US Secret Document Setting Out Support For Egyptian Democracy Activists

Below is the transcript of a document released by Wikileaks, which details secret support by the US, for Democracy Activists in Egypt, and plans for regime change going back up to three years.

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S E C R E T SECTION 01 OF 02 CAIRO 002572 SIPDIS FOR NEA/ELA, R, S/P

AND H NSC FOR PASCUAL AND KUTCHA-HELBLING E.O. 12958: DECL:

12/30/2028 TAGS: PGOV, PHUM, KDEM, EG SUBJECT: APRIL 6 ACTIVIST ON HIS

U.S. VISIT AND REGIME CHANGE IN EGYPT REF: A. CAIRO 2462 B.

CAIRO 2454 C. CAIRO 2431 Classified By: ECPO A/Mincouns

Catherine Hill-Herndon for reason 1.4 (d ). 1. (C) Summary and

comment: On December 23, April 6 activist xxxxxxxxxxxx expressed

satisfaction with his participation in the December 3-5 \"Alliance of

Youth Movements Summit,\" and with his subsequent meetings with USG

officials, on Capitol Hill, and with think tanks. He described how

State Security (SSIS) detained him at the Cairo airport upon his

return and confiscated his notes for his summit presentation calling

for democratic change in Egypt, and his schedule for his Congressional

meetings. xxxxxxxxxxxx contended that the GOE will never undertake

significant reform, and therefore, Egyptians need to replace the

current regime with a parliamentary democracy. He alleged that

several opposition parties and movements have accepted an unwritten

plan for democratic transition by 2011; we are doubtful of this claim.

xxxxxxxxxxxx said that although SSIS recently released two April 6

activists, it also arrested three additional group members. We have

pressed the MFA for the release of these April 6 activists. April 6's

stated goal of replacing the current regime with a parliamentary

democracy prior to the 2011 presidential elections is highly

unrealistic, and is not supported by the mainstream opposition. End

summary and comment. ---------------------------- Satisfaction with

the Summit ---------------------------- 2. (C) xxxxxxxxxxxx expressed

satisfaction with the December 3-5 \"Alliance of Youth Movements

Summit\" in New York, noting that he was able to meet activists from

other countries and outline his movement's goals for democratic change

in Egypt. He told us that the other activists at the summit were very

supportive, and that some even offered to hold public demonstrations

in support of Egyptian democracy in their countries, with xxxxxxxxxxxx

as an invited guest. xxxxxxxxxxxx said he discussed with the other

activists how April 6 members could more effectively evade harassment

and surveillance from SSIS with technical upgrades, such as

consistently alternating computer \"simcards.\" However, xxxxxxxxxxxx

lamented to us that because most April 6 members do not own computers,

this tactic would be impossible to implement. xxxxxxxxxxxx was

appreciative of the successful efforts by the Department and the

summit organizers to protect his identity at the summit, and told us

that his name was never mentioned publicly. ------------------- A

Cold Welcome Home ------------------- 3. (S) xxxxxxxxxxxx told us

that SSIS detained and searched him at the Cairo Airport on December

18 upon his return from the U.S. According to xxxxxxxxxxxx, SSIS

found and confiscated two documents in his luggage: notes for his

presentation at the summit that described April 6's demands for

democratic transition in Egypt, and a schedule of his Capitol Hill

meetings. xxxxxxxxxxxx described how the SSIS officer told him that

State Security is compiling a file on him, and that the officer's

superiors instructed him to file a report on xxxxxxxxxxxx most recent

activities. --------------------------------------------- ----------

Washington Meetings and April 6 Ideas for Regime Change

--------------------------------------------- ---------- 4. (C)

xxxxxxxxxxxx described his Washington appointments as positive, saying

that on the Hill he met with xxxxxxxxxxxx, a variety of House staff

members, including from the offices of xxxxxxxxxxxx and xxxxxxxxxxxx),

and with two Senate staffers. xxxxxxxxxxxx also noted that he met

with several think tank members. xxxxxxxxxxxx said that xxxxxxxxxxxx's

office invited him to speak at a late January Congressional hearing on

House Resolution 1303 regarding religious and political freedom in

Egypt. xxxxxxxxxxxx told us he is interested in attending, but

conceded he is unsure whether he will have the funds to make the trip.

He indicated to us that he has not been focusing on his work as a

\"fixer\" for journalists, due to his preoccupation with his U.S.

trip. 5. (C) xxxxxxxxxxxx described how he tried to convince his

Washington interlocutors that the USG should pressure the GOE to

implement significant reforms by threatening to reveal CAIRO 00002572

002 OF 002 information about GOE officials' alleged \"illegal\"

off-shore bank accounts. He hoped that the U.S. and the international

community would freeze these bank accounts, like the accounts of

Zimbabwean President Mugabe's confidantes. xxxxxxxxxxxx said he wants

to convince the USG that Mubarak is worse than Mugabe and that the GOE

will never accept democratic reform. xxxxxxxxxxxx asserted that

Mubarak derives his legitimacy from U.S. support, and therefore

charged the U.S. with \"being responsible\" for Mubarak's \"crimes.\"

He accused NGOs working on political and economic reform of living in

a \"fantasy world,\" and not recognizing that Mubarak -- \"the head of

the snake\" -- must step aside to enable democracy to take root. 6.

(C) xxxxxxxxxxxx claimed that several opposition forces -- including

the Wafd, Nasserite, Karama and Tagammu parties, and the Muslim

Brotherhood, Kifaya, and Revolutionary Socialist movements -- have

agreed to support an unwritten plan for a transition to a

parliamentary democracy, involving a weakened presidency and an

empowered prime minister and parliament, before the scheduled 2011

presidential elections (ref C). According to xxxxxxxxxxxx, the

opposition is interested in receiving support from the army and the

police for a transitional government prior to the 2011 elections.

xxxxxxxxxxxx asserted that this plan is so sensitive it cannot be

written down. (Comment: We have no information to corroborate that

these parties and movements have agreed to the unrealistic plan

xxxxxxxxxxxx has outlined. Per ref C, xxxxxxxxxxxx previously told us

that this plan was publicly available on the internet. End comment.)

