Georgia's Cracked

Just when you think it’s safe --!

Whatever the disquiet in many Western capitals at the rash thinking that led President Saakashvili to order his troops offensively into South Ossetia on the 7th and over the week end, it was a clear provocative attack that opened the way for Russia to undertake military action to safeguard its passport holding citizen of whom 90% in S. Ossetia claim to prefer Russia. Although the west gives recognition to the territorial right by Georgia over S. Ossetia and Abkhazia it has always been a strained ‘agreement’ under contention between the EU/USA and is not accepted by Russia.

Now after the stupidity of action by Saakashvili, Russia has found a way of making a political mark of authority over the disputed areas to the extent that Georgia, having no comparable defences might itself now be taken over. And there is nothing to stop it happening. The west will make all the usual noises but it will not get into a military fight. It is hung by its short and curlies as it has not the resources, inclination, nor speedy organisation structure to act, in any case the position politically is futile. The EU also has a dependency for the Russian energy!

If there has been anything that shows that the EU is weak and can no longer ignore Russia, this is the one moment that highlights the exposure it has on a number of fronts.
Russia demands to be taken seriously.
It will not allow Georgia to become a member of NATO although others now will.
It is unlikely to relinquish its new hold on the disputed territories.
Energy source in the EU is now a serious economic and military weapon that impinges on policy action.
In election year USA is in no position to propagate any action, this is an EU problem.
The EU will do nothing to jeopardise the energy links.

In reacting with disproportionate action Russia has also made a mistake. It assumed that with its new found strength built on its energy exports that it can make punitive acts without reaction. There will be no actual physical action of course but it will stimulate consolidating moves throughout the EU. Germany will amend its constitution; Turkey will find an easier path to membership. The idea that Russia is as yet in accord with the west is mistaken and greater effort has to be made to develop strategic understanding or see it likely to pursue an agenda that is increasingly counter to a western view. The EU cannot be subordinate to NATO or the UN to the extent that it cannot react ‘independently’ It will have given a push to the idea of a stronger military cache and provide impetus to alternative energy resources. For the future the EU cannot afford to keep Russia isolated from the European project; it has to make a move soon.



© Renot 2008
1208081511

"The Big Conversation"

Or The End of "The Big Conversation"

This is play on the labour parties fashionable engagement plan to sound out the populace on the views of its unfolding strategy. The idea was to gain opinions to feed into policy issues via discussion groups, to essentially reinforce the basis of the ‘New’ Labour strategy. This is one dime worth of wayward thoughts on themes that they should have actively addressed and did not. These themes are still very much in the game now and need to be worked on by whoever gets the next election of 2010 and it is unlikely to be the labour party.
(See New Labour June 07)

Expectations, In the pre 1997 election there was an element of revulsion directed at the conservatives and their slide into sleaziness which saw the chances of them getting back into power severely restricted for some time. At the same time it was clear that they were becoming exhausted in their capacity to develop new policies that did no more than progress the right wing agenda of privatisation, selfishness, featherbedding the affluent and ignoring the growing economic social divide. At the 1997 election there was a generally feeling that a change of government was overdue and a great deal of hope or expectation was placed in the renewal of the Labour party with its ‘New’ untried credentials yet it was consistent then in alluding to retaining the trusts of the social fairness that the labour party had traditionally represented.

The popular unspecified social equality expectations of new labour have not materialised. The promise of a labour government that had gained the massive majority to remodel perception and benefits for working class people has been betrayed. There has been NO redressing the balance of wealth so successfully switched by the conservatives. There are NO long-term irreversible social, cultural benefits; NO social integration of ideals, NO reduction in class division to have economic-social mobility, NO acceptance of the need to be actively seen to have a fair society and across a number of measures unfortunately more inequality is evident.
The success of new labour in holding onto power has come despite the troubles of the 2001 election that shrugged off the Iraq fiasco and a repeat win in 2005 which seen voter confidence in them slip but in they still got in by pandering to the marginal voter and enacting policies that were more of the conservative right than social labour.

