Inflation & Interest Rates Up, Wages & House Prices Down

In the last year, the Misery Index – Inflation Rate plus Unemployment Rate – has been soaring, as I predicted it would. Despite the Tories assuring us that slashing State Spending would create a private sector boom that would produce an avalanche of new jobs, all their austerity has done is to send the recovering economy back into recession, and sent unemployment heading up towards 3 million. That is despite the fact that, so far, the Liberal-Tories have only implemented 6% of their planned austerity measures! Despite the Bank of England promising us that inflation would fall – a promise they have been making continuously for the last 4 years – inflation rose even more, fuelled by their low interest policy and money printing, and its consequent policy of devaluing the pound, which has pushed up import prices for things such as fuel and food. Last month's fall in the inflation rate, which was largely technical due to the falling out of the calculation of last year's VAT rise, looks likely to be short lived, as oil is heading back up to record highs, and petrol prices are already at record highs. Now Interest Rates are rising too, whilst wages are frozen, and falling sharply in real terms, whilst house prices are beginning to collapse by up to 50%.

According to the BBC, Banks and Building Societies are set to raise Mortgage rates by a whacking 14%, from 3.5% to 4%. That will come as yet a further blow to a rapidly falling property market on top of the removal of the Stamp Duty holiday that has been in place. Already, as the property website Propertysnake is showing, even Asking prices for houses are being cut by as much as 50%. Propertysnake monitors changes in asking prices across the country. Its very useful, allowing you to put in a postcode, and see exactly how much prices are falling for actual houses in that area.

With wages frozen, benefits being cut, and rapidly rising inflation cutting into workers' living standards, its now wonder they have no money left to keep the huge property bubble inflated. With rising unemployment, and now sharply rising interest rates, all of the conditions are in place for a repeat of the collapse of the property market that occurred in 1990. But, this bubble is bigger, meaning the collapse will be bigger too.

Before the election, the Tories had promised to introduce a fuel price stabiliser that would cut fuel duty whenever the price of oil rose. Now with diesel prices already over 140p per litre, and headed for 150p, the Tories cannot cut fuel duty much further without risking blowing a hole in their Budget. There are several reasons for the rising price of oil. For one the world is probably at a stage of Peak Oil production, so with demand rising rapidly in China and other developing economies, Supply cannot rise fast enough to meet it. Secondly, as the interview on Fareed Zacharia with Ronen Bergman spelled out today, Israel is planning to launch a strike on Iran some time this year. With a developing Cold War by proxy in the Middle East, as western imperialism lines up behind the Sunni Feudal Monarchies of the Gulf, and their allies, and Russia and China line up behind Iran, Syria, and oppressed Shia populations in the Gulf Monarchies, such an event is likely to spark an extensive regional war at the very least, and something wider at worst. The fact, that clerical-fascist regimes have now come to power in Iraq, Egypt, Tunisia, Libya, and could well come to power in Syria and elsewhere, make the future even more uncertain. Even if the Straits of Hormuz did not get closed, such a conflict would mean that oil production and distribution in the region was severely curtailed. Under such conditions, the current price looks likely to be far from taking full account of the necessary risk premium. A serious dislocation would be likely to send Oil to anything between $200 and $400 a barrel. Thirdly, apart from those factors, the policy of the Bank of England over recent years of printing money has pushed up inflation in general, and by devaluing the pound has had a direct effect on increasing the price of imported oil.

On top of that, as I predicted a while ago, interest rates are now also rising, despite the policies of the Bank of England. That is because the interest rates charged by the Banks and Building Societies are more determined by what they have to pay in the money markets to borrow money. Over the last 6 months or so, those rates have been rising rapidly, because, as happened with the Credit Crunch of 2008, the Banks are now worried about their own financial health. The interbank rates that banks charge each other has soared, as banks worry that they might not get their money back, and scramble to boost their own cash holdings. When the ECB pumped out €500 billion in the Long Term Refinancing Operation (LTRO) at the end of last year, it helped ease that situation. Banks were able to offload some of their dodgy Bonds to the ECB, in return for cash at 1% interest rates. Its basically Money printing, and the ECB acting as lender of last resort by any other name.