7. (C) xxxxxxxxxxxx said that the GOE has recently been cracking down

on the April 6 movement by arresting its members. xxxxxxxxxxxx noted

that although SSIS had released xxxxxxxxxxxx and xxxxxxxxxxxx \"in the

past few days,\" it had arrested three other members. (Note: On

December 14, we pressed the MFA for the release of xxxxxxxxxxxx and

xxxxxxxxxxxx, and on December 28 we asked the MFA for the GOE to

release the additional three activists. End note.) xxxxxxxxxxxx

conceded that April 6 has no feasible plans for future activities.

The group would like to call for another strike on April 6, 2009, but

realizes this would be \"impossible\" due to SSIS interference,

xxxxxxxxxxxx said. He lamented that the GOE has driven the group's

leadership underground, and that one of its leaders, xxxxxxxxxxxx, has

been in hiding for the past week. 8. (C) Comment: xxxxxxxxxxxx

offered no roadmap of concrete steps toward April 6's highly

unrealistic goal of replacing the current regime with a parliamentary

democracy prior to the 2011 presidential elections. Most opposition

parties and independent NGOs work toward achieving tangible,

incremental reform within the current political context, even if they

may be pessimistic about their chances of success. xxxxxxxxxxxx

wholesale rejection of such an approach places him outside this

mainstream of opposition politicians and activists.

SCOBEY02008-12-307386PGOV,PHUM,KDEM,EGAPRIL 6 ACTIVIST ON HIS U.S.

VISIT AND REGIME CHANGE IN EGYPT

Northern Soul Classics - You Get Your Kicks - Mitch Ryder & The Detroit Wheels

A long time ago I featured the Mitch Ryder classic "Good Golly Miss Molly/Devil In a Blue Dress/C.C. Rider" stormer. But that was back when I was putting the Northern Soul Classics in the sidebar. I don't want to re-feature all the stuff previously placed in the sidebar, because there is so much more stuff to feature. But, I've decided that all the stuff previously only featured in the sidebar, I'll provide as bonus tracks whenever featuring a new track by the same artist. So I'm including the above track as a bonus with today's track, the absolutely brilliant "You Get Your Kicks".
I can just see all those dancers popping the backdrops and spins up at the Wheel and the Torch already. Now that's what I call R&B.

Soros Warns UK Cuts Will Cause Double Dip

Only days after outgoing CBI chief Richard Lambert said that Government policy represented a triumph of Politics over Economics, George Soros has now warned that the Liberal-Tory Cuts threaten to drive the UK economy into a double-dip recession.

“I do not think they can be implemented without pushing the economy into a recession. My expectation is that it will prove to be unsustainable.”

Soros

The dangers for Big Capital are becoming more apparent by the day. The large amount of debt can only be repaid by growth and inflation. The latter will almost certainly provoke workers into some kind of response as is being seen already in most parts of the world.

Chinese workers are creating a brand new Labour Movement including their own independent Trades Unions, and are fighting for and winning pay rises of up to 50% in response to rapidly rising inflation. Similar movements of workers are developing in other parts of Asia. In other parts of the world where the Long Wave boom has begun to stimulate growth, but where there exist large numbers of unemployed or casually employed workers, such as in North Africa, rapidly rising inflation is resulting in workers pursuing the only other course of action they have when their struggles cannot be undertaken through collective bargaining via Trades Unions, they take to the streets, and burn buildings, and overthrow governments.

That is not an attractive prospect for Big Capital, which relies on a high degree of stability, social peace, and regulated negotiations through the Trades Union bureaucracy.

Worryingly, for that Big Capital, in recent years those economies of North Africa have been increasingly drawn into a new Mediterranean Economic trading area. Their economies have become to some extent linked to those very peripheral economies of Southern Europe, which are themselves now also suffering similar problems as a result of the imposition of austerity measures.

As one TV commentator speculated today, so far the unrest in North Africa has been fairly muted, but in a long hot summer of street protests and conflict, Southern Europe may find that it has at least an influx of refugees to deal with, and more likely a spill over of those protests into the already developing struggles of workers in Greece, Spain, Portugal and elsewhere. Already, in the last couple of years, one of the other rapidly economies of the region, Turkey, seeing the problems of the Eurozone, and facing hostility to EU membership, has turned its own attention towards possibilities in the Middle East. But, Turkey itself could find that rising inflation, results in its own growing Labour Movement stirring.

This all comes at a time when the austerity measures are themselves providing problems for Big Capital as Soros points out in relation to the UK.

Ireland is already facing the prospect of being unable to pay its debts despite the bailout, simply because the Cuts it is introducing have made growth impossible, and its impossible to repay large debts with a shrinking economy. Spain is only now beginning to face up to the reality of its economic problems, and the need to bail out the Cajas. But, the current climate is likely to show up the reality of that situation more quickly than the Government would hope. In his interview, Soros says that fiscal stimulus is needed not to stimulate consumption, but to stimulate investment. He is absolutely right. If Europe is to get out of its current mess only a restructuring of capital, and investment in new globally competitive areas of production and service provision will work.

Either that will be done in a sensible manner through a withdrawal of the Cuts, and a strategy for growth, or else it will occur through a massive crisis.

If its the latter, then the events in North Africa demonstrate the risks for Capital in that option. Already, the economic consequences of the Cuts in Ireland and elsewhere are being made clear by Merkel and others who has said that those Finance Capitalists who lent to these economies, and own their Bonds will have to pay.

They will have to accept the idea of a partial default on those Bonds she says. Such a haircut is nothing compared to the one Capital could face if austerity measures mingle with the heady mix of social unrest being built upon on the Southern shores of the Mediterranean.

Tory Stagflation Returns

The News and Business channels are describing the fact that the UK economy went into a double-dip in the last quarter as a “shock” or “unexpected”..

