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WHAT THE GOVERNMENT MUST DO NOW

TO AVOID PROTECTIONISM AND XENOPHOBIA ETC,
WHAT IS REQUIRED IS A DOSE OF INTERNATIONALLY COORDINATED GLOBAL COMMAND ECONOMY
BASED NOT ON PAST POLITICAL THEORY BUT ON SUSTAINABLE PLANETARY MANAGEMENT.
IF NECESSARY, BANKS SHOULD BE NATIONALISED
Latest FEBRUARY 19th 2011

NOVEMBER 10th 2008

Regardless of other measures, UK VAT should be reduced to 5% maximum on all goods and services that, if their existing purchase is expanded or new examples of such goods and services introduced, contribute to meeting the carbon reduction set by the UK and EU or better. In some cases it should be reduced to 1%.

EU agreement should be sought but, if not given, these measures should be taken anyway for a minimum and conditional time to be settled, with extension as a possibility.

Action to plan these tax changes should start.

The last thing the country needs is an unnecessary general election any time soon.

There is no simple economic philosophy that can be used as a formulaic guide to the handling of globalisation. The works of Ayn Rand and Karl Marx both contain lessons to be understood but there is no need to learn them again in practice or to deride the arguments within them. The same goes for many other collections of principles and rules that are quasi-fundamental and in reality mutually dependent.

We do need however to discuss internationally, in the existing fora, the way to avoid chaos theory getting any greater foothold in the global scene and deciding local outcomes. The PM is right in his approach and, on the whole, Will Hutton makes more sense than Irwin Stelzer just now, most of the time....

NOVEMBER 13th 2008

WHAT THE G20 SUMMIT MUST DO

It is time to think globally. At this summit they must bite the bullet and face the fact that this is a crisis bigger than the financial crises that in the past have brought about wars on a massive scale. It is a great opportunity. It is time to realise this is a war scenario and move to a partial command economy. This summit must be used to talk about this. Bush will say the crisis is not the fault of free market capitalism. As usual he is wrong. He will say it has to be reformed, not scrapped. Unusually, he is right, but it will need to be shut down and restarted - a reboot if you like. Because we can't stop it, temporary nationalisation and a temporary virtual finance system will have to take over in many instances. Bush's claim that growth is the answer and free markets and free people are the only way to achieve it begs the question: define freedom. Absolute freedom is anarchy. Uncoordinated freedom is chaos. Competition without a collective intelligent aim was crippling the planet and, thankfully, has self-destructed.

WHAT THE U.S. MUST DO

For the US, the imminent collapse of the automobile industry can be dealt with only by effectively nationalising it, forcing it to produce environmentally appropriate vehicles and passing laws to economically favour and to come extent force the purchase of these vehicles as opposed to those not meeting the criteria.

The absurd claim that 'governments can't run companies' can be ignored. The managers of GM have already proved they can't do the job, though any of them with brains can be kept on. Governments can perfectly well own things on behalf of their citizens and get people who can run them to produce what is required. They have done it in the past as we all well know.

Using the IMF as a virtual banker, liquidity can be injected on an internationally equitable basis without borrowing other than virtual borrowing to fill the vacuum caused by the disappearance of virtual wealth realised by the revaluation of fraudulent financial vehicles and bundled securities. There will be be big losers amongst the private shareholders, but where effective nationalisation at a knockdown price affects pensions, insurance and medical welfare the government can legitimately create the funds according to IMF rules designed for this global recovery strategy. As long as this funding is done logically and equitably by each national bank, it will not represent borrowing that has to be repaid. All nationalised industries and services can be privatised again in due course when the global economy has recovered. However, it will not be an economy built on supplying goods, services, systems and transport based on unsustainable operating systems. That's what the free market economy produces, as the Chinese discovered as soon as they got involved with it..

It will also be possible to restructure the taxation system which at the moment still allows privileged people running hedge funds etc. to make a fortune. At the moment, governments are scared stiff because they need the hedge funds. They have been a vital part of the system. But it is time to move on. There was a time when tax havens were a necessary part of the system. There was a time when Switzerland was necessary and skiing, chocolate and cuckoo clocks were just a cover story. But now it is time dump the idea that of Communism, Capitalism, .or any bloody -ism can save us from the responsibility of looking at the planetary and biological reality and making sense.

The first thing to understand is that if we do this on a globally agreed basis using the IMF, the whole world does not have to borrow from itself and then tax itself to pay it back.

WHAT CAN'T BE DONE

The media commentators are calling for any restructuring to be put on the back burner so that immediate steps can be taken to stop recession and get help to the most unfortunately dispossessed. But there is no way a recession can be avoided. The consequences of ignoring basic facts and values cannot be undone. On the other hand assistance can be given to mitigate, relieve and compensate the most innocent and the the most desperate and a general category that includes those on the margin where tax relief would have results beneficial to the economy. This in no way calls for anything to be put on the back burner. We need Intelligent Finance, which as I recall was the name recently given to an operation that may not have been the type of intelligence required. We need to get finance to the new green systems economy and let much of the old, unsustainable economy die.