The idea of the LTRO was that these banks would then use the money they borrowed to buy up the Bonds of their own Governments in what is termed a “Carry Trade”. That seemed to work to an extent as the Yields on Italian and Spanish Bonds fell, though they are hardly at low levels even now. They have just repeated the exercise. Over 800 Banks across Europe borrowed money. But, for the last few months, European Banks have also been depositing record amounts with the ECB itself overnight. The ECB points out that its not the same Banks who are depositing the money that are borrowing the money. The message from that seems clear. Of those 800 Banks, a large number seem to need the money to bolster their own liquidity and solvency. That also seems to be the analysis of the Credit Ratings Agencies, who continue to downgrade European Banks.

The other reason for that is that across Europe, and within the UK, many Banks are in a position similar to that of Japanese Banks in the 1990's, or US banks after the Sub Prime crisis. They are zombie banks. They have large amounts of loans outstanding on property that is listed at unrealistic prices. Once those property prices are rectified, once the loans of the Banks begin to be properly written down, many of those Banks will be seen to be bankrupt. Bloomberg had a story setting that out on Friday. They write,

“Investors view the 182 billion euros of bonds tied to Spanish residential-mortgage backed securities as being among the least creditworthy in Europe, trailing securities from the U.K., Netherlands and Italy. The outlook for the collateral is expected to worsen as mortgage arrears rise with increasing unemployment and house prices continue to fall, Moody’s Investors Service said in a report last month.”

As austerity across Europe causes these property prices to collapse, as well as causing economic activity to go back into recession, no amount of money printing by Central Banks will lead to higher borrowing to reflate these bubbles, and consequently, the Banks will go bust in large numbers. All the ECB has done is to buy Sovereign debt in Greece, Italy, Portugal, and Spain some temporary relief, but only at the cost of throwing the burden back on to the Banks.

Northern Soul Classics - Earthquake - Bobbi Lynn

Another toon from the pre-All-Nighter Torch days. This time the classic from Bobbi Lynn. Incidentally, talking of old toons. The Financial Times had an article last weekend about rare vinyl, particularly Northern. It spoke about John Manship who recently sold one of only two existing copies of Frank Wilson's "Do I Love You (Indeed I Do)" for £25,742. Good job I kept all that vinyl then!

Northern Soul Classics - Don't Stop Doing What You're Doing - Bunny Sigler

Also known as "I only Get This Feeling", and also done by the great Big Dee Irwin, as well as Chuck Jackson. I remember this on many good occasions from the early Torch, as well as played in front rooms with some of my mates. Great track from the fantastic Bunny Sigler who also brought us "Let The Good Times Roll", and the other Northern classic "Follow Your Heart".

Phoney Jobs - At Best

The wheels have been coming off many of the Tories plans in the last week. The Health Reform Bill is causing them considerable trouble, with the Liberals facing a rebellion from the grass roots. In the last few days it has been their Workfare scheme that has run into trouble.

The Tories measures put forward udner the guise of "Work Experience" for the unemployed, came in for attack after Tesco advertised a job that paid only JSA. In other words a company that produces billions of pounds of profits for its share holders each year was employing workers at the taxpayers expense. Of course, these kinds of McJobs are different from the kind of unpaid internships that the well heeled can afford to place their kids in, so that they get an advantage over others in jobs that ultimately pay above average wages. The idea that anyone is getting any kind of real training, from filling super market shelves over night is laughable.

Then yesterday, it was reported in the press that one of the companies that has been advising the Liberal-Tories on these schemes has seen four people arrested on charges of fraud! The scheme, like the Health Bill has become so toxic that no one now wants to touch it. All of the Health bodies have distanced themselves from the Health Bill, now Tesco and many more companies are distancing themselves from the Liberal-Tory workfare scheme.

As during the 1980's, all of these kinds of schemes are a sham, and provide far more opportunities for State bureaucrats to provide themselves with jobs, and various businesses to make profits from providing "training", "work experience" and so on, than provide anything useful for the unemployed, who want real jobs, at proper rates of pay.

A couple of weeks ago I had the misfortune of having to go into the City Centre. I happened by a private Job Agency, and had a look in their window. They had a range of very low paid jobs, but interspeersed amongst them were a number of better paid jobs, for Managers, Supervisors and Administrators, most of which required the applicant to be able to speak a foreign language. One of them particularly took my attention. It required someone who could speak Swiss. I thought of going in to enquire about it, and to say I could speak Swiss better than anyone in the world. That would have been true, for the simple reason that there is no Swiss language! Switzerland has three official languages - German, French and Italian, but not a single "Swiss" language.