It wasn't a shock or unexpected to me. Its what I have been predicting for months. In my blog Economic Theory & The Cuts, I wrote,

“...I expect the economy to contract or be flat in the Fourth Quarter.”

The Liberal-Tories for the last year have been blaming Labour at every opportunity for every bit of bad news. But, the reality is that Labour's fiscal stimulus was working, and had created a modest, but developing economic recovery. That Keynesian Fiscal stimulus was mirrored in the US, which has been arguing against the kind of austerity measures being pursued by right-wing populist Governments in Europe, and argued for by the Right-wing populists of the Tea Party.

In contrast, in the US, the Republican leaders joined with Obama and the Democrats to inject a further $2 trillion fiscal stimulus into the economy only a few weeks ago. In the same way that Labour's fiscal stimulus was working, and similar policies had worked in Brazil, China and elsewhere, the US is now showing clear signs of reaching the stage of self-sustaining growth, with the employment and unemployment data beginning to turn round.

That is in stark contrast to the equivalent data for the UK, and other European economies suffering from illiterate economic policies, which as the head of the British Bosses organisation, Richard Lambert of the CBI, correctly described as the triumph of politics over economics.

It is yet another example of the reality recognised long ago by Engels, and which I have been describing over recent months, which is the extent to which Social Democracy (not necessarily what would be termed Social Democratic parties) better represents the interests of Big Capital than does the right-wing, populist “Conservative” parties, who are based upon, and reflect the limited, narrow minded concerns of the small capitalist, and of the middle classes, and backward reactionary elements within society.

In the UK both the Employment and Unemployment data are already deteriorating, as I set out in my blog Misery Index Set To Rise. But, as I set out in that post, and as I have been arguing for some time, this rise in Unemployment, fall in Employment, and sharp slow down in economic activity is being accompanied by rising levels of inflation. In other words we have a return to the kind of stagflation that has accompanied the economically illiterate policies of most previous Tory Governments, as I pointed out in my blog Answering Cleggy's Questions.

Unable to blame Labour for the sharp deterioration in the economy, the Liberal-Tories instead blamed the figures on the weather. Germany had even worse weather, but did not suffer the same economic collapse.

But this data is only a flash reading. It essentially misses the December data, which would have been most affected by weather. Its likely that when the actual data for December is included the degree of the slowdown will be even worse that this figure suggests. According to the ONS, even attempting to strip out the effects of the weather would result in a figure that was stagnant compared to the previous quarter. Given that Labour's fiscal stimulus had resulted in a growth figure of 1.1% for the second quarter, and 0.7% for the Third Quarter, the change even from plus 0.7 to zero, shows a huge change of direction for the economy.

But, in a discussion on the BBC's “Daily Politics” today, where Ed Balls decimated Tory Minister Justine Greening, he put his finger right on the spot.

He essentially made the point I have been making for several months, which is that this sharp reversal is not yet even a consequence of the Tory Cuts, and tax rises. In fact, the latest data shows that Public Spending under the Liberal-Tories has actually risen compared to the situation in the previous year – a point I have previously set out in describing the Liberal-Tory incompetence, because although their Cuts are back loaded towards the last three years of the four year programme, the effects of their narrative begin to be felt immediately – which mirrors the reality under the Thatcher regime, where there was a lot of rhetoric about the small state, but under who the size of the Capitalist State grew, and in certain areas such as the power of the police, and in the building up of the other “bodies of armed men”, grew considerably.

As Ed Balls said, the decline in the economy, which began with the slow down of growth seen in the Third Quarter data, and is now reflected in this collapse in economic activity is down solely to the damage that the Liberal-Tories have done with their continual talking down of the economy from early last year, their ridiculous comparisons of the UK with Greece, their dire warnings of national bankruptcy, and their claims about the need to deal with the deficit above all else, which even David Laws admitted had been hyped up purely for political purposes.

Just on that basis the Liberal-Tories have succeeded in tanking the economy. In coming months, as the momentum now established unfolds, as confidence and the “animal spirits” take hold, and cause people worried about losing their Public sector job, losing the business of Public Sector workers, losing their home, and so on begins to take hold in an environment of diminishing employment prospects, falling house prices and rising evictions, and increased business failures, the economy risks sinking into serious recession if not Depression.

Up to yet, the concerns of Big Capital have been expressed in coded terms such as those used by Richard Lambert in his speech yesterday. But, as this avoidable crisis unfolds, its likely that those messages will become less coded, and more forthright.

In a report out from Begbies Traynor, that is already becoming more obvious. The BBC in their coverage of the report say,

“Almost 148,000 firms had serious problems in the final three months of last year, the first year-on-year rise in the past seven quarters, said insolvency specialist Begbies Traynor.

Government cuts were exacerbating the problem, it said.”


The IT, business services and construction sectors in particular were feeling the pinch, it found.

"The figures demonstrate that the sectors most reliant on government spending are already feeling the impact of public sector cuts," said Ric Traynor, chairman of Begbies Traynor.

"With the full implementation of budget cuts only starting to show through in these figures, public sector-exposed sectors are likely to face significant increases in the level of corporate failures over the course of 2011."

But, recent events within Europe demonstrate the point I have made over recent months, that this is more a political crisis than an economic crisis.

The events in Ireland over the last week have been reduced almost to farce. In Europe, we now see the Spanish Government only half accepting the reality of its economy, and the situation in respect of its property and financial sector. The situation with the Spanish Cajas, the small regional banks, which are responsible for most of the lending for property development, purchase and speculation is now forcing the Government to look for a solution. It is forcing them to merge, and to privatise themselves. But, despite some falls in the Spanish property market, it remains largely a fiction, maintained by a series of interested parties, from property owners themselves, to the Cajas, to the Estate Agents, to the national Banks who own much of the Cajas debt, to the Government itself. In a situation reminiscent of the sub-prime crisis in the US, all of these people have a vested interest in keeping ridiculously high property prices on paper. The Government has said it needs 20 billion Euros to recapitalise the Cajas, which it is now being forced to accept will have to be accomplished by nationalising them. But, from what we have seen in the US sub-prime crisis, and what we have seen in Ireland, this figure is probably out by a factor of ten.