NOVEMBER 23rd 2008
Some tax cuts are expected to be announced tomorrow, but apart from the Green VAT reduction.advocated here (which is not yet expected) it is doubtful that tax cuts will do anything to boost private individual spending. I think that is a good thing. We should not get out of this recession by 'shopping' unsustainably when we should be saving more anyway. We need some seriously green government expenditure in housing, energy-saving, new green technology, public transport maintenance and upgrade. It may or may not be nationalised industries and banks that do these things but it will be national expenditure and that is where fund should move to pull us through the recession, retrain the work-force and keep unemployment low. Private enterprise is still key but let us face it, market forces in the hands of a public, global and domestic with no responsibility for a sustainable planet or its economy can be left to make its choices only within limits that have recently been broken. Barack Obama is getting his plan ready in the USA and it looks to me as if he understands this only too well.

NOVEMBER 24th 2008
This is only a start. Despite the headline it is NOT a gamble. It is at best what was needed, but a lot more has to follow in the way of rebuilding the economy which we should be glad is collapsing, as it was extremely unhealthy.
Vince Cable's complaints have some merit, the Tories' none at all.
http://news.bbc.co.uk/2/hi/uk_news/politics/7745340.stm

Darling unveils borrowing gamble

Chancellor Alistair Darling has cut VAT but taken borrowing to record levels in moves he says are needed to save the UK from a deep and long-lasting recession.

Top earners also face more tax and all National Insurance contributions will rise, he said in his pre-Budget report.

Alcohol, tobacco and petrol duty rises to offset the 17.5% to 15% VAT cut.

Mr Darling said "exceptional measures" were needed with the economy set to shrink next year - but the Tories said he had "mortgaged" Britain's future.

KEY POINTS

VAT cut by 2.5 percentage points

45% tax rate on earnings over £150,000 from 2011

All National Insurance to go up by 0.5% from 2011

Economy to shrink by up to 1.25% next year

Borrowing to hit record £118bn

Phased increase in vehicle excise duty

Shadow chancellor George Osborne, for the Conservatives, accused Mr Darling of "bringing this country to the verge of bankruptcy" by doubling the national debt, which is set to reach £118bn next year.

Mr Osborne accused the government of creating "a huge unexploded tax bombshell timed to go off at the time of the next economic recovery".

He said Mr Darling had offered "temporary tax giveaways paid for by a lifetime of tax rises on the British people" and he said the country's future had been "mortgaged to bail out the mistakes of the past".

Lib Dem treasury spokesman Vince Cable said VAT cuts would not be enough to boost consumer spending and "it would be much more sensible to put money directly in the pockets of low paid workers by cutting their income tax".

In his Commons statement, Mr Darling slashed economic growth forecasts for next year from 2.75% to between minus 0.75% and minus 1.25% - the biggest downward revision on record.

But he said the government would inject an extra £20bn into the economy, or 1% of GDP, in a bid to get it moving again funded in part by an extra £5bn in efficiency savings and a big increase in government borrowing.

In these extraordinary circumstances allowing borrowing to rise is the right choice for the country
Alistair Darling
Chancellor

The most expensive stimulus measure is a temporary cut in VAT from 17.5% to 15% aimed at getting consumers spending again.

Mr Darling says the cut - which comes into effect on Monday in time for Christmas shopping - will pump £12.5bn into the economy over the course of the 13 months it will last.

But the rise in duty on alcohol, tobacco and petrol, to ensure they do not benefit from the cuts in VAT, will be permanent.

And in measures aimed at clawing back the VAT cut and other measures, top rate tax will increase to 45% from 2011, for people earning more than £150,000 a year and from April 2011 all rates of National Insurance (NI) contributions will be raised by 0.5% for employees and employers.

The starting point for NI will be brought into line with that of income tax so that no-one earning under £20,000 would pay any more contributions as a result, the Chancellor said.

On borrowing, Mr Darling said it would be "perverse and damaging" to stick to government rules in the current crisis so they would be temporarily suspended.

'Extraordinary circumstances'

Government borrowing would more than double to £78bn this year and £118bn next year, before starting to come down, with the books not to be balanced again until 2015/16.

"If we did nothing we would have a deeper and longer recession that would cost the country more in the long term," Mr Darling told MPs.

"In these extraordinary circumstances allowing borrowing to rise is the right choice for the country."

He added: "Taken together these steps will ensure that there is extra money flowing into the economy when it is needed most, but we can reduce borrowing when growth returns."

In other measures, Mr Darling speeded up the introduction of planned rises in child benefit.

And he softened the blow for drivers by announcing a more gradual introduction of new vehicle excise duty, with rates only going up £5 per vehicle in 2009.

Work to upgrade motorways, refurbish schools and repair council houses is also to be speeded by bringing forward £3bn of state spending.

And there will be more help for home owners, with the scheme which covers mortgage interest payments for those who have lost their jobs doubled to cover mortgages of up to £200,000.