Some element of the labour policies, at least early on, were innovative and daring, from the introduction of the freedom bestowed on the Bank of England to set interest rates and the implementation of the derided minimum wages act, to the huge investment in health and education (unfortunately financed by very expensive PFI’s and increases in stealth taxes) the adoption, with some stricture, of a Freedom of Information act; little else of great social improvement is recordable. Now after eleven years with its controlling majority in government and 2 more to go, there is a sense that the game is up, ‘New’ labour is defunct, and it has betrayed its roots. There is little of concrete substance that the new labour party has done that cannot be undone indeed they have built on some of the less appealing aspect of the conservatives Thatcherism and in doing so lost many elements of what labour stood for.

‘New’ labour has had a good run with a relative benign economic period but it has now hit the buffers by not being adventurous in taxation, social investment, embedding equality and fairness expectations and failing to take a long term economic solidity view. It has wasted its political majority in not doing enough to hammer out a new direction that compounded the best of the old labour philosophy and too many MP’s were but lulled into seedy consensual actions preferring to hold onto power at all cost and not be seen as old labour, rather than tackling the fanaticism of monetarism. The same shallowness of commitment cannot be said of the previous Conservative government that used its early great political majority to feed big business and the rich, destroy social cohesion, denigrate society and foster greedy self interest, from which today the affluent still benefit.

By all measure the rich have got richer and the poor poorer and this under this new labour government!

It is with regret that the obituary of the labour party is being written but they deserve it. There is just a small window of opportunity open that could allow a rise in their effectiveness but it will have to be built on dramatic measures, vision or aspirations that will make old labour supporters want them to retain power. The bargaining lines are being drawn now, with the Liberals not saying anything of substance nor having a leader with commentary character, the Conservative playing at moving to the centre social ground with a spruced suave leader and the labour party beginning to take a hard look at them selves to assess if Brown can pull another term off after the Blair days. To do so will need a critical reassessment of direction, unfortunate the alternatives are considerably less appealing.

Tax: Without the revenue stream of tax the possibility of having increasing spending on the usual subjects is limited, at a time when the global economy is falling under pressure, the expansion of the UK economy is restricted BUT there are clear element within the tax structure that are unfair and can be used to move on a social agenda. The tax burden falls much more heavily on the poor than it use to. The aim should be to take average wage earner out of the tax PAYE not by increasing the tax free banding rate that is applied to everyone but by exemption, this exemption could be on an individual basis or by household e.g. the first £24K of income attracts no tax. This allowance should not be able to be taken by individuals or household that has income that exceeds average UK income. Despite the recent stupid mistake over the suicidal 10 pence tax bungle, the harsh retrospective VED increases and food and fuel cost that impact the poor most, there is still scope to improve tax banding to just benefit those on average wage, to make the banding benefit just those in the lower income bracket and not everybody. The government has made a mess of the economy and taxes will have to rise unfortunately at a time when people will not want or be able to carry the cost. Although the government are taking advantage of the green hype by throwing tax at everything, it would be more acceptable if such green taxes were hypothecated to a targeted end project like rail or road or Co2 neutral transport.

Pensions Issue: The current pension fallout can be clearly placed on the mat of Mr Brown and a race to offload corporate pension responsibility linked to a short fall in contribution and a stock market retrenchment. The conservatives stopped the pension’s index link creating a withering of sate pensions and encouraging a move to private provision, this allowed pensions to be ripped off by business and new Labour has since done nothing to reverse the overall decline. It has not increased the provision of state backed pensions but exacerbated the pension problem with the early Brown removal of tax benefit despite being told by officials that this move would have dire consequences.

Now Pensions should be made compulsory. It is no use being wholly reliant on private individual provision to provide a pension. Pensions should be ring fenced so funds are not hi jacked away from the provision of resources to beneficiaries and all companies must have some form of pension contributory scheme. There should be no opting out for employers or employed. All should be obliged to contribute who can, leading to enhanced benefits for those that do (rather like the old GP scheme). In a civilised society that relies on the combined contributions of effort of all for the economy to work and whose people are called upon in time of war to submit to the will of the state for the benefit of the whole county, it should be a fundamental commitment by the country as a whole to look after the future of all persons with some form of pensions compact.