It almost certainly requires more like 200 billion Euros, and that kind of sum, on top of the existing sovereign debt crisis facing Spain, could only be met by some significant developments. Its likely that the Government will try to get the Spanish banks to step in. At the moment those banks based on their activities in a growing Latin America, appear quite sound, but the experience of the Credit Crunch shows how quickly that situation can change when even sound banks are persuaded to take on the liabilities of other banks, whose real assets are a fiction.

The only real solution to this, is as I have been saying for nearly a year, for the EU to issue EU Bonds to raise the money on global Capital Markets. Its now being proposed for the EFSF to issue its own Bonds, and to buy the Bonds of peripheral economies, and the first of those Bonds issued by the EFSF was 9 times oversubscribed today, which shows how much demand there would be for an EU Bond. Yet there is continued resistance to the idea of issuing an EU Bond. The reason for that is again political. In an interview with CNBC, French Finance Minister, Christine Lagarde, said that EU Bonds could only be issued once their was fiscal union. Germany, which would bear most of the cost of all this, basically holds the same position. In other words, we have political manoeuvring leading to political inactivity, which in turn is creating an unnecessary economic crisis.



That is the situation a described in my blog A Momentous Change. At a time when Capital is developing rapidly in the Asian Economic bloc centred on the China-Japan hub, and in Latin America, the Middle East and parts of Africa, which is being pulled along by the developments in Asia, and the demand for primary products, and is even growing in North America as a result of the fiscal stimulus, the ability of the US to use its position as provider of the reserve currency to engage in a currency war, and the internal resources of the US economy itself, the economic bloc to lose out will be the EU including the UK, and will do so for wholly avoidable reasons.

The question becomes whether Big Capital can exert the necessary pressure upon the political process to change that.

Whether it can or not should not change the tactics and strategy of the working-class. Here and now we have to make the case that the right-wing populist policies being advocated by the Tories and others are economically illiterate, and leading to disaster. The policies of Keynesian fiscal stimulus being advocated by US Big Capital, and Social Democracy can and are providing an immediate solution in the current context of a global Long Wave Boom. But, those policies are policies designed, as they always have been, to rescue Big Capital, not to benefit workers. They can work now only because of the economic circumstances of the Long Wave Boom. In neither the short term, nor the longer term do they provide a solution for workers. That solution can only come from workers themselves becoming the bosses. Immediately, that means workers creating and developing a worker owned Co-operative sector of the economy. It means those Co-operatives acting together in a planned, co-operative manner to further their joint interests through national and international Co-operative Federations. It means workers refusing to accept responsibility for a Capitalist crisis, and putting forward the conversion of Private and State Capitalist property into worker owned Co-operative property whenever the State or private Capitalists fail to meet workers needs. It means that Co-operative sector acting as a permanent bulwark for workers in the Private and State capitalist sectors, setting a minimum standard for wages and conditions, for control over the work process, for democracy and efficiency. It means them providing practical support for workers everywhere in struggle against State and private capital, and providing them with a credible immediate alternative to their current situation. But, ultimately it means the extension of such a worker owned Co-operative economy to a national and then international level, a process which the Capitalists will not watch happen passively. It will require an ideological, political and industrial struggle by workers to defend and extend their property, their productive relations, their social relations, and their interests over those of the Capitalists. It will mean that the Social Revolution accomplished by means of the rising power of that Co-operative economy will have to be supplemented by a Political Revolution, to establish the Political regime of the workers in place of the political regime of the bosses.

We are a long way from that here. But even the longest journey begins with a single step, and the return of Tory Stagflation along with the economic and social, and personal misery being created by their co-thinkers shows how urgent it is that the journey be commenced.

Answering Cleggy's Questions

On BBC's Andrew Marr Show, today, Nick Clegg, in an attempt at a pre-emptive strike against Ed Balls, asked two questions.

Who was it who allowed the Bankers to enjoy huge bonuses, and secondly, who was it who oversaw a massive deregulation of the Banks and the development of the expansion of credit, which eventually resulted in the Credit Crunch.

The questions themselves display something really odd about the Liberal-Tory Government. It appears that almost a year into their administration, it has still not sunk in with them that they now the Government, and not the Opposition. Rather than taking responsibility, not just for what has happened, but for what is now happening, their answer to everything is to answer as though Labour were still the Government, and simply respond “Not Me Guv'”. That was apparent in a response from another Liberal-Tory Minister today.

In response to the announcement that spiralling fuel prices were threatening to cause some firms to lay off up to 25% of their workers, Transport Minister, Phillip Hammond, began by blaming “Labour's Fuel Duty”! He seems to forget that he is now part of the Government. In June last year, his Government put forward a Budget, and in the Autumn it released its Autumn Statement, and CSR!!! If he and his Government, objected to “Labour's Fuel Duty”, then why didn't they scrap it in their Budget or in the CSR? That is especially a relevant question, given that Hammond's Tory wing of the Liberal-Tories, had proposed before the election the idea of a Fuel Stabiliser, which would have reduced Fuel Duty when world oil prices were high, and increase it when they were low. They have not only failed to introduce such a stabiliser – and for good reason, because it is economically illiterate – but have also failed to change the Fuel Duty, or the Fuel Duty Escalator. Once a Government has passed a Budget then whatever Tax and Spend policies are in place are its responsibility, and its alone.

That the Liberal-Tories refuse to take responsibility for their actions, for their taxes and spending Cuts, even now shows just how worried they are about the consequences they are likely to have. It is very poor journalism that reporters continue to allow them to continue to answer their questions by simply blaming Labour, and acting as though they were the Opposition, rather than demanding that the Liberal-Tories take responsibility for the unfolding economic catastrophe that will result from their policies.

But, let us answer Cleggy's questions. The answer to his first question is simple. They are the Government, and these huge bonuses are being paid NOW.