This year's increase in the income tax personal allowance of £120 a year for basic rate taxpayers will be made permanent and increased to £145 in April, helping 22 million basic rate taxpayers - another 500,000 households not just this year but for good.

The 45% top rate will not come into effect until after the next general election, meaning Labour will not break its 2005 manifesto commitment on not raising income tax.

Mr Darling's Commons statement heralds the biggest shake-up of Labour's economic policy since it came to power in 1997.

DECEMBER 15th 2008
Here we have what seems like a lunatic suggestion but if turned around the truth is staring us in the face.

Philippe Varin, the CEO of Corus, threatens to move the European operations to China unless regulations regarding carbon emissions are overhauled. This looks at first a poor way to behave, but he is right!!

Governments must stop forcing European industry to buy carbon credits and instead help them with finance to improve their production process and develop new technologies both in production and in the goods produced. This is the way to spend our way through and out of recession. It could never be done without causing inflation if the market economy and its associated investor were calling the shots; but now they are temporarily on the sidelines, sent off the field injured, governments can do what needs to be done. This sort of action when applied across the board on new, green growth with fund training, employment and all the things we so desperately need.

The terms of the finance need not be draconian, they just need to ensure the rights of the citizens of this country and others to a share in the future of the industries that are shepherded through to sustainable success. Private investment is welcome, and indeed will follow if the government replaces blind market demand in the key sectors with educated state demand to fit the requirements. Because nobody is allowed to say a good word for Hitler, his decision to commission the Volkswagen or do many other necessary things are never praised these days.

Let us never forget that Churchill said loud and clear that if he had been an Italian [at the time of which he spoke] he would have been a Fascist, and as late as 1938 he stated that if England were ever in the same straits that Germany had been in 1933, he hoped that England would find such a man to lead her out of them. The eminent Anglo-American publicist, Francis Neilson, declared that Churchill's praise of Hitler was the most extreme tribute ever paid by a prominent Englishman to the head of a foreign state.

It is vital to understand what C was saying and how he went on to dedicate himself to the removal of these two leaders who had not the personality, education or breeding to avoid taking themselves to be more than they were and leading their people in what they saw as a national destiny to rule under their unique vision. We need not go into the causes of their excesses and obsessions here, but unless we can rise above the piddling bleating of the Camerons of this world and realise that modi operandi are only there to achieve necessary ends (such as getting out of holes dug by taking other modi operandi to extremes), and that we as electorates of free nations must pull together or sink together if we want to AVOID fascism and military dictatorship - that we must use privatisation and nationlisation as and when appropriate - then we will just make a big mess of what is an opportunity handed to us on a plate.

A global as opposed to a national or regional or hemispherical collapse of a useful and well-used and finally abused financial system gives us the opportunity to give it a rest, cleans the Augean Stables (spelling?) of their shit, dethrone the Nicola Horlicks etc who grossly overrate their own understanding of all and everything, and MOVE ON!

When Zimbabwe prints money it causes inflation for very good reasons. The UK can print money because it is needed to replace the billions of notional money that was part of the economy and now ceases to exist because its notional existence was fraudulent. This printed money will be Bank of England money. It cannot (as some notable economists have stated) in the last resort be dropped from helicopters for the public to find and spend to revive the economy. That is the last thing we want. The money must be earned. They way it is earned is through employment. But this time not through employment producing what advertisers can con people into buying, regardless that it is leading us all to perdition, but what they really have to have. These new ESSENTIALS are not the old ones, though to be such. They will be different. And their use will be promoted through such very simple ideas as insurance and liability as well as legislation.

Those who cause global warming unnecessarily will find it impossible (for example) to afford the insurance legally required to drive energy wasting and carbon wasting vehicles. Those who buy, use and do the right thing will find they CAN afford it. Because the alternative will be for the insurance companies to go bust or put premiums for ever upwards.

Today we hear that a big, revered Wall Street investment manage had really just been running a pyramid selling scheme. He is in fact just the first to admit it. The others have schemes that are simply more modest - whereas he used his reputation to bag his customers by offering impossibly competitive rates of return. All relied on the pyramid principle to a certain extent. Running pyramid schemes is great fun. Once you have set it going you can pay others to do the day to day admin and just do the lunches, charming the customers and consuming lots of lovely wine and food.

That's all for today.

DECEMBER 20th 2008
The expression 'thinking outside the box' is well known. I fondly thought Gordon Brown, with his considerable experience gained in moving beyond the borders of boxes he had become expert in as his life developed, was able to think not just outside the box in which he was (rightly) confining himself and the country when insisting on his financial and monetary rules, but outside the box of boxes. I am not yet sure that he has got where he needs to be.

Perhaps this is just as well, but it does lead to misunderstandings.

Barclays CEO John Varley is right when he says he expects the Credit Crunch to be with us for 2 years. He is right when he says that banks will NOT resume lending on the pre-crunch basis. There is no point in the PM asking them to.