Health: On no account should the national heath service ever be privatised. It must be seen to be the mark of a civilised culture to provide, without undue restriction, facilities for the maintenance of a healthy population. It should always be basically free at the point of delivery but more should be done to assist people to take care of themselves. Some consistent element of promotion should be made to point out the dangers of obsessive smoking, drink, drugs or sexual activities. Again some form of individual compact that rewards self health help could be promoted and if someone wants to obtain an external service they should be helped to do so but be expected to contribute. There should though be a realisation that the NHS cannot and does not have to throw money at every form of medical condition, there is a point when the extension of life or lack of a better quality of life is not achievable and death is not defeatable. Furthermore if someone is taken too hospital as a result of binge drinking – measured by a ‘over the limit’, deliberate unhealthy drug taking, violence towards health staff etc they should be presented with a contributory bill for excess medical treatment. Smoking is already a target and has been banned in public premises yet it is easier to ban something which is common place and declining anyway than eradicate the likes of alcoholism, drugs or being overly fat which might be the next thing to target. Continuous self abuse may lead to curtailment of heath provision.

Education: This is a contentious issue, like the NHS, it is the political ball game which has not really been accepted as the bed rock of a civil society yet both are a cornerstones mark of a future civilisation. Education is under constant review of injected policies and dogma without assessing what the education is for, for what long term end result. Having a two tier system public and private inculcates the economic social difference in a society, one of them should go. Education should always be free for all, with technical and academic study provided at an earlier age matched to desire and ability. It should be totally secular with democracy education taught leading to higher life time or university education also being free at point of use but subject to higher personnel tax levied over the average wage rate to contribute to cost, or failing this ‘indentured’ to a job within the UK for a set period to add value back into the system that provided the skill. There should be no get out for life or domicile location until equitable reparation is made. A penalty could be loss of citizenship.

Transport:
Roads, there is no alternative to a good road infrastructure. Individual mobility is crucial to the flexibility of social integration. The whole mobility of a operating work force cannot be turned around now to force it onto a pubic system there is not the elasticity within a public transport system that can cope with efficiency required of an organic economy. There has to be continuing new investment. It may be time to combine road tax (or the higher VED) and fuel tax into one. Those that use the road more, pay more. Problems with out back areas may be eased with a fuel credit ration system.
Rail, it is a strategic necessity to have rail back under overall tactical control with investment that can match the best of European efforts. For the benefit of a future generation, mass transport of this nature is essential. It is the only way to avoid transport grid lock.
Air transport, despite all the argument that airport promote economic development there is very little hard evidence that this is the case. A large hub may help a small proportion of the top 10% income takers however the majority do not benefit from a notional trickle down effect. The government should step back from further expansion. It is also necessary to stop the universal fuel tax break they benefit from. They are a big polluter and airlines / passengers get off cheaply; they do not pay the environmental price.

Environment:
Climate change. It is happening and faster than anticipated. Within the next 7 years there will a massive event to create a fright but there are things that we can do. It is a Damocles problem that affects all countries but to tackle it alone would be futile and economically exhaustive. As is always the case with humans, change will only occur when forced to. To mitigate the cost, relocation of physical structure away from inundateable areas should be started now. There is little point in penalising people economically with carbon taxes when the benefit, supposedly to reduces personal Co2 and hence the environment is miniscule. Taxing soft targets is a no win; it is investment in the major instigators that will pay off hence a move to nuclear and fusion. Use persuasion on the oil and gas giant to use their excessive profits in Co2 neutral generation schemes or windfall tax them.

Immigration: Rewrite the 1950 asylum bill, it is out of date, abused and does not match or meet the needs of Europe. It should be made much stronger with measures required to stop illegal, economic migrants, beef up forced returns and fixed quota for application of permanent immigrants – the country pick and chooses. Also there should be a medical check requirement so that those that are allowed in do not bring pre-existing conditions with them. i.e. aids / TB etc. Labour have always been too lenient on immigration issues and simple do not see the growing resentment and developing ghettos subsuming parts of England. With the advent of climate shift and economic down turn this will become a crises issue.

