#159. The perils of equilibria


Putting together what might turn out to be the last article published here this year has been one of two main items on my agenda. (I’m hoping to slip a third, pre-Christmas article into the list but, should this not happen, please accept my premature good wishes for the season).

In back-to-front order, the second ‘agenda item’ is a much-updated guide to the principles of Surplus Energy Economics, and to the latest – SEEDS 20 Pro – version of the model. The Surplus Energy Economics Data System has now evolved into a very powerful analytical tool, and I plan to make even greater use of it to inform discussions here in the future.

You can download at the end of this discussion, or from the Resources, page a summarised statistical guide to selected EM economies, whose prospects are one of the issues discussed here.

Two disequilibria

The aim here is to set out two of the trends that I suspect are going to ‘go critical’ in the year ahead.

The first of the two narrative-shaping issues that I’m anticipating for 2020 is a marked slowdown in the emerging market (EM) economies.

We can say what we like about the advanced economies (AEs), where monetary adventurism seeks to disguise (since it cannot reverse) an economic stagnation that has morphed into a gradual (but perceptible) deterioration in prosperity.

But, all along, we’ve known that our trading partners in the EM countries have been “doing stuff” – churning out widgets, building infrastructure, ‘going for growth’, and doing a quite remarkable job of improving the economic lot of their citizens.

This positive trend is, in my analysis, starting to top-out and then go into reverse. Even ‘conventional’ numbers are now starting to reveal what SEEDS has been anticipating for quite some time. The cresting and impending reversal of the wave of prosperity growth in countries like China and India – and the consequent financial strains – are likely to inform much of the economic narrative going forward.

The implications of what I’ll “the EM crest” will be profound.

We will no longer be able to say that ‘the Western economies may be stagnating, but the emerging nations are driving the global economy forward’. Their less complex, less ECoE-sensitive economies now face the self-same issues that have plagued the West ever since the onset of ‘secular stagnation’ from the late 1990s.

The second critical issue is financial disequilibrium, and the ‘devil or the deep blue sea’ choice that it poses.

Here’s an example of what this ‘disequilibrium’ means. In nominal terms, the value of equities around the World increased by 139% in a decade (2008-18) in which nominal World GDP expanded by 33%. Applying inflation to both reduces the numbers, of course, but it leaves the relationship unchanged. What’s true of equities is also true, to a greater or lesser extent, of the prices of other assets, including bonds and property.

What matters here is the relationship between asset prices and incomes, with ‘incomes’ embracing everything from wages and pensions to dividends, corporate earnings and coupons from bonds.

This divergence is, of course, a direct result of monetary policy. But the effect has been to stretch the relationship to a point from which either surging inflation (by driving up nominal incomes), or a crash in asset prices, is a necessary element of a return to equilibrium.

We may have to choose between these, with inflation the price that might need to be paid to prevent a collapse in asset markets.

Our industrious friends

A critical issue in the near-term is likely to be the discrediting of the increasingly fallacious assumption that, whilst much of the “growth” (and, indeed, of the economic activity) reported in the West is cosmetic, emerging market (EM) economies really can go on, indefinitely,  producing more “stuff” each year, so a big part of the World remains genuinely more and more productive.

Westerners, the logic runs, might increasingly be making their living by using a ‘churn’ of newly-created money to sell each other ever-pricier assets and ever more low-value incremental services, but the citizens of Asia, in particular, remain diligent producers of everything from cars and smartphones to chips and components.

This, unfortunately, is a narrative whose validity is eroding rapidly. China’s pursuit of volume (driven by the imperative of providing employment to a growing urban workforce) has driven the country into a worsening financial morass, whilst a former Indian finance minister has warned of “the death of demand” in his country.

Figures amply demonstrate the development of these adverse trends, not just in China and India but in other members of the EM-14 group that is monitored by SEEDS.

On the principle that a picture is worth a thousand words, here are SEEDS charts showing that, whilst Western prosperity is already in established decline, something very similar is looming for the EM-14 economies. Of these, some – including Brazil, Mexico, South Africa and Turkey – have already started getting poorer, and many others are nearing the point of inflexion.

159 prosperity

And, as the next pair of charts shows, you don’t need SEEDS interpretation to tell you that the divergence between GDP and debt in the EM countries doesn’t augur well.