OPEC spokesman Ibrahim Hussein is right when he says that speculators were responsible for the massive rise in oil prices to nearly $150 a barrel, and that the current reduction in OPEC output is both rational and sensible, as consumption is now affected by the shrinkage of the world market economy and all transport needs and forecasts.

That the price has not fallen immediately is due to those who bought and have to take delivery, and store, at inflated prices, and that includes a great many people who are sticking together to save their own skins and, they would claim, ours. Gordon Brown rightly says the instability hurts producers and consumers but the current OPEC reduction is not the reason prices are not falling, even though dealers must think ahead.

There is a lot that MUST be done and Brown and Mandleson (who seem to me to be the nearest to being able to think outside boxes while still realising how important they are and how carefully their content must be looked after) must lead the way with the help of a number of their intelligent colleagues (some of who may need to be reinstated after having been trashed over the years to placate the media).

The government does not need to borrow money in the conventional sense. The Bank of England, as any other national bank, is SUPPOSED to print money to reflect the value of the national wealth. That value is set by demand. In the free market economy, that demand is set by private buyers and the government itself which can buy on behalf of citizens. The government can purchase shares of (partially or fully take state ownership of) any critical industry on behalf of its citizens when private demand for shares fails. The Bank of England can act for the Treasury in such instances and BUY the shares at their existing market value.

That purchase constitutes 'demand' and the the Treasury and Bank of England acting as one can issue the funds without borrowing from banks or selling bonds to anyone. If the private enterprise shareholders have so abandoned faith that the share value is low, so be it. The public own the shares purchased. They do not have to be taxed in future to pay off any debt incurred. The issuing by the Bank of England of money is not inflationary in these circumstances as no notes have to be printed. The 'money supply' as reckoned as just been shrinking colossally as values of fraudulently assessed stocks and bonds have plummeted, not just in the UK but world-wide. Obviously this sort of operation can not be done in the circumstances of a flourishing private enterprise capitalist free market system, and would not need to be unless there are other, overriding and extraordinary reasons.

There is no point in owning Jaguar/Landrover for instance if private enterprise can keep it going. There is no justification in saving it by nationalisation either, however, unless national ownership enables it to be run in a way that conforms to government policy, which is to cut carbon emissions while at the same time producing vehicles that do the job of LandRovers and Jaguars and attract buyers. Bear in mind that as we are not in the EMU zone and part of the Euro, and that our main business of banking, investment and speculation has been discredited at least for the time being, the Pound Sterling will be falling further. Many UK resident citizens may find British made cars attractive and cheap. So there will be a point to making them here, but the actual models will have to compete with what the EU and Japanese companies can produce in UK factories and do the same job. So any rescue carried out just to save jobs must be done by THINKING IT THROUGH. We must employ people in tasks that enable our survival rather than our self-destruction.

In the end, the only think that will count in 5 years time is who (statistically) ends up owning what and where they pay their taxes. The UK has a very special problem in that we are part of the EU, with all the solidarity that provides, but without the protection of our currency that EMU provides. For that we can thank the Tory party and our bankers who thought they could make a fortune by being on the interface with one foot in the lifeboat and the other on the shore. It was a game one Gordon Brown had to play and he thought he could manage it. Now we have all fallen in the water. I do not personally blame Brown too much even though he did sell out to the bankers. They had the only game in town.

Incidentally the Archbishop of Canterbury was too modest about his understanding of economics. He analysed very clearly the causes for the present difficulties. What he does not understand is the way out. But if Brown does, he either is not letting on or he thinks it unwise to explain it. Human beings all live in their boxes. Explaining the rules outside would cause chaos within.

DECEMBER 22nd 2008
I fear the penny has still not dropped for those demanding the motor industry be 'saved'. The global production of vehicles was linked to ecologically unsustainable growth, insoluble traffic problems and a fraudulent financial system based effectively on a global Ponzi scheme (no point in singling out Mr Madoff as a special culprit, just as a huge one). As I have pointed out years ago the solution on the vehicle front is to use fewer cars, have more people filling the seats and get low emission low consumption engines to propel them.
This means that vehicle production must (a) diminish and (b) change its nature. That applies to the entire automotive industry. If, having accepted that, the saving of Jaguar can be indulged, then OK. Let's see a plan. I do agree our national motor manufacturing business and skills should be safeguarded as part of our way of life and employment opportunity. That is a separate question.

DECEMBER 30th 2008
Very unusually, I am in agreement with Cardinal Cormack Murphy O'Connor. The criticism by the Anglican Bishops of government policy to avoid or mitigate deflation is not (unless they are completely daft) an attempt to encourage a debt fuelled re-expansion or to expect the banks to encourage borrowing that cannot be repaid, however low the interest rate, on the basis they could always foreclose on the borrower's assets. There has to be some spending. It has to be internationally coordinated so that National Debt so incurred can be offset and to a significant extent written off.