The clear answer is that he and his Government are responsible for those bonuses being paid out, he and his Government, including Vince Cable, who told us how much they were going to reign in those Banks only months ago, are responsible for grotesque amounts of money being paid by Banks owned by the Capitalist State, in bonuses to the very people who only two years ago were responsible for bringing the world economy to the brink of collapse.

But, the real answer to Cleggy's second question is not what he and the Liberal-Tories want to hear, or what they would try to make everyone believe either. The first part of the answer to this question, goes back to the Tory Government of Ted Heath.

It was under that Government, that the first measures to relax controls on the Banks and Finance Houses were undertaken, and which resulted in the Barber Boom. Under Chancellor Anthony Barber,

“there was a major liberalisation of the banking system under the title of 'Competition and Credit Control', leading to a high level of lending, much of it to speculative property concerns. ..

Barber also reduced direct taxes. High levels of economic growth followed, but the traditional capacity constraints of the British economy - especially currency and balance of trade concerns - quickly choked the economic boom.

The banking system fell towards crisis as the bubble burst.

During his term the economy suffered due to stagflation and industrial unrest. In 1972 he delivered a budget which was designed to return the Conservative Party to power in an election expected in 1974 or 1975. This budget led to a period known as "The Barber Boom". The measures in the budget led to high inflation and wage demands from Public Sector workers. He was forced to introduce anti-inflation measures in September 1972, along with a Prices Commission and a Pay Board. The inflation of capital asset values was also followed by the 1973 oil crisis which followed the Yom Kippur War, adding to inflationary pressures in the economy and feeding industrial militancy (already at a high as a result of the struggle over the Industrial Relations Act 1971).”


In fact, the start of financial deregulation begun under that Tory Government, and the pumping of liquidity into the economy was the real cause of rising inflation in the second part of the 1970's, because it fed the rising cost pressures from imports, which in turn fed through into rising wage costs and secondary price rises.

As Labour began to cut Public Spending after 1976, and to try to control wages through the Social Contract, the consequent reduction in growth from the removal of Keynesian stimulus, simply fed through into rising unit costs due to under utilisation of capacity, which in turn led to stagflation. Given the fact, that by the late 1970's the Long Wave downturn was well underway, its unlikely that Keynesian stimulus could have saved the economy, but its removal then as now was certain to reduce growth even further. Then as now the pumping of large amounts of liquidity into the economy fed higher prices and inflation – also then as now largely from imported costs – which were not attenuated by the slower growth of the economy.

The Barber Boom was itself a continuation of the “Dash For Growth” introduced by Tory Chancellor Reginal Maudling, in 1963, and which was largely responsible for an earlier period of inflation, and the subsequent Sterling Crisis of the 1960's.

But, Maudling's Boom was not accompanied by the kind of deregulation of the Banks and Finance Houses, and of Credit of the later culprits.

The next culprit, after Barber, was in fact Nigel Lawson, who was responsible for the Lawson Boom, and the Big Bang under Thatcher. It is often claimed that the Thatcher Government introduced Monetarist policies in the early 1980's. In actual fact, this is incorrect.

The term “Monetarism” is most closely associated nowadays with the economist Milton Friedman. Friedman's analysis of the Great Depression was that it had been caused by a too tight Monetary policy by the Federal Reserve in the US, which reduced liquidity precisely at the time it should have been expanding it, in order to stimulate economic activity. Monetarists, like Friedman argue that the economy can be regulated by the use of Monetary policy in ways which do not have the problems associated with Keynesian Demand Management, because the Monetary policy is seen to promote a more dynamic private sector, and thereby stimulate Supply, as well as employment, whereas, Keynesian policies it argues can promote the State Sector, whilst “crowding out” the Private Sector. Given the fact that by the early 1980's, the world economy had already gone through the “Second Slump” of the 1970's, only once more to be enmeshed in a further global downturn, the appropriate “Monetarist” response would have been to control Government Spending, whilst increasing Money Supply in order to stimulate private sector investment and growth.

But, Thatcher's Government, whilst proclaiming that it would cut Public Spending by introducing “Cash Limits” on Departmental Budgets, at the same time, proposed to reduce rather than increase Money Supply. A similar policy was introduced under Reagan in the US.

In fact, this was not a Monetarist response, but a Misean, response. Mises argued the opposite to Friedman in relation to the Great Depression.

In fact, Milton Friedman, recounted that on one occasion, Mises had stormed out of a meeting accusing Friedman and other economists of all being Socialists! Its been said that all theories of crisis are taken from Marx. Mises theory rests essentially upon one element of Marx's analysis of crisis, and that is the potential under a system that has developed Credit, to create “fictitious Capital”, and for this to prolong growth to a point where a crisis becomes inevitable.

In fact, Marx showed why such a crisis is inevitable with or without such Credit. Credit becomes only a means by which the crisis is intensified, and provides a potential spark for its eruption. But, for the Miseans, who believe that the Capitalist Economy if left to its own devices is self-correcting, Credit, especially Credit initially created by an interfering State apparatus based in the Central Bank, upsets this natural harmony, and creates a “Crack-Up Boom”, which when it bursts brings the kind of crisis that was seen in the 1930's.

It is, in fact, not surprising that Thatcher's Government adopted the Misean approach in its initial strategy.

In the years before the 1979 Election, Thatcher and some of her closest advisers, like Keith Joseph, were guided by one of Mises closest adherents and students, Frederick Hayek, who was based at the London School of Economics.

As the BBC Documentary Tory Tory Tory,(see video 1 below) set out, Hayek even pulled together a group of people who were to act as what we would now call a Think Tank, for this project. The series showed how, Sir John Hoskyns, who was a Systems Analyst, used the tools of Systems Analysis to pinpoint where the Tories needed to strike, establishing the Labour Movement's weak spot within the Trades Unions. In reality, although in the early years Thatcher's Government stuck to its attempts to restrain Monetary Growth, it quickly found that it was unable to stick to its Cash Limits for Government Departments. Friedman himself, soon gave up on the Thatcher Government declaring that the Civil Service and State bureaucracy had captured the various Ministers, and it was this opposition from within the State, which prevented the Spending Cuts actually being carried through.