159 EM divregence

What’s starting to happen to the EM economies has profound, global implications. Perhaps most significantly, the dawning recognition that the World’s economic ‘engine’ is no longer firing on all cylinders is likely to puncture complacency about global economic “growth”.

When this happens, a chain reaction is likely to set in. With the concept of ‘perpetual growth’ discredited, what happens to the valuations of companies whose shares are supposedly priced on their own ‘growth potential’?

More important still, what does this mean for a structure of debt (and broader obligations) predicated on the assumption that “growth” will enable borrowers to meet their obligations?

In short, removing ‘perpetual assured growth’ from the financial calculus will equate to whipping out the ace of diamonds from the bottom tier of a house of cards.

Timing and equilibrium

This brings me to my second theme, which is the relationship between assets and income.

Just like ratios of debt to prosperity – and, indeed, mainly because of cheap debt – this relationship has moved dramatically out of kilter.

The market values of paper assets put this imbalance into context.

Globally, data from SIFMA shows that the combined nominal value of stocks and bonds increased by 68% between 2008 and 2018, whilst recorded GDP – itself a highly questionable benchmark, given the effects of spending borrowed money – expanded by a nominal 33%.

Equities, which were valued at 79% of American GDP in 2008 after that year’s slump, rose to 148% by the end of 2018, the equivalent global percentages being 69% and 124%.

For the United States, a ‘normal’ ratio of stock market capitalisation to GDP has, historically, been around 100% (1:1), so the current ratio (about 1.5:1) is undoubtedly extreme.

Prices of other assets, such as residential and commercial property, have similarly outstripped growth in recorded GDP.

Whilst this isn’t the place to examine the mechanisms that have been in play, it’s clear that monetary policy has pushed asset prices upwards, driving a wedge between asset values and earnings.

This equation holds true right across the system, typified by the following relationships:

– The prices of bonds have outstripped increases in the coupons paid to their owners.

– Share values have risen much more sharply either than corporate earnings or dividends paid to stockholders.

– The wages of individuals have grown very much more slowly than the values of the houses (or other assets) that they either own or aspire to own.

This in turn means that people (a) have benefited if they were fortunate enough (which often means old enough) to have owned assets before this process began, but (b) have lost out if they were either less fortunate (and, in general, were too young) when monetary adventurism came into play.

The critical point going forward is the inevitability of a return to equilibrium, meaning that the relationship between incomes and asset values must revert back towards past norms.

You see, if equilibrium isn’t restored – if incomes don’t rise, and prices don’t fall – markets cease to function. Property markets run out of ‘first-time buyers’; equity markets run out of private or institutional new participants; and bond markets run out of people wishing to park some of their surplus incomes in such instruments.

To be sure, markets might be kept elevated artifically, even in a state of stasis, without new money being put into them from the earnings of first-time buyers and new investors. But the only way to replace these new income streams would be to print enough new money to cover the gap – and doing that would destroy fiat currencies.

This means either that incomes – be they wages, bond coupons or equity dividends – must rise, or that asset prices must fall.

In a World in which growth – even as it’s reckoned officially – is both subdued and weakening, the only way in which nominal incomes can rise is if inflation takes off, doing for wages (and the cost of living) what it’s already done for asset prices.

With inflation expectations currently low, you might conclude, from this, that asset prices must succumb to a ‘correction’, which is the polite word for a crash.

But that ‘ain’t necessarily so, Joe’. It’s abundantly clear that the authorities are going to do their level best to prevent a crash from happening. It seems increasingly apparent that, as Saxo Bank has argued so persuasively, the Fed’s number one priority now is the prevention of a stock market collapse.

Additionally, of course, and for reasons which presumably make political sense (because they make no economic or social sense whatsoever), many governments around the World favour high property prices.

The linkage here is that the only way in which the authorities can prevent an asset price slump is ‘more of the same’ – the injection of ever greater amounts of new money at ever lower cost. This is highly likely to prove inflationary, for reasons which we can discuss on a later occasion.

My conclusions on this are in two parts.

First, the authorities will indeed do ‘whatever it takes’ to stop an asset price collapse (and they might reckon, too, that the ‘soft default’ implicit in very high inflation is the only route down from the pinnacle of the debt mountain).

My second conclusion is that it won’t work. Investors, uncomfortably aware that only the Fed and ‘unconventional’ monetary policy stand between them and huge losses, might run for the exits.

They know, of course, that when everyone rushes in a panic for the door labelled ‘out’, that door has a habit of getting smaller.