JANUARY 3rd 2009
All today the news (broadcast and printed) has been that the PM was planning a further bail-out of the banks to get them lending. This was a most unlikely story and this evening we learn that he was planning nothing of the sort, but rather the correct action of getting the green agenda moving and getting employment, earning power and profitability moving to rebuild a new economy. Let us hope these 100,000 jobs will be the seed to grow 2,000,000 more in the same vein. Bank lending can be part of that, on a proper basis. Bugger bail-outs

Brown to create 100,000 new jobs

Prime Minister Gordon Brown has revealed details of a programme to create 100,000 jobs as part of a new initiative to curb rising unemployment.

Mr Brown told the Observer of a programme of investment in new technologies and green projects.

He said the environment is part of the solution to the recession.

But the prime minister also played down the likelihood of a further bailout for the banks, saying it is not the first thing on any agenda.

The prime minister is touring the country this week before a jobs summit involving government, business and unions.

In his interview he gives details of plans to bring forward £10bn of government spending on public works, digital technology and environmental projects to create new jobs.

He says a further expansion of apprenticeships is also planned.

Mr Brown confirms the government is looking at ways to boost bank lending.

BBC political correspondent Carole Walker says with unemployment at its highest level for more than a decade and many workers facing an uncertain future, Mr Brown is keen to demonstrate a new focus on the problem.

But putting more taxpayers money into the banks would be politically risky, our correspondent added.

The Conservatives say another bailout would be an admission that the government's approach to the recession is not working.

JAN 5th 2009
Cameron is again stating the obvious and claiming it as original thought. Those relying on their savings for income are feeling the pinch when interest rates are low. But abolishing income tax on savings for basic tax payers is not necessarily a better idea than just raising the tax threshold for all. Other, targetted measures may be needed to help those who are really in trouble. Cameron says the PM needs shaking. Interesting comment from one who has only just woken up and is still bumping into the furniture.

Now we have the Tax-Payer's alliance claiming that in the present circumstances, people are demanding and deserving tax cuts. Apart from a raising of the threshold and the special case for VAT on new green technology and services I outlined in the opening of this file, there is no case at all for tax cuts and the proof is the Tax-Payer's Alliance spokesman failed to make one. In 5 minutes of blathering on BBC Radio 4 today, not a single logical point was made to justify his emotional ramblings.

JAN 8th 2009
The latest cut in the Bank of England's base rate to 1.5% won't make much difference. It may be the right thing to do but unless it causes a decision change by a significant number of large investors or a huge number of small investors (including goods-purchasers of durables) it will not affect the overall picture very much. The Nissan spokesman made a lot of sense, enough to give one confidence that there remains intelligent life on Earth, The priority is to hold on, develop the new technologies (that does not mean there will be significant buyers yet awhile outside enlightened rental companies if such there are) and be ready for the economic recovery which may be 5 years away. Of course the recovery might come quicker if Obama and Brown and sensible European can get together with a plan, but that plan cannot be to reflate on the basis of the old market economy. There must be an intermediate stage before any free market economy can be artificially encouraged to drive the world, such is the penalty for the abuse in recent years of the one we have benefited from.

JANUARY 12th 2008
David Cameron has announced that Gordon Brown and the government were wrong in their past and present economic policies and are wrong in their plans for the future. It is hard to know if Cameron is just pretending, playing to the electorate, or if he really is as juvenile as his utterances indicate. There is no 'right way' to deal with the current economic situation. There are choices, each with different advantages and disadvantages. It is quite possible to choose Cameron's ideas (if he ever laid them out in a way that makes sense) and take a completely different line to Brown. If taken consistently, domestically, we could do that. It would require a lot of social cohesion at a time when confusion in the social realm is such that Prince Harry (a Brit) has to aplogise for calling a mate a Paki (or presumably a Scot, a Digger or any brief, affectionate name for one whose character is enhanced by their country of birth or upbringing). I think it was a great mistake for him to apologise for what is not an insult and is now made into one, officially. It is hard to imagine a greater stupidity that that exhibited by those insisting on and approving this apology, both in the Military and political arenas. (Sorry guys, I am as you know, frank).

If the whole world took Cameron's economic line, the world economy would go through a really extraordinary slump. In the past, such conditions have led to war. If we were to rely on America alone pulling us out, that would have very obvious bad consequences too.

A balanced, coordinated, agreed international stimulus by means of government finance, guarantees and purchasing, coordinated with legislation to deal with climate and energy, with IMF financial coordination and yes, our banks back in business, is what we should be part of. Of course we can opt out and do the usual British sulk with one foot in and one foot out, or we could elect Mr Cameron and then not back those of his idea we don't like. Any sort of muddle through is possible. But the idea that a global stimulus to stop deflation and replace for a time the anarchic free market (which was both aimless and damaging) will leave our children in personal debt and our country in debt to the world is the product of immature minds who have never understood the difference between protocols and hardware.

