costs.

During World War II both the USA and the UK had government borrowing programmes, War Bonds and such that were heavily promoted in the media and by the State.  A lot of people put plenty of money into them and did not make much on the deal.

This was because wars are classic instruments of capital destruction physically as well as financially.  This engendered a need for more government borrowing after the war and the effective devaluation of the War Bonds by inflation when payments were deferred or interest reduced.

“Never give a sucker an even break” have been the watchwords of Treasuries when they have raised this sort of borrowing from the citizenry citing patriotism, trust or certainty as their motives.  It is almost a given in any state at any time.

What is likely to happen is that around the government departments concerned there will be a hunt for the biggest fattest turkeys on the project farms to sell to the taxpayers and all the widows and orphans.  Perhaps like the Blue and Bourbon Red Gobblers, above.

You name something too good to be true and it will be listed for the money.  Only, the investors will have to trust the civil service and their financial advisers to get the sums right.  Given the record of the last couple of decades the disasters will be of a greater order of magnitude, if that is possible.

Another UK scheme of the War years was Post War Credits, a forced savings scheme where money was deducted from wages additional to tax and national insurance and put into an “account”.  The theory was that they would repaid after the War with a notional rate of interest.

Eventually, they were, but not until the early 1970’s after 20 plus years of inflation and devaluation of the pound sterling.  Basically, you worked for a day in the 1940’s and were given back an hour’s pay in the 1970’s.  Also, you were expected to be grateful for it, those who had survived.

So if we are going to get “Growth Bonds” soon, can Post Crash Credits be far behind?

1 comment:

  1. Whatever next. Bond purchases would have to be compulsory methinks - we aren't that daft. Surely?