In fact, under Thatcher, despite the rhetoric, the size of the State continued to grow. But, the control of the Money Supply, as in the US, and in the context of a global downturn, did have the effect of forcing employers to cut costs, and to oppose pay increases, in a way that a lax monetary policy would not. It created the conditions for the huge industrial battles of the 1980's, and for the defeat of the Labour Movement.

Having achieved that at huge economic cost to the country – a large part of the wealth that Britain should have enjoyed during the period, from North Sea Oil and Gas, and which other economies like Norway were able to set aside in huge funds for the future, was squandered on financing mass unemployment – and social costs, as the fabric of society was torn apart, resulting in Inner City Riots, and a generation consigned to hopelessness, and State dependency, Thatcher did then turn to Monetarism. The road was now open, on the back of a broken and cowed Labour Movement, to open the Monetary spigots to create a new Boom, out of which Capital would extract large amounts of profit.

That is the context to the Lawson Boom.

Unlike Maudling, and on a far grander scale than Barber, Lawson not only opened the monetary spigots, but completely deregulated Financial Services. Away went all those limitations on how much people could be allowed to borrow, for a mortgage, and so on, away went many of the restrictions on who could set themselves up to lend money, and away went many of the restrictions on trading in the City of London. Its apotheosis was the Big Bang of 1986.

But, the consequences of the Big Bang, and the deregulation of the Banks and Financial Markets were not hard to predict, nor long in their fruition. Thatcher's Government, encouraged all and sundry including Sid to buy shares, particularly in the newly privatised companies, providing their friends in the City with plenty of work and Commissions. They also encouraged everyone to set up their own Private Pensions with all of those nice friendly Insurance Companies and others, who we now know were guilty of all kinds of misselling and other practices now that the deregulation had freed their hands. And, of course, all of this money that Lawson had printed, and was sloshing around in the economy, and all of the encouragement to buy shares and pensions, or to take out mortgages to buy the also newly privatised Council Housing, or to remortgage your rapidly inflating house, in order to buy some of those shares, or some new gee-gaw created precisely the kind of fictitious Capital that Marx had described, and the “Crack-Up Boom” that the Miseans talked about. Share prices began to climb sharply, and everyone thought they were geniuses able to make money on a one-way bet. It had all the hallmarks of the period prior to the 1929 Wall Street Crash. And sure enough, in October 1987 an even worse crash than 1929 happened. It came to be called Black Monday. But, similar to the events after the Tech Wreck of 2000, the money that flooded out of shares simply flooded into other assets, in particular into houses.

In 1988, not only did shares more than recover their losses from the Crash, but houses prices began to soar, as former adherent of Ayn Rand, and sound money, Alan Greenspan, commenced on a 20 year programme of pumping liquidity into the economy every time the markets showed any sign of falling - The Greenspan Put, and similar policies were adopted in the UK, and other Central Banks.

But, just as all of the fictitious capital created by the pumping of lots of money into the markets led to Black Monday, so the fictitious house prices that resulted from the same root also came crashing down a year later in 1990. Prices fell by 40% within months, and thousands of people found themselves evicted from their homes, as rising unemployment, and large rises in interest rates made paying for their homes impossible. Not until 1996, did house prices return even to their nominal 1990 levels. They did not return to their inflation adjusted level until after 2000. Yet, the continued pumping of huge amounts of money into the economy, did continue to push house prices up into the stratosphere, and home ownership became increasingly impossible for many people from the late 1990's onwards. In other words, if those previous bubbles had serious consequences, then the much larger bubble blown up now implies an even bigger bust. House prices are now around four times the level they should be at, as the graph below demonstrates.

Many economists expect prices to fall by 50%, similar to the 60% fall experienced in Ireland, and the continuing falls in Spain and other parts of Europe. In fact, under current economic conditions, and the tendency known as “return to the mean”, it is likely that any falls will be much larger than that, taking prices down significantly below what would have been necessary to get to the mean.

Its true, that part of the responsibility for that will rest with New Labour, and the fact that it continued the Love Affair with the City, and easy money that previous Tory Governments had put in place.

But, the reality is that the majority of the building of Britain's Financial Structure we now have is the responsibility of Cleggy's Tory compatriots. He and they should take responsibility for that.

Northern Soul Classics - Nobody But Me - The Human Beinz

First done by the Isley Brothers, Nobody But Me, is a classic piece of Blue Eyed Northern Soul. I have the Isley Brothers version on a CD along with their original versions of other classic songs later covered by other artists such as "Twist & Shout", but its this version by The Human Beinz that was always played on the Northern Scene. It was one of those original Northern dancers from the days of the Twisted Wheel that was played at a thousand Youth Club discos.

Telling The Truth About Lying

Recently, I've written a few posts about why Capitalism needs to lie to the majority of citizens. On a day when it was reported that Spain's debt ridden Government would be seeking more than 30 billion Euros, to refinance its struggling Cajas, the small regional banks who finance the Spanish property market, and their were rumours that the EFSF, the European bail-out fund, was to issue Bonds in its own name to raise money, and was also to buy the Bonds of struggling peripheral economies, that point was made cystal clear by a contributor to CNBC's European Closing Bell.

Ralph Silva, of Tower Group said that it would benecessary to undertake new stress tests on the European Banks.

If these tests were done properly, he said, then 25% of Banks tested would fail. It was necessary to get a proper picture, in order to know what was needed to sort things out. However, he said openly, it was actually necessary to lie about the results of those tests, for now, because if the truth of how bad the situation is was made general knowledge then, he said, "There was no future"!

Today, CNBC also provided information about the more hidden consequences of the crisis. Ireland is losing One thousand people a week to emigration as a result of the crisis. Until, recently thousands of Irish people and others were flocking to Ireland's Celtic Tiger economy. Now it is transformed from a Tiger to a Pig economy.