JANUARY 19th 2009
Critics are divided about the following measures. Some say they should have been taken months ago - but they could not. Most of the people criticising now would have been against it then. The measures have been badly received amongst the bank shareholders but so what? They are selling because they now realise the situation was worse than they thought.
The hard fact is this: if trade and commerce is not driven by market forces coming from those with money to spend and invest, and ideas and desires of their own personal choosing, then for the time being government will have to guide investment into the channels it favours in the light of the best expert advice and encourage development it deems appropriate for the national good. The alternative of deflation and slump is not desirable. The banks and those who invest in them will play whatever role they decide and may well be bypassed if they do not wish to play.

New plan to boost banks' lending

The government has announced a second package of measures to encourage banks to lend to individuals and businesses.

The long list of policies includes a scheme to offer insurance against banks losing more money from the bad debts that started the credit crunch.

Prime Minister Gordon Brown said the new announcements were vital. Meanwhile, the Bank of England is to be able to buy assets direct from firms.

Yet despite the new initiatives, banking shares have fallen heavily.

By mid-afternoon in London, Royal Bank of Scotland (RBS) was down 63%, while the new Lloyds Banking Group had dropped 34%.

Four key points

On another day of major development for the banking sector, here are the key points of the government's latest announcement:

• Banks will be able to take up government insurance against their expected bad debts

• The Bank of England will be able to buy up to £50bn worth of assets in companies in all sectors of the economy

• Northern Rock has been given extra time to repay its loans from the government

• The government is increasing its stake in RBS to nearly 70% from 58%. RBS also said it was set to report a huge loss for 2008, with asset write-downs of up to £20bn.

Insurance plans

Under the insurance scheme, banks will agree with the government the amount they expect to lose from particular debt.

The Treasury will then sell insurance against about 90% of the institutions' additional losses from the debt.

The banks will have to pay for the insurance, but the government says it does not expect to be paid in shares.

While criticising the banking sector for some irresponsible lending in the past, Mr Brown said the new scheme was vital to help restore normal lending levels.

"Good businesses must have access to credit, jobs should not be lost needlessly," he said.

"It is because of this that we are taking the action to expand lending."

The government hopes that by insuring banks against additional losses, it will encourage them to resume normal lending to businesses and individuals.

Chancellor Alistair Darling told the BBC that banks taking out the insurance would have to make "very specific legally binding agreements to lend more money".

Despite the scope of the government's latest announcement, it has done little to lift investor sentiment in the banking sector, at least initially.

Bank's new role

Under the Bank of England's new role, it will be able to buy up to £50bn of high quality assets directly from companies.

In the past, it has only bought such assets from banks or financial institutions.

A new subsidiary company will be set up to buy the assets, but the Bank's executive will decide what sort of assets it will buy and from which companies.

But the list of assets includes corporate bonds, so some companies will now be able to borrow money directly from the Bank of England.

Liberal Democrat treasury spokesman Vince Cable said the government's latest plans did not go far enough, and that instead, it should now nationalise the whole banking sector.

"The government must bite the bullet on the public ownership and control of the banks to ensure that lending is maintained to sound companies who can keep the economy ticking over in these turbulent times," he said.

Northern Rock extension

There have also been changes to the terms of previous bank rescues.

Northern Rock has said that it is to be given longer to repay its loans from the government.

There was concern that the timetable for repaying the loans was forcing Northern Rock to reduce its mortgage lending too quickly, which was not in line with the expansion the government wanted.

In another announcement, RBS said it had agreed with the Treasury to swap the £5bn of preference shares the government holds for new ordinary shares.

This will mean the government's stake in the bank will increase from 58% to nearly 70%, but it will reduce the amount that the bank has to pay to the government every year.

The chancellor said that as a result RBS would have to lend more money.

Hefty losses

The agreement came as RBS said it expected to announce 2008 losses of between £7bn and £8bn.

However, RBS also said it may have to write down the value of past acquisitions, including the share of Dutch bank ABN Amro it bought in 2007, which could lead to a hit of up to £20bn.

Another bank helped by the earlier recapitalisation was the combination of Lloyds TSB and HBOS.

They announced this morning the completion of their merger to form Lloyds Banking Group.

JAN 21st
The advice to 'sell sterling' now is pretty daft unless you are a currency speculator, in which case you should have sold it ages ago when the Euro started its rise. It is also true to say that the governments actions to stabilise the economy cannot work if it gets no support in a free market. It is out of such situations that restrictions on free markets and currency exchange have arisen in the past. The Eurosceptics bet the farm on the new British Empire (sterling, banking and north-sea oil) and they are all in trouble. It was always a boastful bet. I see the Tories have hoisted Ken Clarke back onto the front bench so when they have to do a U-Turn he can do the talking. It may take a while though, as we can't suddenly join the Euro now even if we wanted to.

It is interesting to speculate on how much everyday private expenditure over the last year was essential and how much optional, and how much domestic sterling will be spent buying non-essentials in coming months just because they are at knockdown prices and considered a better investment than cash in the bank. We could go back to barter!!