Political Tensions:
Middle East, Oil is the only thing that it has going for it and within that is the potential for long running tensions. The UK must develop energy away from oil dependency from unstable zones unfortunately most area with access to energy resources are unstable and oil, gas, and water are more likely to used as precursor weapons to a conflict.
Iraq, An illegal war but we are in so we have to stay in until there is some self-control and peace.
Afghanistan, The UK has been suckered in to this conflict on the bases of defeating the Taliban, terrorist hiding place and poppies. It is seen as the European face saver after Srebrenica but the Europeans do not want to carry the death cost, so unless EU put more weight behind the effort the UK has to get out ASAP or it is likely to be in the mire for some time. Both of these conflicts are costing the UK money it can no longer afford.
Iran, this is the glowing tinder box of the Middle East with the understandable drive for nuclear sovereignty. Syria will also want to go down the same path. However the Israelis will do all they can to promote some form of conflict to cement their own position as being essential to their role of gate keeper to the oil fields? It is time to curtail their activities and force them to sue for a peaceful settlement while they can.
The simple unavoidable fact is that the west cannot afford now to carry the after effects of an economic war caused over a disruption in oil supplies and market manipulations.

EU: the UK is still playing a political game to be in or out pandering to the sovereign, political and corporate desires and not the people. Although the EC is still undemocratic and corrupt the UK should be more robust in its membership – stop idling around a vacillating membership. It will most definitely not be in the UK’s interest to withdraw. If it did so what future would it have against the emerging power shifts? Drive it forward to achieve its greater potential and this means taking on the Euro currency and EU armed forces that many don’t like but the UK has to make decisions to be in and make it work. It is abundantly clear that the EU has to have a much bigger stake in the defence of its own interests, the economic power shift and energy security will demand that greater cohesion be displayed despite the self interest dissent that often holds back progress. With Russia increasing finding the energy it controls as a Midas gift it will be hard to resist the flexing of its military power to effect decisions in ex soviet countries. The EU cannot hide any longer from the tectonic geopolitical shifts that it has put in motion; it has to be prepared to either consolidate its position or deal with external factions. The USA will not like it, if they see the real power of Europe influencing a separate sphere engagement.

Africa: It should be a stain on the world’s consciences, a continent destroyed by white intervention. Africa has no cohesion or core established administrative structure. This lack of ingrained order propagates corruption. To solve its problems, where asked, it must be given caretaker status with much stricter control over abusers and the direction of input of resources. Doing nothing is an option but the flood of migrants from collapsed states is not.

Ageism: The government has been really tardy in driving against discrimination it should outlaw all references and limitation on actual or inferred service or activities. It has pandered too much to the corporate pressures.

Politics. There has been no movement on the improvement of democracy, no proportional representation but greater centralisation and strengthening of state powers. Politics and democracy should be a compulsory educating subject along with citizenship. All governments have resisted the movement to freedom of information and civil right or a written form of constitution. Too much time has been wasted on not enacting an elected second chamber. This is not the action of an enlightened period. People no longer have any trust in politicians; it is time to develop some form of referendums with deference to the people.

Economy. Of all the things that will kill off the labour party and stop them from having a fourth term in power, with or without the drag of Gordon B, it will be the perfect storm gathering in the economy. Now after the sub prime collapse that has had such a profound effect on the credit market; the follow on fall out is becoming more corrosive. The original credit debacle has thrown some unappealing light on the whole ‘fundamentals’ of the money market in so far as it has been manipulating falsely the positive aspect of assets and the resources supporting share values. With an uncertainly in the value of products smart money has been scrambling to find a buoyant home (dash for cash). Although it is being denied, a direct link must be made to the doubling in the price of oil and the speculative chase for a safe investment home. The CX of BP has said this rise is due to “fundamentals” i.e. too little oil, too little refining ability and India and china absorbing more oil yet neither India or china have double their uptake and use of oil. Oil producer are extracting more and although there is a slight bottle neck in refining for diesel, none of this should account for the dramatic rise in oil price, other than market speculation. This is the first oil shock of the 21st century and its impact will be long term and alarming.