Time Particles

I was watching the BBC's Horizon, the other day which was exploring the nature of reality. Like many Marxists whose science is based on Materialism, I find this stuff both fascinating and fundamental to understanding the world we live in, and how it changes, what makes it work. At another level getting your head around this stuff, which is getting not just increasingly complex to understand, but increasingly weird - for example when one scientist says, "If you think you understand this, you don't, because no one does" - makes understanding Economic concepts look like child's play - though I was talking to my neighbour a few months ago, who is a Professor of Maths, who said to me the same thing in reverse i.e. "Economics, isn't that incredibly difficult to understand?" - and when it comes to many of our concerns seem terribly trivial. For example, the Universe was here 13 billion years before we arrived, and reality would continue even were we to blow ourselves up - or would it?

The programme examined the tenets of Quantum Theory, which uncomfortably calls into question that and many other certainties. Some of these ideas such as that surrounding the Two Slit Experiment, where photons - single particles of light are fired at a target through a barrier with two slits. The experiment shows that rather than each photon going through just one slit, the photon faced with an equal probability of going through each slit, splits in two, and passes through both!!! What is even more weird is that if detectors are put in place to identify, which slit the photon actually does go through then the uncertainty is removed, and that alone seems sufficient to make the photon go through just the one slit. One explanation for this that has been given is that in reality the uncertainty always causes the photon to split in two, but by observing, which slit it goes through, what is happening is that two alternative realities are created, and in the other reality, the photon passed through the other slit!



This uncertainty principle is what stands at the root of Quantum Theory, without which none of today's electronic and computer products would be possible. Yet, rather like the Differential Calculus, which is also based on an uncertainty principle, scientists now know that Quantum Theory works, but do not know why, because it breaks all the laws of Aristotelian Syllogistic Logic, which insists that things have to be one thing or another. Another aspect of this is that without observation it is impossible to know whether a particle is positively or negatively charged. That has led to one of the weirdest applications of this - what is known as Quantum Entanglement, which basically posits the idea that two particles can exist as a result of this splitting process, and they could be literally light years apart. Even more weird scientists have proved this by building a primitive teleportation device similar to that on Star Trek, but which in reality just teleports information.



All fascinating, but only tangential to the point of this post. What watching the programme made me think about, particularly in relation to the search for the Higgs Boson, a particle that is required by current theories to explain where mass comes from, was about the other qualities of matter, and what other particles might be necessary to explain their nature. We know from Einstein's Theory of Relativity, that when matter approaches the speed of light two things happen. Firstly, the mass of the object at the speed of light becomes infinite. Secondly, at the speed of light, time for the object stands still relative to everything else.

The question that raised in my mind was that if the mass of the object is a quality that it has, and which changes relative to everything else as a result of its speed, then if we notice the same basic relation in respect of time, should we then conclude that time itself is a quality embedded in the object, rather than time being something external to it, that it passes through. Surely, that is the only way that the object can have its own time relative to the time experienced by everything else. In other words, Time really is a Fourth Dimension applicable to the object, embedded in it no different than the other three dimensions of length, breadth and depth. But, in that case, in just the same way that those dimensions ultimately are determined by the atomic structure of the object, which in turn is determined by the particles which make up those atoms, that would require that there be a Time particle - perhaps a Chronon - which is a fundamental part of matter too.

So, I turned to the Internet today, and found a discussion here that looks at that question - though they call them tachyons.

Misery Index Set To Surge

A few weeks ago David Cameron said he wanted to create a “Happiness Index” to show how much people's lives had improved or worsened, rather than simply relying on GDP.

Living up to its reputation as the “miserable science”, Economists have their own equivalent called the Misery Index, which adds together the Unemployment Rate and Inflation Rate as the two most significant economic statistics which affect the lives of most people. The data on these two fronts in the last couple of days indicates that Misery is about to surge.

Dr John Philpott, Chief Economic Adviser at the Chartered Institute of Personnel and Development (CIPD) said,

"The latest jobs market figures are disappointing albeit that the underlying trend in employment and unemployment toward the end of 2010 suggests a modest rather than drastic deterioration in market conditions. Nonetheless, it is clear that the combination of a jobs market in the doldrums, slow pay growth and sharply rising price inflation was already driving up the UK's 'misery index' well before the impact of this year's cut in public spending and the hike in VAT and other taxes start to be felt.”

See: Misery Index Rising

Yesterday, data on Inflation was released. It showed that CPI had risen to 3.7%, which is nearly double the target rate that the Bank of England is set by the Government to achieve. In fact, in 30 of the last 36 months, CPI has been above that target rate.

If any ordinary worker failed to meet their targets they would be sacked, but the Capitalist State bureaucrats at the Bank of England, continue to draw their huge salaries despite failing miserably to do their job for the last three years. As usual, the RPI measure of inflation was even worse, coming in at 4.8%. In reality, for the majority of ordinary working people the true figure for inflation is much higher than that, because the majority of ordinary workers spend a larger proportion of their income on those things, which tend to be more susceptible to price rises.

A look in the supermarkets, shows that some of the biggest rises have been in the “Value” ranges, because of course, if you have already been reduced to buying them to save money, there is nowhere else to go, for anything cheaper.

Today, the other component of the Misery Index came in and showed even more reason for concern. It showed that over the last three months unemployment had risen by 49,000. Worse than that, contrary to the assertions of the Tories, and their pet Office for Budget Responsibility, that the private sector would create hundreds of thousands of new jobs to replace those lost in the Public Sector, not only had Unemployment risen, but Employment has fallen, by 69,000 according to the ONS.