FEBRUARY 6th 2009
How confused is it possible to get? Sarkozy of France rightly proclaims that a fiscal stimulus, in the form of government led expenditure on vital infrastructure (including steps to tackle global warming) is the way to counter the recession, while tax cuts will not produce the required effect. But why does he think Brown's very modest but long term VAT reduction was ever designed to do that? It was just a necessary, helpful addition to the process to aid hard pressed shoppers rather than bring about extra spending. It has to be said that by saying so little, and not rushing, Brown has led a lot of people to think his steps are having no effect. He will indeed have to be more clear. But with an opposition and press who are so completely opportunistic as to glory in his failure, and a public that is sceptical, disunited and looking to their own personal problems, it is hardly surprising he tends to limit his own discussion and work quietly. It is also true that interest rate cuts can no longer produce a general increase in either investment or expenditure or lending. Any fule kno that now for obvious reasons. As I have been saying for many weeks a dose of the command economy is required. The French are used to it, they assume the British will not touch it, but we certainly will have to. Internationally coordinated, national debt need not be a burden on future generations. We are in a global economy.

TRADE CAN BE REGULATED AND AGREED WITHOUT RESORTING TO EXTREMES OF EITHER FREE TRADE OR PROTECTION. APPROPRIATE PURCHASE AND EMPLOYMENT IS PERFECTLY POSSIBLE AND NEGOTIATABLE IN EVERY CASE.

FEBRUARY 22nd 2009
Help for those PURCHASING cars can only be done if it does not create incorrigeable processes. It must also be borne in mind that the greenest action for an individual up till now has been to keep the car they have for as long as possible if in good order. Now, with cars standing in lots awaiting buyers, some should be bought by the government and offered for rental at special rates, through schemes run by the existing major car rental groups on behalf of the government. New super-green models should in due course be ordered and purchased by the government for rental in this way. It is vital not to engage the public in more personal debt - surely we have learnt that lesson - so only those who can afford to buy should buy. Hire-purchase can make a comback perhaps on very low interest terms. One way or another the UK vehicle industry must be saved and upgraded to world-class winner in a global market or at the very least a most competitive domestic supplier.

Incidentally the much repeated mantra that countries should save and put by reserves to make sure that they can deal with future crises like this is complete poppycock. It is not possible for countries to compete in hoarding reserves in either currencies or goods or properties. As soon as they attempt to do so they create a problem which will result one day in a similar crisis. We now have to move to a realisation that we are interdependent, must compete in a coherently regulated global financial system, with an international body (an enhanced IMF) that can deal with global liquidity on an equitable basis and provide funds to deal with any global threat, internal (like the current one) or external (e.g. a crash programme to mitigate a danger from space).

FEBRUARY 26th 2009
It is a bit much to ask Fred Goodwin to decide exactly how much of his pension to give up. It is also wrong that he should set ths figure himself. So to that extent he is right not to take the action. It would be absurd. Now he has acknowledged that, it is up to the government to ask some unfortunate person or tribunal to recommend the sum he should forfeit. It should be halved at the very least. I recommend this as one who does not attribute the current banking crash to Goodwin, I merely see him as typical of the very large number of people who are collectively responsible. Being a prominent leader and trend setter, he can in this way be very rightly made an example of.

Personally I was in favour of temporarily nationalising all the banks months ago, in many countries and certainly in the UK, but I am well aware of the arguments and more importantly the people, assets and forces that would be employed against. A great many people still think government of any complexion is unnecessary and untrustworthy when the chips are down. I happen to think the reverse. While corruption and incompetence are possible in private or public organisations, we have learned that when the chips are down any nation has to make sense in its public and national fora and its government has to take charge if order is to be maintained in finance and social affairs.

The huge losses of RBS are huge because it is the world's biggest bank, invested all over the world, in every sort of asset and instrument. We have a global financial crash, so £8 Billion is in fact the least one could expect by way of an RBS loss for the year. It is no good in hindsight saying the business model was crap, that was the model the world was dealing in. That was the only game in town. Fred Goodwin gambled successfully for the whole of the British public and if he hadn't, along with the competition, put so many of them into personal debt as well they would frankly not have much of a case for him to answer. Their personal debt is also a shared responsibility. Every single person connived in what occurred or benefited from it to some extent.

Any action taken must have some basis in law. Retrospective law is exceptional, in most cases undesirable, but logically not impossible to justify in every case. However, the argument that 'the taxpayer' is paying Fred's pension because the taxpayer now owns and funds RBS is not strictly true, so I recommend care in whatever course of action is taken.

FEBRUARY 28th 2009
I am glad to see all the above factors have been recognised and will be taken into account.

MARCH 9th 2009
It is being suggested by commentators that Alistair Darling, the UK Chancellor of the Exchequer, is supporting Treasury hardliners who are against a full-on move to a climate-control economy. I hope he is just holding fire awaiting international agreement. It is important to understand that all the measures being applied including quantitative easing (yes, 3 Ts in that please Dimbleby) depend on some international symmetry if they are not to be (a) inflationary and (b) a cause of natiobal indebtedness. Lord Stern gives us an assurance that the increasing gravity of the global warming process is understood politically. The question now is: does the Treasury understand finance, fiscal and monetary science in the 21st century here on planet Earth. They don't seem to have had a clue throughout the 20th centrury, proceeding by trial and error and making every one in the book; but hope springs....

