For weeks there has been discussion in the financial press, and from the bank of England about why it is that the economy is in a double-dip recession, and yet employment is growing. In truth it was never really such a conundrum. However, there were those who wanted to put a gloss on the consequences of the Liberal-Tory policies, and who suggested that the economy was actually healthier than the GDP figures suggested. The other alternative, which was always more likely, was that the employment data was bogus.
Today's data, showing that the Public Sector Borrowing Requirement for July was about £3 billion worse than it should have been confirm that it is the latter, which epxlains the supposed conundrum. In July, there is usually a positive balance, as the Government benefits from an influx of tax revenues, and seasonal factors mean that benefits payments tend to be lower. In fact, benefits payments went up, showing that whatever the employment data shows, in the real world people are losing jobs, or are taking on pseudo jobs. At the same time, that picture was confirmed by the fact that tax receipts, particualrly Corporation Tax receipts were down sharply, showing that businesses are either going bust, or else are making lower profits.
Various TV programmes have illustrated over recent weeks the truth about the employment figures. The number of people "employed" on zero hours contracts has risen froma round 50,000 to around 150,000. These zero hours contracts put workers in a worse position than dockers were in prior to the introduction of the Dock labour Scheme in the 1960's. Under them, you cannot take on another job, because you have to be available whenver the employer requires you, but the employer does not have to guarantee you any hours work during the week, or, therefore, to pay you anything. Because you have a contract of employment, and are not available for any other work, you do not qualify to register for JSA. Because, the number of hours worked is frequently below the now 30 hours a week you need to qualify for tax Credits, you will probably not get that either. Yet, the tightening of Benefit rules means that many people have been forced into signing up for these zero hours contracts.
It shows how ludicrous the claims are from right-wing Tories that the answer to rising unemployment is a yet more flexible, and unregulated labour market!
In addition to these zero hours contracts, there are all those people who are supposedly self-employed. In fact, many firms have chosen to employ people by requiring them to be self-employed in order to get round the obligations of employers towards employees. It saves the employer paying National Insurance and PAYE, as well as holiday and sick pay. Those now become the responsibility of the "self-employed" employee. But, there are lots of people who have become self-employed. It is quite common during such periods of recession. It happened in the 1980's. It is not an indication of economic vibrancy, but of the exact opposite. It is a reflection that people have given up hope of getting a proper job, and think they can make more than they would get in Benefits by employing themselves, and scraping around for whatever work they can pick up. It goes along with the expansion of the Black Economy which many of these self employed people rely on to make ends meet.
Anyone who has received anything like a reasonable redundacny payment, will find that they don't qualify for benefits, so using the money to set yourself up might seem a sensible option. Its particularly something that single people can be drawn into, because under current regulations, Benefits are so appalingly low that even just a few hours work a week can often bring in more money than you would have received in Benefits. But, it doesn't change the fact that such people are living on the edge with such low levels of income. Its no wonder that there is a lack of consumer demand. moreover, most new businesses go but within the first year, and 75% have gone bust by year five. A large back log of businesses exists that are likely to deposit large numbers of workers on the dole in the not too distant future.
Finally, there are lots of workers who have lost their full-time jobs who have only been able to obtain part-time jobs. All this means that the real figures for employment are much worse than the superficial figures would suggest. In reality, this is typical of the situation of the UK economy as a whole.
The UK economy is rather like a horror show hiding behind a tissue of lies. The unemployment data is one example of that. The real situation in respect of interest rates is the same. On the face of it, the UK's record low rates seem a success story. But, the real reason those rates are so low is because the Bank of England has been printing money likie there is no tomorrow, and using it to buy up Government debt. Eventually, the international Bond buyers will come to realise that Bond markets in the US, UK, germany and Japan have all the characterisitcs of a bubble, as has occurred in many other asset markets. Already, in the US, the Yield on the !0 Year Treasury rose by 25% last week. Yields on german Bunds have also been rising, and on UK Gilts. With, the UK dropping ever deeper into recession meaning its ability to cover its debts becomes harder, with inflation once more rising - and set to rise further as oil prices and food prices are rising again globally - and with the UK more prone to that as Bank of England money printing reduces the value of the pound, and monetises imported inflation, the international Capital markets may begin to demand much higher returns in order to lend to the UK Government, whose economic competence is looking threadbare.
Finally, as i've set out before the other major fiction is the situation with house prices. Its clear for anyone who does their own research that house prices, even asking prices, are falling by around 25-30%. Selling prices are much lower than that. Even Rightmove now say that half of all the houses put on the market are not being sold. Yet, read the press or watch the TV, and you would think that prices were at worst stagnant! Now wonder sellers ask unrealistic prices, and find themselves sorely disappointed, within a few months, and having to drop their expectations. But, the fact that houses are not selling is evidence that prices are still way, way to high.
The Government and Bank of England is trying to prop the market up, because they fear that when house pries do crater, it will take much o the Banking System with it. But, like the Dutch Boy with his finger in the dyke, eventually all of these tissues of lies will tear, and a flood will come pouring through it. The longer its delayed, the bigger the flood will be.
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