What kind of firm, I wondered required someone who spoke a non-existent language? Well none, I concluded. What they were really advertising was not a job for someone to speak a non-existent language, but a non-existent job, designed to get people through the door.

Northern Soul Classics - Someday We're Gonna Love Again - Barbara Lewis

I thought I'd have a few weeks of featuring stuff from the Torch from the late 60's, early 70's, before the all-nighters. Where better to start than with this classic from Barbara Lewis.

History Repeating As Farce - Part 8

Big Capital failed to carry through its own revolution consistently, particularly in Britain, and instead of confronting these ideas openly, that permeate the whole of society, and which would, therefore, require it to confront them within the ranks of its own class, it preferred to proceed bureaucratically. Instead of waging an open political struggle against these ideas, it chose police methods, attempting instead to outlaw such ideas through legislation such as Race Relations and other such laws, which have, and could only have, the opposite effect to that which was intended. The classic manifestation of that is in relation to the EU, where, rather than waging an open struggle, for the establishment of a new democratic EU State, it has proceeded by the same kind of bureaucratic methods, attempting to establish such a state by stealth.

These struggles are also playing out in a similar, behind the scenes, manner within the Tory Party itself, which is why it periodically breaks out in open warfare over Europe. The outcome of these struggles will no doubt illuminate the complex web that ties sections of the gutter press, to sections of the Tory Party and their co-thinkers within UKIP, to sections of Money Capital based in the City, to sections of the State, in the same way that such links were exposed over phone hacking.

This has echoes itself of the situation that Marx was describing in the 18th Brumaire. After, the French Revolution, as part of the land reforms, which broke up the power of the old feudal aristocracy, the peasants were encouraged to also borrow large amounts of money to develop their new properties. Having done so, they were to find later that, having increased output, food prices fell, meanwhile the mortgages on their properties increased. Instead of being exploited by the old Aristocracy in the form of Rent, they were now being cruelly exploited by the Aristocracy of Finance in the form of Interest. Marx writes,

“After the first Revolution had transformed the semi-feudal peasants into freeholders, Napoleon confirmed and regulated the conditions in which they could exploit undisturbed the soil of France which they had only just acquired, and could slake their youthful passion for property. But what is now ruining the French peasant is his small holding itself, the division of the land and the soil, the property form which Napoleon consolidated in France. It is exactly these material conditions which made the feudal peasant a small-holding peasant and Napoleon an emperor. Two generations sufficed to produce the unavoidable result: progressive deterioration of agriculture and progressive indebtedness of the agriculturist. The “Napoleonic” property form, which at the beginning of the nineteenth century was the condition of the emancipation and enrichment of the French countryfolk, has developed in the course of this century into the law of their enslavement and their pauperism. And just this law is the first of the “Napoleonic ideas” which the second Bonaparte has to uphold. If he still shares with the peasants the illusion that the cause of their ruin is to be sought not in the small holdings themselves but outside them – in the influence of secondary circumstances – his experiments will shatter like soap bubbles when they come in contact with the relations of production.

