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Blair and Labour-A Tragedy of Lost Opportunity

by An American in London Thu May 10th, 2007 at 01:29:56 PM EST

Blair like all politicians is a sociopath. The difference with Blair is he is extremely religious which makes him a dangerous politician. He is also one of the greatest communicators of the modern age.
The only question regarding Iraq is whether Blair actually believed his own rhetoric or was aware he was a mouthpiece for multinational oil and the military industrial complex.

The Faustian bargain Blair made prior to his first election was to make the Bank of England 'independent'. Meaning the same bank governors who had been protecting the interests of the top 5% of the UK population would continue since had Blair not made the bank independent; it would have meant Blair and Labour could have appointed the majority of governors and would then have had the ability to influence monetary policy for the benefit of the vast majority of voters who ended up electing Blair and Labour.

Murdoch through his papers, The Sun and The Times showed their appreciation for Blair's decision to make the Bank of England independent by endorsing Blair and Labour. The reason the 'elites' needed to make the deal with Blair was because they knew they could do business with him. He wasnt a real Labour person, having been raised in a Tory conservative household. The elites who run the UK also knew if they didn't make the deal; it was likely Blair and Labour would have a substantial majority after the 97 election and could do what they wanted to. Blair and Labour,having been out of power for 15 years, were desperate enough to make the deal, giving up what would have been a revolution because of Blair's 160 vote majority in the House of Commons. A real tragedy since although additional financing was provided for the NHS and Education; it isn't nearly enough to rectify the starvation of public services under Thatcher so today the NHS still has 50% less financing per capita than the Scandinavian countries healthcare systems which Blair and Labour are so envious of.

By making the Bank of England independent; it meant Blair and Labour couldn't finance the majority of the desperately needed funds for the NHS and Education through Bank of England bonds or debt but Blair, Gordon Brown,Labour and the City came up with private financing initiatives(PFI) to finance part of the desperately needed money for the NHS and Education. Unfortunately private financing wasted at least 30-40% of the financing on consultants, fees and the necessary profit margins for the private financing initiatives.

The major question is whether Blair believed in the mantra of private/public partnerships and drank the 'kool aid' or did know he was making a Faustian bargain to be elected and realized getting the financing through PFI was better than getting no financing at all.  

Blair and Labour's government will go down in history as a real tragedy because of the potential opportunites not realized due to the compromises which were not necessary to get back into the majority and government. The partially financed NHS and state education aren't enough to negate the continuing criticism of those services and very possibly will allow the Tories to win the next election. The Private Financing Initiatives will continue under Brown but will hardly be effective enough to eliminate the shortfall from the Thatcher years. What the commentators and MP's never state is not only does the financing have to be enough to increase the current per capita spend to the same levels as the Scandinavian countries with good outcomes but the financing has tobe enough to make up for years and years of the shortfall under Thatcher in both the services and infrastructure of the public services. Why the French, both Sarkozy and Royal, would be envious of either the UK or Tony Blair is beyond reason.


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An interesting take but there are a few points around the Bank of England where I am not sure I agree.

First, the Bank of England is not the Treasury so the point about borrowing is not related to its becoming independent. Actually virtually all main parties agree that this was a good move as it took the setting of bank rates out of the direct political control of ministers.

There is a wider point why PFI was used rather than borrowing directly to pay for new construction for education, hospitals (and social housing by the way). It was in fact an accounting move so that the cost of the developments would not appear on the "Public Finance Borrowing Requirement". Under EU rules this is limited to a percentage of the nation's GNI. The leasing charges from the PFI companies appear as current expenditure on the accounts rather than capital. For the same reason local councils are prohibited from borrowing for major capital repairs or building of social housing and are being forced by several pieces of legislation to sell their housing stock to other social landlords like Housing Associations (often at virtually no cost). They are allowed to borrow to bring this accommodation up to the newly imposed "Decent Homes Standard" or to demolish badly maintained housing from the 1960s and 70s to build new. (My apartment is one affected by these sets of legislation at the moment and we are going through a voluntary process in advance of being forced to move to a Housing Association)

by Londonbear on Thu May 10th, 2007 at 08:25:08 PM EST
Two points.

Firstly, let's consider the "unsecured" credit circulating in the economy: our "working capital", if you will.

There is no need for a Central Bank to create credit/ deficit-based Money. In Hong Kong there is no Central Bank, but there is a Monetary Authority overseeing the creation of interest-bearing credit by private Banks

I advocate a different structure: ie a national Treasury issuing the necessary credit with a Government Guarantee under the management of "Credit Managers formerly known as Banks" under the overall supervision of a Monetary Authority.

No interest is payable in this model for the use of credit - which after all costs nothing to create - but a provision would be made into a default fund backing the Guarantee, together with an administration charge to the managers.