There’s an irony here, and a critical connection.

The irony concerns the Fed, the President and the stock market. Opinions about Mr Trump tend to be very polarised, but even his admirers have expressed a lot of scepticism about his assertion that a strong stock market somehow demonstrates the vibrancy of the American economy.

So it would indeed be ironic if the Fed – in throwing everything and the kitchen sink into stopping a market crash – found itself acting on the very same precept.

The connection, of course, is that equity markets, just like bonds and other forms of debt, are entirely predicated on a belief in perpetual growth. If, as I suspect, trends in the EM economies are set to destroy this ‘growth belief’, we may experience what happens when passengers in the bus of inflated markets find out that the engine has just expired.

EM 14 December 7th 2019

315 thoughts on “#159. The perils of equilibria

  1. Good insights. Is there any way to ramp up inflation without somehow getting printed money into the hands of the middle and lower classes? If not, I’m thinking inflationary policies would take much longer to implement than it will take the markets to correct when the herd awakens to lower global growth. Any thoughts?

    • Thanks Rob.

      You’re right, but I should add that inflation can surge pretty quickly.

      Monetarist (‘money supply’) theory points out that prices are a function of how much money is in circulation, vs how much goods and services there are.

      But ‘in circulation’ is the key point. We can create a lot of money, but it won’t cause inflation if people just sit on it, and don’t spend it.

      So it’s not just about the quantity of money, but of how quickly it is spent. Hence, the ‘effective’ money supply is Q (quantity) x V (velocity, i.e. the rapidity at which each $ or £ is spent).

      If people anticipate high inflation, velocity increases, because they want to spend their money before it loses value. After 2008, Q increased, but V dropped, because people became much more cautious.

      This is one reason why QE (etc) didn’t trigger general inflation (though asset price inflation is a different matter).

      This makes expectations absolutely critical. If or when the notion of rising inflation takes hold, it becomes ‘self-fulfilling prophecy’ or, more accurately, ‘self-fulfilling expectation’).

  2. Excellent, as always, Dr Tim! I’m not sure how the Fed can prevent a downturn in the S&P 500, as it is the case that BlackRock, Vanguard, State Street, Fidelity and BNY Mellon own something like 70% (so I read) through their (increasingly ‘indexed’) mutual funds and the suchlike. Last year, the five firms mentioned had assets under management well in excess of US GDP!

    Like you analogy about the pointless statistic about the UK’s ‘net worth’ being mainly comprised of the housing stock, who can these 5 mutual fund giants sell their stocks to apart from each other?

    I’m very glad, professionally speaking, that my hunch of a big ‘rotation’ away from growth stocks to so-called ‘value’ stocks seems to be underway (value ‘traps’ about, of course). Surely it’s better to own shares in profitable companies with strong balance sheets and low debt that make or distribute things people actually need, rather than flaky stuff like the FANGS?

    We shall soon see, I fear, as you say.

    • Good points, though I’d add that stocks, like houses, are marginally priced.

      So the entire valuation (market cap) of any corporation isn’t necessarily determined by big volume trades. If, say, a small investor sells a block, and there are no buyers around, the price can fall sharply (you know this, but others might not).

      I say this because I’ve been ‘at the sharp end’ during a crash. Stocks start to fall markedly. Clients, of course, scream at you to sell. But there are no buyers in the market, so hardly any trades take place, except for a small number at fire-sale prices.

      People sometimes look at a chart in which the index (or stock) falls from, say, 1000 to 700. They assume that some investors got out at 950, some at 900, some at 850 and so on. In fact, it’s likelier that virtually nobody got out anywhere on that slope.

      During a crash, I told a colleague to get clients buying a certain stock because it was drastically marked down (and I was right). But he told me I was “crazy – there’s a Bear raging out there in the Street, and no-one’s buying anything!”

      In the times we now live in, it’s not hard to picture a market with only one taker – the Fed – and the big battalions trying to work out how much stock to pass over, and how much, or what, to hang on to.

      I don’t make recommendations, but I’ve always preferred solid facts over hype, and cash flow (and dividends) over “growth” stories.

      “Tech” covers a great range, from those selling good products and services at one end, to those which are either hyped and/or aren’t really “tech” at all.