The economic development of small-holding property has radically changed the peasants’ relations with the other social classes. Under Napoleon the fragmentation of the land in the countryside supplemented free competition and the beginning of big industry in the towns. The peasant class was the ubiquitous protest against the recently overthrown landed aristocracy. The roots that small-holding property struck in French soil deprived feudalism of all nourishment. The landmarks of this property formed the natural fortification of the bourgeoisie against any surprise attack by its old overlords. But in the course of the nineteenth century the urban usurer replaced the feudal one, the mortgage replaced the feudal obligation, bourgeois capital replaced aristocratic landed property. The peasant’s small holding is now only the pretext that allows the capitalist to draw profits, interest, and rent from the soil, while leaving it to the agriculturist himself to see to it how he can extract his wages. The mortgage debt burdening the soil of France imposes on the French peasantry an amount of interest equal to the annual interest on the entire British national debt. Small-holding property, in this enslavement by capital toward which its development pushes it unavoidably, has transformed the mass of the French nation into troglodytes. Sixteen million peasants (including women and children) dwell in caves, a large number of which have but one opening, others only two and the most favored only three. Windows are to a house what the five senses are to the head. The bourgeois order, which at the beginning of the century set the state to stand guard over the newly emerged small holdings and fertilized them with laurels, has become a vampire that sucks the blood from their hearts and brains and casts them into the alchemist’s caldron of capital. The Code Napoléon is now nothing but the codex of distraints, of forced sales and compulsory auctions. To the four million (including children, etc.) officially recognized paupers, vagabonds, criminals, and prostitutes in France must be added another five million who hover on the margin of existence and either have their haunts in the countryside itself or, with their rags and their children, continually desert the countryside for the towns and the towns for the countryside. Therefore the interests of the peasants are no longer, as under Napoleon, in accord with, but are now in opposition to bourgeois interests, to capital. Hence they find their natural ally and leader in the urban proletariat, whose task it is to overthrow the bourgeois order. But “strong and unlimited government” - and this is the second “Napoleonic idea” that the second Napoleon has to carry out – is called upon to defend this “material order” by force. This “material order” also serves, in all Bonaparte’s proclamations, as the slogan against the rebellious peasants. 

In addition to the mortgage which capital imposes on it, the small holding is burdened by taxes. Taxes are the life source of the bureaucracy, the army, the priests, and the court – in short, of the entire apparatus of the executive power. Strong government and heavy taxes are identical. By its very nature, small-holding property forms a basis for an all-powerful and numberless bureaucracy. It creates a uniform level of personal and economic relationships over the whole extent of the country. Hence it also permits uniform action from a supreme centre on all points of this uniform mass. It destroys the aristocratic intermediate steps between the mass of the people and the power of the state. On all sides, therefore, it calls forth the direct intrusion of this state power and the interposition of its immediate organs. Finally, it produces an unemployed surplus population which can find no place either on the land or in the towns and which perforce reaches out for state offices as a sort of respectable alms, and provokes the creation of additional state positions. By the new markets which he opened with bayonets, and by the plundering of the Continent, Napoleon repaid the compulsory taxes with interest. These taxes were a spur to the industry of the peasant, whereas now they rob his industry of its last resources and complete his defenselessness against pauperism. An enormous bureaucracy, well gallooned and well fed, is the “Napoleonic idea” which is most congenial to the second Bonaparte. How could it be otherwise, considering that alongside the actual classes of society, he is forced to create an artificial caste for which the maintenance of his regime becomes a bread-and-butter question? Hence one of his first financial operations was the raising of officials’ salaries to their old level and the creation of new sinecures.”

I have included this lengthy description in full, because it is so clearly a parallel for what we see today. For Napoleon read Thatcher, for the nephew read Cameron. For the old feudal property read Council Housing and large scale manufacturing employment, and for the new peasant property read owner occupation, self-employment, and the encouragement of small businesses, buy-to let, and a host of other enterprises whose existence are dependent upon unsustainable levels of private debt, and unsustainably low interest rates. And increasingly, those that lose their jobs are being encouraged to go into debt, and to imperil any money they have, through self-employment. As the unsustainable levels of interest threaten to collapse into a new Credit Crunch, as we see the reality of private debt, and the real level of interest rates being manifest in the return of the usurers offering Pay Day Loans with an interest rate of up to 4000% p.a., we see the beginning once again of “distraints, of forced sales, and compulsory auctions.” Many of those things have already occurred in the US, in Ireland and Spain, and must happen here too before too long. Already, as the property site Property Snake shows, even asking prices for houses are down by as much as 50%, and selling prices are on average 40% below average asking prices!

But, its upon this social strata, of the petit-bourgeoisie, of the aspiring Middle Class, particularly its more reactionary sections that Cameron is based, just as was Louis Bonaparte.

Over the last 30 years large sections of the population were encouraged to become home owners, and to take on huge amounts of debt to achieve it. They have given up a certain amount of security as tenants, for the insecurity arising from the possibility of being unable to pay their mortgage. They have exchanged the exploitation of the landlord, for the exploitation of the Bank. In fact, many, like the French peasants, described here, are really in a position not of home owners, but of tenants of the Bank or Building Society. Moreover, the Tory ideology also continually stresses the idea that everyone can simply become some kind of self-employed petit-bourgeois, despite the fact that all the evidence shows that the vast majority of such enterprises fail within just a few years, usually owing large amounts again to the Bank.