The scene is set for a perfect economic storm comprising of lack of credit flexibility, reduced confidence in the future income for populations disposable incomes, sustained high oil prices feeding through to goods and inflation, a demand for matching wage rises (more industrial disputes) low consumer spends leading to the contagion of depression. Pressure to raise interest rates has already started to stave off inflation which is also designed to effects spending patterns and yet it is also needed to bolster confidence in the pound. More worryingly is the UK and EU dependency on energy that it does not have any control over, any disruption will send cost higher and spiral recession into depression. With the unfolding of this perfect economic storm it is most unlikely that the existing government will survive beyond 2010.

Although the collapse of labour is being blamed on Mr. Brown, in truth the problem lies with the labour party as a whole. They became too enamoured with the new labour drive, they tasted power and from their second term they did not question the Briar agenda, they wanted to hang onto their jobs but in doing so forgot just what labour should have stood for and it was not to be more conservative, nor to be less social or to pander to big business, quangos, and privatisation. They took their eyes of the game plan and lost their core support. The value of the big conversation is about to be decided at the next election, if labour do not listen and act now they will not be in meaningful discussion with anyone in 2010.

The moral parameters of the past 20 years has been get rich; get it fast, get it easy, and get out.
RichFastEasyOut

© Renot 2008

2.12.2003
118081407

Perfect Storm

Where have the financial masters of the universe gone?

The exponents of laissez faire free market forces, the fast city banking slickers, the purveyors of credit debt, the self proclaimed experts and managers of economic prudence and the guardians of probity in the guise of the FSA and the Bank of England, The Fed, markets et. al; all dressed themselves in the emperors clothes of expertise. Unfortunately there has of late been a proven notable lack of skilled judgement of action and visions from these proponents of the operants of market forces and laissez faire economics.

The fearless think tank economist that continually called for ‘light’ regulation, relaxation (or none) and the departure of government interference, to free up the operation of the open market is now very quiet. None are rushing forward with their pet solutions of a market’s perfect self correcting conditions. And it is easy to see why. When it is clear that the market is not self correcting and is relying just now on the direct financial injection of public - government funds!

The lack of governmental oversight and control over the last 20 years in allowing the financial markets to control themselves has now resulted in the greatest challenge to the world financial system for 90 years. To use the euphemism that is currently in vogue “the credit crises” and all that it entails has shown that ultimately governments cannot allow the financial markets to run unfettered and they must now instigate greater control and oversight.

The credit crises gets worst (See Credit Crises Depression- 1.5.08) so apart from banks not lending to each other at a higher inter bank rate, not passing a interest rate cut down to borrowers, restricting the availability of credit to the housing sector and card users; there is a running uncertain about their own asset values in holding financial packages linked to mortgages which they are all busy in ‘exchanging for government backed bonds’ to help build up their resources and take measure to recoup their own self imposed losses. Some have even called for more share holder funding, with limited success.

The pain of the finance sectors is only being mitigated by governments. In the UK there has been the Northern Rock bale out, that was taken over by the government rather than let it, as a private organisation, collapse. There is the UK / USA mortgage asset transfers of risk from banks to the governments and now the two biggest USA lenders Freddie Mac and Fanny Mae gain the backing of the US treasury for the same reason; to prop up economy confidence. Although the credit crises apparently stemmed from the housing credit corruption, it has shown up an inherent weakness in the state of the world economy to the extent that a major depression is desperately being fought off by the governments now faced with the perfect storm of apposing forces. This problem is particularly serious in both the UK and the USA being the main exponent of lasisez fair economics, a difficulty that has not affected the European market to the same extent.

The dilemma now is that there is the retrenchment in credit provided to consumers to dispose of on assets and consumables. With this monetary restriction and lack of confidence in the banking structure, smart money has sort to seek a secure exploitable home and it has alighted on oil. This has led to speculative incursion and rapid increase in a whole range of commodities and energy to the tune of a 40% + rise in a matter of 12 months feeding through to consumer goods and driving up inflation. The usual tack by government would be to increase interests rates to curb demand and inflation but with a falling productive and consumer confidence, it needs to keep some element of economic growth in play so cannot simply jack up interest rates for fear of exacerbation a longer term recession.