Secondly:  lets consider "investment".

Currently our "equity" investment in our homes is not actually an "investment" - loans are not investments -it's  secured credit created through mortgage loans. This credit created by Banks and Building Societies - over 70% of money supply - isn't actually circulating, but is "locked up" / invested in land and Bricks & mortar.

Such "static" credit inflates asset prices for sure, but cannot inflate retail prices, since it is not money in circulation. The failure to make the distinction between secured and unsecured credit is IMHO what disconnects "Monetarism" from the "Real World" and makes it the complete bollocks it is.

My case is that it is possible for residential property "Occupiers" to invest in properties simply by:

(a) buying shares in a Company that owns property (eg www.opromark.com) - ingenious, but clumsy, impractical and unscalable;

(b) by putting property freeholds in trust, and either "unitising" rentals in a "Trust" wrapper (similar to Canadian Income Trusts) or "partnerising" by using a simple new partnership-based legal wrapper such as the US LLC or UK LLP to create proportional "Equity Shares" in rental streams.

The result of the latter is essentially a new - simple - form of "Real Estate Investment Trust" or REIT.

Moreover, and equally importantly, the convention is that Governments must borrow to invest - and Gordon Brown's "Golden Rule" convention aims at managing such borrowing over an Economic cycle of infinite (politically decided) flexibility.

Complete bollocks.

A Government may retain ownership of an asset; decide a reasonable (and probably index-linked) "Capital Rental" rate of return on these assets; package these revenues either by putting them into "Companies" (aka "privatising") "unitising" using trusts (clumsy) or "partnerisng" them, and sell the resulting asset classes to pension funds gagging for index-linked revenue streams.

Since in such "asset-based" finance there is no need to repay Capital, merely to charge enough for depreciation/ maintenance of the asset (the land, for instance, that constitutes a large part of most such "investment" does not depreciate), the cost of finance to the "Capital User" "Occupier" is dramatically less.

Finally, where does the credit come from to invest in these assets? Simple. It's created interest-free by the Treasury under the supervision of the Monetary Authority, and with the Government retaining "Co-ownership" of the asset - particularly land - to back the Guarantee.

Implementation of a rational - disintermediated - Capital Monetary system like this is the "Opportunity" but it is not yet lost, it's yet to be tried.....

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri May 11th, 2007 at 03:47:50 AM EST
[ Parent ]
Currently our "equity" investment in our homes is not actually an "investment" - loans are not investments -it's  secured credit created through mortgage loans. This credit created by Banks and Building Societies - over 70% of money supply - isn't actually circulating, but is "locked up" / invested in land and Bricks & mortar.

Considering how much of the US and UK is spending money that doesn't exist, this can't be true.

Mortgages are considered investments for the simple and rather obvious reason that property values increase steadily. Even when there's a bust, most people don't lose money on property, even when the total value of the repayment on a mortgage is considered. Some people, and lose badly. But considered across the market as a whole, they're a minority.

Traditionally people didn't remortgage much. Now it's much more common, and people are effectively asking for some of the value of their property as cash before the mortgage expires.

Since the advance equity is spent rather than saved or invested, it ends up in the retail market. It's hard to be sure if it pushes up retail prices there. But considering we're talking about a significant proportion of GDP, it seems unrealistic to assume that it can't have an influence.

Some of that retail expenditure will end up as profit, which will either be reinvested by shareholders or will be used to justify a higher lending amount on an existing mortgage by company owners and possibly also company employees.

So I'd suggest the effect is clearly inflationary. In fact I suspect that a significant driver of the recent boost in UK inflation has been the property bubble, which has not only pushed up prices, but also create a lot of imaginary liquidity which is being spent like there's no tomorrow. (And financially, for people with 5-6 times mortgages, there may well not be.)

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri May 11th, 2007 at 01:16:09 PM EST
[ Parent ]
You are pointing out that not all of the proceeds of secured loans are necessarily used for property purchase.

That is true.

And to that extent - through the "Equity Release" mechanism - money is created which goes into circulation and potentially could be "inflationary" if it were not the case that most consumer prices, courtesy of outsourcing to China, have been consistently declining.

Property prices only increase because they are being "bid up" by "Money" backed only by an 8% capital cushion.

The practice of fractional reserve banking therefore leads directly to asset price inflation and indirectly - in relatively small part, I would say - to retail price inflation.

But when such an asset price bubble bursts - as it has in the US - stagflation is the inevitable result.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri May 11th, 2007 at 02:23:21 PM EST
[ Parent ]
There is a wider point why PFI was used rather than borrowing directly to pay for new construction for education, hospitals (and social housing by the way). It was in fact an accounting move so that the cost of the developments would not appear on the "Public Finance Borrowing Requirement". Under EU rules this is limited to a percentage of the nation's GNI.