If it is not investment in such puny Capitals, it is the idea of investing in “human Capital”, an idea which chimes with the aspirations of the Middle Class, whose children then also become enmeshed in a web of unending debt to cover Tuition Fees, and other expenses. The irony being that the very policies of austerity that the Government is pursuing will be the very policies that lead to the unemployment that will make those debts impossible to repay, and which will then lead to personal defaults on debt, and which will in turn cause a tremendous crash in the prices of property.

The question here then is whether, under such conditions, Cameron will find himself pushed aside by some Crapulinsky, whether the bourgeoisie will find themselves the subject of attacks by an army of those “scum, offal and refuse” that comprise the lumpen proletariat. As Marx points out above, the conditions that created the ruin of the small holding peasants were conditions which made them the natural allies of the urban proletariat. But, the politicians of that proletariat, be they the official leaders within the Labour Party, or their would be replacements in the various left sects have tied themselves too closely to the ideas of statism, and the high taxation policies that go with it, and which were criticised by Marx above, to be able to win over these social groups. Far more likely that they will be pushed even further to the Right under such conditions.

Marxists have to offer workers, and their natural allies within these intermediate classes, an alternative.

Back To Part 7

Back To Part 1

History Repeating As Farce - Part 7

“But it is precisely with the maintenance of that extensive state machine in its numerous ramifications that the material interests of the French bourgeoisie are interwoven in the closest fashion. Here it finds posts for its surplus population and makes up in the form of state salaries for what it cannot pocket in the form of profit, interest, rents, and honorariums. On the other hand, its political interests compelled it to increase daily the repressive measures and therefore the resources and the personnel of the state power, while at the same time it had to wage an uninterrupted war against public opinion and mistrustfully mutilate, cripple, the independent organs of the social movement, where it did not succeed in amputating them entirely. Thus the French bourgeoisie was compelled by its class position to annihilate, on the one hand, the vital conditions of all parliamentary power, and therefore, likewise, of its own, and to render irresistible, on the other hand, the executive power hostile to it.” (ibid Chapter 4)

Here is a clear statement of Marx's view of the Capitalist State, and its function. In fact, as stated above, today, in addition to this description, of that State, would be added those elements of Social Democracy that enable Capital not only to maintain itself in power, but also to ensure the necessary reproduction of Labour Power i.e. the modern Welfare State. The operation of this State is always a matter of leaning at one time on the former repressive means, and at others on the latter, sometimes a mixture of the two at the same time.

So, Cameron's shift from “hug a hoody”, to gaol a looter shows a willingness to speak in terms of social conscience, whilst being prepared to resort to repressive state measures. The latter was no doubt founded not just upon an attempt to crush such action, but also a populist appeal to those reactionary elements across society that form the electoral base of the Tories. Yet, the currently dominant section of the Tories represent the biggest looters, the Money Capitalists, whose actions have thrown millions into severe debt, and came close to collapsing the global financial system. They are the same Money Capitalists, who are still paying themselves millions of pounds in salaries and bonuses and dividends. The same political stance can be seen in the Tories position on Immigration, which is designed to appeal to those same reactionary elements. In doing so, it cuts some of the ground from beneath forces to their Right such as UKIP, and the BNP. They are policies that appeal to the “scum, offal refuse of all classes” as Marx describes the lumpen proletariat. Yet, daily, representatives of Capital declare how these policies are undermining its need to recruit suitable Labour Power.

In France, the Party of Order was comprised of Orleanists and Legitimists, representatives of the two Royal Houses, the former representing Money Capital, and the latter representing Landed Property. Today, the Tory Party is made up of elements who represent the Aristocracy of Finance and of Landed Property, as well as representatives of industrial capital. The latter are, in effect, those elements who would in the 19th Century have been represented within the Liberal Party. The Tories Liberal partners, are comprised of Orange Book Liberals, (representatives also of Industrial Capital), and more openly Social Democratic elements, whose positions are determined by the need to win votes in more working-class areas. They reflect the essentially schizophrenic nature of the Liberals, seeking here to win the votes of workers and the Liberal intelligentsia.