    • Dr Tim – you make some very clear comments about the realities of fund management and how they can be detrimental to the small time investor.
      I would also like to point out that pricing for funds is done on either a historical or forward basis and that there are cut-off times and that these can, in worst case scenarios, be a real pain. The problems occur where there is a lack of liquidity and, as Dr Tim has already discussed, you may either end up buying at a premium and selling at a heavily discounted price.
      WRT the M & G Property Fund – if this fund ever does come back to market – I would expect it to be trading at a hefty discount to what its recent range has been. It is quite possible that this fund may be wound up instead

    • I can’t comment on specifics, obviously, but now is a tough time for fund managers. To get any kind of outperformance at all, they have to take risks far greater than were the case pre-GFC. Plus, property is always a potentially illiquid asset class.

      Fundamentally, it’s often overlooked that capital markets don’t only price assets, but price risk as well. But monetary policies have totally distorted the effective pricing of risk. This is a thought that struck me (once again, with renewed force) recently, looking at sovereign bonds. Negative rates mean you’re paying for the privilege of lending to the borrowing government, which might be fair enough with Germany and Switzerland, maybe – but Greece?

      Additionally, FMs often have their hands tied by fund purpose. It was easy to laugh about funds putting huge sums into dotcoms – but imagine you’re a tech fund manager, and money is pouring in, from Joe Public, who wants it put into a tech fund. You might have been very clued up, and have had a pretty good idea about where it was headed – but, if Mr or Mrs Public put money into a tech fund, that’s where it has to go, and the FM can’t decide the money would be better off in oils, pharma or whatever. He can’t even hold it as cash, as funds have limits on this (like ‘no more than 10% of the fund will be in cash at any time’).

      Where I think FMs could gain an edge is in geographic allocation – but that’s another story, and perhaps I’m biased, because of the big geographic disparities that show up on SEEDS but not – until later – in ‘conventional’ measures.

  3. I’m pretty sure it’s been a few years now that we talked on here Tim about how it would take a very brave politician and an engaged electorate to understand we in the U.K. are in a long period of managed decline.
    The dream of finite growth is dead, but debt for growth lives on.
    The refinancing and abstraction of profit from U.K. residential property goes on as if the only way is up, whilst the government still underwrites the first time buyers market to some degree.
    How many more years can the plates spin.
    Happy New Year Sir.

    • Thanks Mark. You’ve identified one of the topics high on my ‘to do’ list – getting our (society’s) heads around the concept and implications of de-growth.

  4. It may be that AE and EM central banks decide to follow the Japan strategy. Asset prices will be propped up by central bank purchases of all kinds of assets, including equities and real estate in addition to the bonds they are all purchasing now.

    This would put central banks in direct control of the global economy by favoring certain sectors over others for asset purchases. My guess is that the energy sector will always get support, resulting in the big subsidies you have been expecting.

    • Indeed.

      In Japan, the market in JGBs (government bonds) doesn’t really exist. It consists simply of investors, who are sellers, and the Bank of Japan, which supports the market by buying, using newly created money. As a result, the BoJ now owns more than half of all JGBs in existence – and this despite a traditionally high propensity to save.

      This is outright monetisation of debt. QE issuance far exceeds the government’s annual deficit, so they’re not just monetising the deficit, but monetising previously accumulated debt as well.

      It’s surprising that the yen has ‘got away with’ this for so long. But SEEDS indicates that prosperity in Japan has been falling since 1997, so this kind of ‘churn’ or stasis makes a weird kind of sense.

    • I suspect the Yen’s strength will increase despite this as some Chinese wealth looks to escape continuously, and some of the hundreds of millions doing that want an Asian currency as well as $s and Euros.

    • I’m glad someone brought up the situation in Japan and the continuing failure of “Abenomics” – Daniel Lacelle has a similar view to Dr Tim’s position: https://mises.org/wire/abenomics-has-failed-japan-financial-times-wants-make-it-global
      Japan is, in many ways, the canary in the coalmine. Its stock market, the Nikkei – reached 40,000 in the late eighties but has since crashed and is now trading at just over half that level. The Yen was used as a Carry Trade currency – with all the other CB’s slashing their rates towards zero this “advantage” is waning.
      Japan’s population has peaked and is already declining by at least 250,000 a year now. However what is more telling are the reports that there are Octogenarian shop lifters – the elderly are finding that for some, they receive better care and meals in prison than they do in the community!