In fact, a look at the shape of the graph for the Employment Rate is quite worrying, because having fallen sharply from the end of 2008, as the recession caused by the Financial Meltdown set in, it had begun to rise again from the end of 2009, and into the middle of 2010, as Labour's Financial stimulus measures began to feed through, but the slope of the decline that has now set in is even sharper than that during the period after 2008! If anything, the Employment Rate is more significant in economic terms than the Unemployment Rate. Over time the size of the labour force tends to rise as population growth feeds through into more workers. If the number of people in Employment remains constant, the Unemployment Rate would then naturally rise. But, a rising population, usually means more potential demand for goods and services within the economy, and people are employed to produce them. It is usually the case then that in even a moderately growing economy, the number of people in Employment rises, even if Unemployment also rises. In an economy growing above its trend rate, or recovering from a recession, it would normally be expected that not only would the number of people in Employment rise, but the Employment Rate would also rise, prior to the Unemployment Rate falling.

But, as the CIPD and others have pointed out, this is now, this reduction in Employment is only a reflection of the fact that after May, the Liberal-Tories talked down the economy, scaring people into economic inactivity with their scare stories about the deficit, and painting a picture of a Britain on the brink of bankruptcy like Greece. Very little, of the real damage to the economy that the Liberal-Tories economic mismanagement will once again inflict, as it did in the 1980's and 90's, has begun!

Only after April of this year, will the cuts to Local Government really begin, those cuts will continue throughout the next three years, and things will get even worse in 2013, and after, when the bulk of the Liberal-Tories' cuts to Benefits and Welfare (which is to take the lion's share of the Cuts) start to take effect. Its no wonder that a number of economic think tanks are once again discussing the likelihood of a double-dip.

Despite the ridiculous attempts to talk up the housing market by the Daily Express, its almost certain that this increase in misery through higher unemployment, lower employment, and higher inflation, squeezing people's living standards, and making them retrench for fear of what the future holds will feed through into the housing market.

The Bloomberg chart showing the likely course of house prices in the next few months based on the Nationwide Consumer Confidence and House Price Index shows that a sharp fall in house prices, just as happened in similar conditions in 1990 under the last Tory Government, and as has happened in Ireland over the last year, is almost inevitable, and that in itself will add to the feeling of despair of many people in the country, which will itself feed through into lower consumer confidence, and depressed economic activity. Yet, the misery does not end there for homeowners, and those with large mortgages. The markets are now pricing in early rises in interest rates too. In 1990, it was a rise in interest rates which sparked the initial fall in house prices that quickly snowballed into a 40% collapse.

The official argument for keeping interest rates at 0.5%, despite the fact that inflation is double the target rate, and has been way above it for most of the last three years, is that the economy is still weak, and a rise in interest rates would choke off the recovery. In fact, last year, as with the US, which introduced a similar fiscal stimulus as that brought in by Labour, growth had begun to rise sharply. In fact, it was above trend growth and rising. The biggest threat to that recovery strengthening has not been the possibility of higher interest rates, but has been the potential for not only the removal of that fiscal stimulus, but the serious talking down of the economy by the Liberal-Tories, and their declared intention of introducing a severe fiscal contraction!

Had the latter not been the case, then probably growth would have continued to strengthen in the last half of last year and into this year, and a stronger economy would have been easily capable of absorbing a gradual rise in interest rates, particularly if it was accompanied by continued Quantitative Easing, to ensure that sufficient liquidity was available for those who wanted to borrow to invest.

But, the argument about why interest rates are kept low is bunk. In reality, businesses and individuals cannot borrow at the official 0.5% interest rate set by the Bank of England.

Large businesses borrowing in the Bond Markets have to pay between 3-4%, small businesses where they are able to borrow from their Bank, are paying more like 5-6%, and so are people looking to take out mortgages. These interest rates are determined not by the rate set by the Bank of England, but by the interest rates set in the international Bond markets, where these Banks actually borrow long term funds. And rising inflation is already pushing those rates higher. If the Bank of England raised its rate from 0.5% to 1% tomorrow, it might even have the effect of reducing those long term rates, because it would be a signal to the international Bond markets that an attempt to bring inflation under control was underway.

And as a long term Bond investor it is inflation, which is your main concern. If your money is tied up for ten years, it is no use earning 4% on your money during that time, if inflation averages 5%, because it would mean you have lost money. The real reason that the Bank of England has kept its interest rate low is for the reason let out a couple of months ago by Charlie Bean – See: Why Charlie Bean Could Be Disappointed - which is that the Bank wants to discourage saving, and thereby promote people with savings to spend it in order to keep demand afloat.

The immediate beneficiaries of the 0.5% Bank of England rate are the Banks themselves, who can borrow money for short durations at this rate. It puts liquidity into the Banks, and enables them to make bigger profits in order to bring about the recapitalisation, and rebuilding of their Balance Sheets, that became necessary after the Credit Crunch, and which continues to be needed as the continuing crisis of the Irish and European Banks demonstrates.

At the same time, it acts to rob ordinary working people of their money, because it means that in reality with inflation at around 5%, the interest they are getting on their money, means they are paying the Banks and Building Societies to hold it and use use it!!!

There is also some unwelcome news, for the Liberal-Tories, hidden in the data released by the ONS. That is in relation to wages. The data shows that in the last year, wages in the private sector rose by just 1.9%, whilst wages in the Public Sector didn't fair much better rising at just 2.4%. In both cases this amounts to a cut in wages of around 2%. But, the concern for the Government must begin with the trend. The average for wage rises for the whole of 2010 was, just 2.1%, but for the three months to the end of November the figure was 2.3%.

That increase may not appear much, but in reality the 0.2% increase in the rate represents a 10% increase in the rate of change. Given that this was also at the end of the year, when economic activity itself had slowed, this must be even more worrying for the Government. It suggests that workers in the Private Sector, having faced wage cuts and freezes for the last couple of years, have begun to seek compensating increases. That seems to be born out by an increasing number of wage disputes, such as those described by the BBC, and the recent decision by UNITE to ballot Oil Tanker drivers on action over pay and bargaining arrangements. Inflation has been persistently high now for some time, and there is every sign that it will continue that way. With Bankers paying themselves millions of pounds in bonuses, with the CEO's of companies paying themselves 55% pay rises in the last year, and with the Royals preparing to spend millions of pounds of our money just for a couple of weddings there is no reason that workers should believe the guff from Cameron and Co. about us all being in this together.