Campo, Foggy Osbourne & Cleggy

In France, the divisions split apart the Party of Order, which had relied on a a coalition with bourgeois Republicans, and the Social Democrats of the Montagne. Unable to control events, the Party of Order allowed itself to be controlled by events. As Marx put it, it became subject to the “mere power of the calendar.” The Liberals find themselves similarly in alliance with a Party of Order, and trapped by it, unable to control events, and thereby allowing events to control them. The only thing they can do is to watch the Calendar as the days to their own “complete disintegration” are ticked off.

“The parliamentary party was not only dissolved into its two great factions, each of these factions was not only split up within itself, but the party of Order in parliament had fallen out with the party of Order outside parliament. The spokesmen and scribes of the bourgeoisie, its platform and its press — in short, the ideologists of the bourgeoisie and the bourgeoisie itself, the representatives and the represented — faced one another in estrangement and no longer understood one another.” (ibid Chapter 6)

As yet, this conflict, within the ranks of Capital, has not broken out into open warfare, but proceeds along diplomatic channels. The austerity measures being pursued by Cameron – and by like minded right-wing populists elsewhere – are increasingly recognised as counter-productive to the interests of Big Industrial Capital. The US, which has used Keynesian intervention on a large scale for the last three years, has managed to grow its economy, and create jobs, despite the drag that European austerity and recession has exerted on it. The ideologists and managers of international Capitalism, in the IMF, in the OECD, in Standard & Poor's, and in national bodies such as the NIESR, all openly proclaim that austerity is killing the patient, but they will not openly attack any individual country's policy, or tell them to change course. In Britain, even the City, whose interests Cameron sought to defend, in his walk-out from the EU, told him that his actions, in isolating Britain, were counter-productive. Big business repeatedly warns that the Tories Immigration policies are damaging their interests, because they cannot recruit the labour-power they need. But, as yet, this is all low key. If the current measures continue, and threaten the interests of Big Capital it may not remain that way.

“Far more fateful and decisive was the breach of the commercial bourgeoisie with its politicians. It reproached them not as the Legitimists reproached theirs, with having abandoned their principles, but on the contrary, with clinging to principles that had become useless.” (ibid)

Big Capital is content with Labour Governments. They most closely represent the ideas of the Social-Democratic consensus. It is merely a political form of the compromise it has reached with the Trades Unions, which act as a safety valve, for the working-class, in one direction, and a conduit of bourgeois ideas in the other. But, Big Capital, although economically and politically strong, in the sense that it can use its resources and connections and ideologists, to shape the actions of States, is weak, precisely because of its tiny size, comprising perhaps just one hundredth of a percent of the population. It was precisely for that reason it needed the working-class electorally. Its problem with bourgeois democracy is that it cannot, even then, guarantee to win. Its further problem is that its smaller brethren, are more numerous, and more able, therefore, to exert political influence upon the natural Party of Capital.

“The French bourgeoisie balked at the domination of the working proletariat; it has brought the lumpen proletariat to domination, with the Chief of the Society of December 10 at the head.”(Chapter 7)

Bonaparte represented the small holding peasants. Cameron represents their modern equivalent. He represents the small capitalists, the middle class, and backward sections of workers. It is their ideas that are reflected in the Tories policies, it is they who make up the bulk of the Tory Party members, and its electoral base. And, just as Bonaparte represented not the revolutionary elements within the peasantry, but the reactionary elements, it is not the Guardian reading petit-bourgeois that Cameron attracts, but the reactionary Mail and Express reading middle class.

“The bourgeoisie, in truth, is bound to fear the stupidity of the masses so long as they remain conservative, and the insight of the masses as soon as they become revolutionary.” (ibid)

Of course, a major reason for the stupidity of the masses, is the failure of Big Capital to carry through its own revolution to a conclusion. Big Capital has means of disseminating its ideas through its own house journals, such as the FT, The Economist and their equivalents. It is able to develop its ideas through its Universities. But, at the same time, the very functioning of Capitalism, and the search for profit, means that, alongside this, exists the gutter press, which garners readers by appealing to the basest instincts. Not only do these vile organs promote the most crass individualism, but they promote all of those ideas that are the very antipathy of the ideas of “Egalite, Fraternite, and Liberte”, that were the slogans under which the bourgeois revolution was fought. Instead, they promote bigotry, racism, sexism, homophobia and all the other shit of ages that the bourgeois revolution should have swept away forever.

Back To Part 6