“Owners of capital will stimulate the working class to buy more and more of expensive goods, houses and technology, pushing them to take more and more expensive credits, until their debt becomes unbearable. The unpaid debt will lead to bankruptcy of banks, which will have to be nationalised, and the State will have to take the road which will eventually lead to communism.”

Does that sound like a familiar situation? After all, the government now has substantial a stake of the whole banking sector. The quotation is from Karl Marx in Das Kapital in1867. (Some claim it is a false attribution, but not having read Das Kapital, and because it would spoil the story, I’m going with it being by Marx)

The depth of my lack of understanding of economics is monumental, hence my query about short selling a couple of months ago when I asked if anybody could explain to me the benefits to shareholders of lending shares to short sellers so they could sell them and reduce the share price. Never did get an answer to that one. So here’s the next one. It seems clear that the current recession, and data released as I am writing this confirms two consecutive quarters of negative growth which is the accepted definition of a recession, was caused by the banks over-lending, us taking on too much credit and buying flat screen televisions, foreign holidays and replacement windows (or in my case, a narrow boat and a cruise up the canal!) and then not being able to pay back the loans. The banks are then close to collapse and refuse to lend any money to anybody, even to each other. So the government steps in and bails the banks out in exchange for shares in the banks. It then tries to get the banks lending again by throwing even more money at them so we can take on fresh credit and go on buying as before. Am I being simplistic in asking why the same actions that got us into this mess in the first place are now also the cure? The figures for the debts and assets of some banks are mind-boggling. Ireland is now guaranteeing bank debt several times the size of its economy. What happens if those guarantees are called in?

How do we, the travellers on the Clapham Omnibus, get our collective heads round these numbers?

But we have a super hero to rescue the world, and no I don’t mean the Prime Minister, or the Supreme Leader as Private Eye dubs him; I mean, of course, Barack Obama, so recently inaugurated as President of the United States of America. It seems as the whole world is pinning its hopes on him to resolve all the problems it faces, the economy being the big one, but the Middle East, Afghanistan, Cuba/Guantanamo add to the list. The “Yes we can!” slogan of the election campaign has been replaced by “endure what storms may come” which doesn’t quite so hopeful or optimistic, does it? The US economy is suffering very badly, but perhaps not quite so badly as ours, and some forecasters suggest it may begin to recover this year as part of President Obama’s “Remaking America” programme. Isn’t it a lot of trust and faith to put in one man? As good a man as he so obviously is, there is no track record at this level, there never can be. Every European leader is vying to be the first to visit him and our Prime Minister in the first Parliamentary Questions, mentioned him no fewer that 5 times, as if the magic would rub off and take the focus away from the jaw droppingly massive problems here in the UK.

How will we cope?  System suppliers are laying off staff, if rumours are to be believed, in significant numbers; ditto for fabricators; housing starts are desperately low and completions are down 75% on a year ago. When house building rates do start to pick up, there will be a large gap in the chain but will the capacity still be there? One new house builder reported that housing surveyors are valuing houses at 20-40% less than they sold them for a year ago. Can you begin to imagine that amount of fall in the value of your home, the size of negative equity it could produce, in just one year? Then there are reports that businesses struggling to survive are planning to cut pay rates as an alternative to sacking workers making it more difficult for them to pay bills. Unemployment is rising rapidly so finding another job if you are sacked will be difficult.

No part of the economy is safe. Woolies, MFI, Jaguar Land Rover, JCB; the list goes on and on.

The pound has fallen by 29 % over the last year causing concern in the G7 and EU nations.

And yet, we continue to put our faith for recovery in an exciting, but untried, new President of the USA. Surely that is an unfair burden of hope to place on one man’s shoulders. He really would have to be a Super Hero.

The Government here is borrowing money at levels unheard of in an attempt to get us through the recession with some economists claiming it will last for two or even three more years. Every sector of industry is asking for Government help including our own. How about a reduction in VAT to 5% on energy efficiency work on houses as a starter? How about spending some of those borrowed billions on upgrading the thermal performance of existing houses, which we will have to do anyway if we are to meet our CO2 targets? How about channelling money into social housing and getting them building new affordable houses?

It is very difficult to be optimistic about recovery in the short term and I don’t for one moment think we really are drifting into communism, but I do wonder if we are moving to a new form of capitalism with more stringent controls on the economy. Will we see 5 year plans from whoever is our Supreme Leader? With an election to be held before the middle of next year, perhaps the last word should go to Karl.

“The oppressed are allowed once every few years to decide which particular representatives of the oppressing class are to represent and repress them.”

Pass the vodka, Comrade.

Paul Jervis 2009