  5. Excellent article Tim, thank you, and I have copied to my good friend Gerry Brady in Brisbane who runs his own website:http://boomfinanceandeconomics.com/#/ for comment

    Gerry has been immensely helpful to me during the construction of my book and his economic and financial knowledge are tremendous IMHO. I have serialised my manuscript weekly at:

    Best wishes for the season.

    • I wonder what the role of culture is here? Are we not after a world of highly valued goods and services (ie of real objective worth, meaning, community-building, etc)? The idea being to slow the economy, with workers and consumers exchanging comfort and novelty for meaning. The model society would not be democratic – a religious order if not also an authoritarian order. Those unable to perceive meaning would have to be made to perceive order. We are not prepared for such a system.

  6. If/when the recession becomes deep and global, many dividends will be cut. Also, distressed debt (junk) will undergo increased defaults. Layoffs normally increase. Asset managers would be crazy not to take profits once some weakness sets in. If the CBs don’t print like crazy and buy up most of the shares hitting the market, I can see a 33% decline in a year. And that would be normal after the run up we’ve had. I wonder if the current Fed wants to be seen as abandoning normalcy and blowing the biggest bubble in history.

    • Yes. Moreover, corporate buy-backs, heavily debt-financed, have long (five years at least) been running at more than twice the rate of heavy net selling by investors. The US corporate sector is busy transitioning its capital base from equity to debt. In the short term, that creates a sort of ‘scarcity’ of equity, helping to support prices. Longer term, the replacement of shock-absorbing equity with ‘fixed’ debt is a very adverse trend.

      So, whilst I agree with you about the scope for a big slump in equity indices, my hunch is that the real action could be in the corporate bond market.

  7. Dr. Morgan
    An excellent article. Let’s hope the world survives until you get around to writing the first article in 2020.

    Due to some details about medicine and education which I won’t bore you with, I got to thinking about democracy and its prospects. I don’t see any way that a democracy can deal with declining prosperity. The theoretical solution is to ruthlessly repurpose the society toward ‘sustainable’ or ‘economically viable’ goals and methods. But it is hard to see how a democracy goes about moving from either the ‘America has always been great’ story of Hillary Clinton or the Chinese ‘we will all get rich if we trust the Party’ story to a story that ‘you are going to be expected to live frugally, earning your bread with the sweat of your brow’. Nor does it seem like Engine Charlie’s scheme from the 1950s, ‘what’s good for General Motors is good for the USA’ is likely to do any good. It seems to me that Trump believes, first, in the perpetually rising stock market, and then also that Engine Charlie was right.

    Let me try to illustrate the sensible contrasted with the democratically appealing in terms of medicine. It is very clear that prevention has to take precedence over treatment in terms of chronic disease. Dr. Russell Jaffee has put together a very succinct list of health indicators. Let me distinguish a macro indicator from the details about how that indicator depends on underlying processes. Just as ‘total debt’ is a macro indicator which is dependent on a myriad of specific transactions in the economy, just so is a macro health indicator is dependent on a myriad of specific actions depending on what a person eats, drinks, moves, thinks, and feels. Dr Jaffee’s specific indicators are Hemoglobin A1C, C reactive protein, homocysteine, the immune burden, and alkaline domination. You can find a succinct lecture at:

    Without trying to argue the specifics, we can say from a mountain-top perspective that a frugal government would have an interest in subsidizing medical care for only two classes of people:
    *those who have achieved the health markers through their own individual initiative and are thus free of chronic disease, but who have had the bad luck to become acutely injured (e.g., a broken leg), and
    *expectant parents who are about to pass some epigenetic markers on to the next generation

    I would estimate that many people would qualify under the ‘expectant parent’ label, but for the rest, 98 percent would fail to qualify. Jaffee testifies that 8 percent of one’s health status is dependent on the genes one inherits from one’s parents, while 92 percent is dependent on what oneself eats, drinks, etc. and also what the expectant parents ate, drank, etc.

    It is obvious that, as a society, we are very far from seeing the health world the way Jaffee sees it. As recently as the Clinton administration we were assured that sequencing the genome would lead to the end of disease. Now Jaffee tells us that 8 percent of our diseases are a result of the sequence of the genome, and there is really not a lot we can do about that.

    I doubt that any politician who was brave enough to think such thoughts, and utter them out loud, would fail to get the minimum number of signatures required to run for office…much less get the popular vote.

    One could go on with similar thinking in terms of what we choose to use energy to produce. But I suggest that the closer we look, the less sustainable our current production choices look.