MARCH 24th 2009
The action we need is being taken by Obama, Geitner and Brown. They are being criticised by the usual morons.

Whether or not Gordon Brown has got everything done in the right order so far, one thing is certain; the Governor of the Bank of England is an utter dork. [I should not have said that but I make it a rule as I write everything here as a stream of consciousness not to delete it with hindsight]. Of course we cannot go on expanding the money supply without carefully targetting it, and of course we cannot get it to work unless the other developed countries in the world in Europe and America coordinate their policy and do the same. That is the only way currency inflation can be avoided and future debt too. But to give that little twit Cameron ammunition to derail Brown's international initiative is about the stupidest thing he could have done. Obama and Geitner understand exactly what has to be done. If the international plan proposed by Brown and Obama is not implemented there is no way forward at all for the global economy and we shall end up with full scale nationalisation anyway.
Perhaps in the end it will be best if they do cock it all up and then we can prove the point, but it will be unnecessary and the painful in the extreme.
The Obama-Geitner 3 Trillion plan has produced an upward bounce in the US Stock Market but that is meaningless. That is just opportunisitic dealing by those on the inside and a few big players tellung their game-players to pick up a bit as the market twitches. It is going nowhere, and it won't, except in a few cases. Obama will put the money where it needs to go and the banks have had their chance. They will now try to grab onto the federal coat-tails of course and there will be private-public initiatives, but the task it just to get what needs doing, particularly those things the market was not doing when it was booming, and to get employment going in the green economy, education, health and improved sustainable transport both public and private-rented.
I really do think the UK Tory party is a collection of some of the worlds biggest idiots and has been with a few exceptions for many years. Utterly clueless.

FEBRUARY 18th 2011 TWO YEARS HAVE PASSED

I have left the ACTION THIS DAY file alone for two years in order to gauge the results of the actions I deemed necessary being taken and not taken. Some have been taken, but others not, because we had a change of government.

The new government has decided a complete international programme of cooperative global financial management is for the birds, that basically we are on our own, and we shall have to slash and burn our economy including the military in order to retain the confidence of international investors and bankers who finance the UK's borrowing requirements.

That is indeed the alternative to a complete application of my previous recommendations. It is the alternative to 'forced green growth', international defence solidarity and a revision of the global economic model. OK then, this file can start again based on where we are. Some of my recommendations were applied, particularly the one they called Quantitative Easing (I had called it the organised, regulated printing of money, though of course the supply of banknotes was not the issue here). I have disussed the propriety and non-inflationary legitimacy of this elsewhere and the conditions that apply).

However, although there is growth in parts of the world economy it is extremely uneven. Political pressure-points are rumbling ominously. The middle-east and north African countries are undergoing a mixture of social revolutions against authoritarian systems, whether they are oil-rich or not. In essence, these revolutions are based on a perceived collapse of western power and a rise in people-power achieved through the Internet. MIddle-classes and young people with aspirations learned through the new global media and communications systems are uniting with poorer elements of society as the trickle-down or paternally stabilized economies are under strain from an economic pincer movement. They wish to remove the autoritarian regimes which until now had supplied subsistence for some and opportunities for the privileged. Democracy is the name they give what they want, but in many cases they do not know how that can be established, applied and sustained, or what infrastructure has to be developed first.

Growth in some areas is driving food prices up, aggravated by harvest problems in others. Recession in some areas is cutting trade in others. The G20 is being urged to tackle the issue of price inflation affecting basic goods ahead of a two-day meeting. At least it appears that the extreme dangers we now face are appreciated.
http://www.bbc.co.uk/news/business-12499214

Earlier this week, the World Bank said food prices were at "dangerous levels". Forty-four million people have been pushed into poverty since last June, it said.

It is interesting to see how poverty is related to the price of food. 100 years ago, and even quite recently but in very much fewer places, poverty in terms of dollars per day was not related to food in the same way. Large rural and island populations lived on locally growing vegetable, fish and an animal sources of food. Most of these economises have been destroyed by a varierty of economic and other forces.

Behind much of this rumbles the never-ending Sunni/Shia division in Islamic communities. It is as if the whole Islamic world has another enlightenment and reformation to come as part of its development, a stage Europe has been though.

So, ACTION THIS DAY is now very much in the hands of the G20 meeting. Unfortunately, sticking-plaster will be the order of the day. Sarkozy is in the chair and will be trying to get them focussed on the essentials.

Sarkozy told the ministers that economic policy coordination was the only way forward. "Giving priority to national interests would be the death of the G20," he said.

http://news.yahoo.com/s/nm/20110218/bs_nm/us_g20

FEB 19th 2011
Little progress so far at the G20
http://www.bbc.co.uk/news/business-12499214
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