It was certainly that. There is also the fact that, by creating ongoing revenue streams for PFI contractors, Gordon Brown (who has been the real force behind PFI) is forging a new interest group of City-based financiers and consultants who will lobby future governments to maintain spending levels on the welfare programmes which are the ostensible purpose for these contracts - he's intending to make defunding these programmes a 'third rail' issue for the Tories when (not if) they get back in to power.

Brown's calculation, as far as I can tell, is that locking in a coalition of interests which will preserve the programmes for a multi-decadal period is more important than the final cost to the fisc or the creation of what are, in effect, a cadre of tax farmers. Personally I think this is likely to blow up in his (or more likely his successor-but-one's ) face, but you can't fault the man for not thinking long term.

Regards
Luke

-- #include witty_sig.h

by silburnl on Fri May 11th, 2007 at 06:41:55 AM EST
[ Parent ]
That's an interesting interpretation, but why wouldn't the tories simply privatise services, farming them out to the public interests you're talking about?
by Colman (colman at eurotrib.com) on Fri May 11th, 2007 at 06:43:53 AM EST
[ Parent ]
Especially when the said services go bankrupt as a result of mounting financing costs as many NHS trusts are on the brink of doing thanks to Brown's PFI.

Bush is a symptom, not the disease.
by Carrie (migeru at eurotrib dot com) on Fri May 11th, 2007 at 06:50:02 AM EST
[ Parent ]
There is another way of doing it, as I said earlier, and I have now diarised and updated.

http://www.eurotrib.com/?op=displaystory;sid=2007/5/11/4047/06568

Non- toxic local investment in local productive assets is one of the consequences.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri May 11th, 2007 at 07:00:41 AM EST
[ Parent ]
Overtly privatising the NHS would be very risky politically. Currently people are still under the delusion that the NHS is being run as a not-for-profit state-owned concern, when in reality it has already been split into any number of zombie-like quasi-private entities with a fictitious internal market.

The only thing that's public about it is the fact that it swallows vast sums of public money. Rather too much of that goes on free-market theatre and management consultancy, not on patient provision.

However, because Gordo has cunningly avoided saying 'We're privatising the NHS', people have been willing to put up with the changes - if only because there's no single political leverage point that can be used to fight against them.

If the Tories push try to push the process over the finish line, service provision will become a major political issue and it's unlikely they'd survive another term.

It's all rather devious, and actually quite clever.

The solution for the Tories would be to lower expectations. 'We'd love to provide a full NHS, but unfortunately - growing elderly population - increasing costs - not enough money - reluctantly we'll have to - essential services only...'

That would probably work, and there are already signs that both sides are gearing up to make exactly those kinds of statements.

(The other alternative would be to increase taxes, especially on the rich. But we all know that's not going to happen.)

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri May 11th, 2007 at 01:28:14 PM EST
[ Parent ]
There is no borrowing "requirement" for the public sector. There are at least two ways for assets to remain in public ownership with pension funds and individuals investing in long term - index linked - revenue streams.

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Fri May 11th, 2007 at 07:03:25 AM EST
[ Parent ]
Thank you for your comments. Having the Bank of England be not independent would have allowed the government to be mmuch more aggressive in the issuance of bonds and not raise interest rates to combat 'so called inflation'.

The only way the UK can begin to substantially improve public services is to adopt an 'American' system of aggressively issuing bonds and allowing referendums for the voters to specifically approve the issuance of said bonds for specific purposes. Otherwise; the UK willnot be able to raise the necessary funding requiresd to make a significant difference in health,education etc.

by An American in London on Fri May 11th, 2007 at 03:08:44 AM EST
I don't understand the connection between an independent central bank and the ability to issue bonds. Government bonds are not issued by the central bank.

Bush is a symptom, not the disease.
by Carrie (migeru at eurotrib dot com) on Fri May 11th, 2007 at 03:22:19 AM EST
[ Parent ]
The issuance of bonds generally has to be done with the approval and backing of the central banks as the governments are guaranteeing a return to the purchasers of the bonds through their central banks.
by An American in London on Fri May 11th, 2007 at 03:26:27 AM EST
[ Parent ]
So the US treasury has to ask for the Federal Reserve's permission in order to print money?

Bush is a symptom, not the disease.
by Carrie (migeru at eurotrib dot com) on Fri May 11th, 2007 at 04:31:39 AM EST
[ Parent ]
...or to raise tax revenue?

Bush is a symptom, not the disease.
by Carrie (migeru at eurotrib dot com) on Fri May 11th, 2007 at 04:32:05 AM EST
[ Parent ]


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