    Consequently, it seems that we, as a society and governments, either have a ‘come to Jesus’ moment, or else everything will be destroyed in a futile attempt to keep BAU going a little longer.

    Don Stewart

    • Thanks Don.

      If what I talk about here – the EMs, and the equilibrium issues in finance – does pan out as suggested, we’ll be in a totally different World. The ending of growth – even if it’s spun to us as “temporary” – will have made itself apparent, and one (or both) of two shocks will have happened to the financial system.

      The issue then is whether we can adapt. It’s hard to know this until it’s put to the test. As things stand, in government anyway, the economy isn’t much discussed. That will change – issues around economics and prosperity will go back to the top of the agenda, where, perhaps, they were in the ’70s.

      We’re conditioned by 200+ years of “growth”, so our current assumptions and expectations will prove tenacious, even if most of them are no longer tenable.

      Currently, much political debate seems either vacuous or irrelevant, often involving things that, with intelligence and good will, need hardly be contentious at all. This will change, in that people who are finding it ever harder to make ends meet will demand concentration on that issue above all others.

      Even on the purely economic issues, much of the current debate seems fatuous – neither ‘letting the market do everything’ or ‘nationalising the whole thing’ has any real merit at all compared with using the mixed economy model, pragmatically, on a ‘horses for courses’ basis.

      Ultimately, how adaptable – mentally, not physically – will our species turn out to be?

      Interesting issues for us in 2020, I think.

    • Exactly my sentiment, Tim which is the subject of Part 2 of my book (The Financial Jigsaw) which deals with ‘personal transformation’, much of which I learned during my counselling training in the nineties. I used a very effective book which my clients found very helpful:

      Part 2 Introduction is available on PDF by request to peter@underco.co.uk

      I was mainly concerned as a volunteer with the Citizens Advice Bureau (now Citizens Advice) to which I always refer clients when dealing with life management issues:

  8. A joke:
    Paul Dirac, one of the founders of Quantum Mechanics, is supposed to have said, upon meeting someone at a party, ‘I have an equation…do you?’. So Jaffee foresees a world where, at a party, one sidles up to an attractive woman and says ‘My Hemoglobin A1c is less than 5….what’s yours?’

    Don Stewart

    • Probably a bit of both. I’m a social research interviewer in Glasgow, and I see many people in poverty replacing healthy traditional foods such as home-made lentil soup with unhealthy ones such as instant frozen fries and processed meat pies and Irn Bru (sugary soda drinks) – mainly because they are dirt cheap, require no real cooking, and ‘fill the belly’ – instantly.
      Obviously, sugar/carb addiction is an instant hit to the bloodstream of the poor, and makes a lot of money for processed and fast food companies.
      It also results in an increasingly expensive burden to the NHS in the form of Diabetes, Cancer, and Heart Disease.

    • Thanks for reply – exactly what I was afraid of.

      That innocent looking white stuff – sugar – and the instant gratification you receive from junk food has made far too many unhealthy.

      There were far far fewer obese people around in the 1960s and 70s.

      If we all ate more healthily – took more exercise – then of course the burden on the NHS would be greatly reduced.

      I wonder if it’s quantifiable how much the NHS would save if there was no obesity – alcoholism – and we all did regular exercise.

      Perhaps enough to end its funding crisis

  9. Another great post Dr. Morgan.
    My take away from your piece is ‘inflation or deflation’. You honestly ague both sides quite well, and I agree with your analysis.
    Living in Oregon, USA we have been trying to lift people wages by increasing the minimum wage substantially, in Portland it’s $12.00. The quiet removal of the illegal workforce by strict drivers license requirements has worked. We now have businesses advertising on delivery trucks with help wanted signs. Bank of America is offering $20.00 and hour to start in an effort to get good help.
    The unfortunate side effect is rising prices as business passes along costs which is also causing some businesses to close due to a lack of profitability. It seems almost daily we hear of businesses closing – at least a couple of times a week.
    It will set me back almost $50 for 2 burgers and 2 beers including tip, but I can buy a TV set like mine for 1/6 of what I paid 5-6 yrs ago.
    This looks more and more like an economic ‘meat grinder’ to me.
    Is it possible we can have both inflation and deflation at the same time. To be clear I see it already depending on what I look at but can that extend into the future- 2-5 yrs? I don’t see it happening but then I also don’t see clearly the tipping point toward either/or.