Although the expansion of borrowed credit has helped fund the past twenty years of growth, the weakness particularly within the UK is that such growth has not been backed by increases real productive capacity and reserve wealth to cushion against a down turn. Individuals and the governments have become used to living on future earnings and do not save enough, dependent instead on cheap credit, imports and stable energy cost. All of which is a high risk exposure to uncontrollable events.

Naturally people find that such a sudden increase in their living cost not immediately coverable and cut back on any form of discretionary spending. This also impacts confidence for those that have disposable income to not spend resulting in an abrupt drop in general consumerism, falling retail sales and a spike in actual or pre-emptive unemployment. A ancillary effect then falls on governments PSBR, with falling income from tax streams and the inability to increase direct income taxes, is opposed at the same time as a need to raise money to funds it's spending program and meet the increasing social cost thrown on it by the (it hopes short) impending recession.

With the billions being pumped into the banking system within the UK, USA and to a much lesser extent Europe, to support ‘market’ confidence this proves the old adages that the government is the ‘lender of last resort’ and is ultimately at variance with the ideology of totally free market forces.
Governments have to become more interventionist in controlling all markets to the extent that where there is obvious over exuberance and impropriety taking place that has such a profound effect on the economic systems which undermines public confidence, not to mention the financial cost to the prime financier, the public, via taxation; they have to take immediate and forceful action.

How is the current situation going to pan out?
It is likely that the restricted credit market will not recover to its previous over generous level. With the generated increases forced onto the cost of food and fuel, inflation will rise. This will be pressed up by higher wage demands that will in turn call for higher interest rates. At the same time the value / strength of the pound and dollar will be under pressure as their weakness is exposed in the under ability to rebuild economic value. Lack of confidence will be evident, driving their currency value lower, this makes imports more expensive adding to inflation with little benefit gained from exportable goods value. Balance of trade payments will go negatively cavernous. To buy in capital investment both will have to keep the value of their currency higher against the need to both tackle inflation pressures and have lower interest rates to maintain some economic growth – a duplicitous situation.


There is no doubt that a recession will be imminent and long lasting, it will be a close run thing to avoid a depression, either way it will help stabilise cost as productive and market activity gets squeezed, demand falls off and some resemblance of order may be retained.

Pump priming the economy is against the dictates of laissez faire free market forces but the government are being called upon to do just that by underwriting bank debt, lending financial resources, stimulate the housing and building activities and against better judgement lower interest rates; all of which will have little effect and store up problems for the future.

Banks and finance houses have to lend funds to stay in business. If it is not their own funds that are used, it has to be via some other lender of resources, state, foreign sovereign or private and they will wish to gain a rate that betters than any stock market return so will require a higher interest rate that is imprudent for growth. It is only by pushing funds into the cash generating streams at an interest cost that they, the banks, generate a return on which allows them to be in business, so an un-virtuous circle is created. One problem as has been demonstrated, is that probity is not built in and greed eventually beaks through unless stringent controls are effected.

However apart from picking up the corrupted pieces, it is unlikely that any western government has the capacity or willingness to intercede in the way the financial market operates, as it is too wedded to the philosophy of markets knowing what is best and being self corrective. It is abundantly clear now that this is not the case. As an example of evaluating the pros and cons of different economic market ideologies, this current debacle is an object lesson in the frailty of scientific economics and it is not favouring the free market ideology. Markets by their very nature of their operation are rapacious and are designed to extort in a usury sense value for their own ends; in this they are both the manipulator and key controller divorced from and devoid of any long term planned strategic benefits to the culture they operate in.

For the moment it is hoped that corrective measures can be put in place to balance up the global markets, failure to do so will make the next BIG crises more than a manageable disaster.

For now, as usual it is the ordinary Messrs. Jack and Jill plc have to carry the can for the confidence tricks of banks and the USA/UK governments that have created this mess; they have in truth miss-managed their economies and its time to throw them out!

P808080808

© Renot 2008