    • Thanks David.

      No sensible person would try to predict the date of a crisis, but things now do have a sort of ‘fin de siecle’ or ‘end of term’ feel to them.

      Many of the trends that we discuss here are relatively long-term in nature – for instance, the relentless rise in ECoE, the deterioration in prosperity, and the consequent decay of popular trust in government and politics.

      The two issues here, though, could gather momentum pretty rapidly, and would be my ‘year-ahead themes’ were I still wearing my former hat as an investment strategist.

      On the EM economies, SEEDS suggests that, once prosperity growth goes into reverse, the deterioration happens at faster rates than in the West so far. Many EM countries have specific challenges that are going to be both exposed and exacerbated by the downturn in prosperity.

      On inflation vs deflation, my bet would be on inflation, the logical consequence of a refusal to allow asset prices to fall sharply as part of a broader ‘reset’.

      The key point, for me, is the interconnection between these themes.

      Yes, perhaps the authorities can prevent a market crash, which is, in a way, what they did in 2008. Back then, though, China, India, Brazil and many other EMs were growing rapidly. Now, they’re not. A flattening-off and downturn in such EM countries might be a critical difference between now and 2008.

  10. mixed economy model
    A recent study out of Germany looked at biological productivity in fields with small stands of trees. The productivity is higher than it is for a large forest tract and higher than it is for a field without trees. The suspected reason: the edge effect. It has long been known, and was a founding principle of the permaculture movement, that edges are the most productive ecosystems…they are mixtures that a single ecosystem cannot match.

    Therefore, I have a strong suspicion that an economy which is basically corporate but also with some government owned companies will be more productive than either alone. And an economy with many small entrepreneurs but with government provided infrastructure will be more productive than either alone.

    Don Stewart

    • Yes: a managed economy which is roughly 50:50 government and private seems to be the best way to reduce the drastic swings and roundabouts of Boom and Bust Capitalism by slowing and smoothening the effects of recessions, and protecting citizens. A Minimum wage that permits people to save a little for their own future needs is also a healthy thing.

  11. Hi Tim

    Thanks for another perceptive article.

    There’s little doubt in my mind that the preferred mechanism of resolution is inflation and, as you say, this could take off very quickly. The problem the central banks will have as I see it is in justifying their inclination to insouciance once inflation does take off.

    In the UK in 2011 inflation went over 5% but the BOE “looked through” this episode because there were no second round effects. But second round effects are precisely what is needed to erode the debt burden so will they be able to get away with “masterly inactivity” when the fun starts? I think they may try but it’s going to be very difficult to sit by and do nothing. It’s likely that we’ll get a slowdown or worse and when the automatic stabilisers kick in public borrowing is going to go up substantially as will do when social benefits are adjusted to accommodate inflation. None of this is going to be pretty and, furthermore, things could get nasty pretty quickly.

    However, as you say, there’s no alternative to some sort of bust and it will be a question of pick your poison. I would have thought the better thing would be an asset collapse. It would release the Schumpeterian “gales of creative destruction”, reduce the money supply so put a damper on inflation and bring down the hurdle rate for new capital investment. Of course this hits the elite so it’s a non starter.

    • Spot on.

      Another name for an asset price collapse (back, to, say, end-2008 levels) might be “reset”. On that basis – would we prefer to see asset prices halve, or trigger the “hard drug” of inflation? – I’d favour reset, as some very smart people did back in the GFC.

      But the authorities didn’t go for it then, and won’t – out of choice – go for it this time.

      An optimistic view – relatively, anyway! – might be that the crash happens so quickly that monetary intervention becomes pointless.

    • In theory, it should be possible to support some assets with new money and let others be destroyed, creating debt default, all while keeping the velocity of money constant, resulting in neither inflation nor deflation. It would be a balancing act with a high degree of difficulty, but it just might work to keep money on an even keel as overall growth and prosperity decline.

      But there will be a great temptation for politicians to guide the process so as to help one’s friends and patrons and let the others go bust. I can easily imagine geographic discrimination, where companies headquartered in red states are supported and companies in blue states left to swing in the wind (or vice versa). These kinds of political pressures have long been seen with regard to ECB asset purchases, but it could get much worse in a continuous recession, which would make the balancing act very difficult indeed.

  12. Reblogged this on Not The Grub Street Journal and commented:
    Hi, Tim Seasons Greetings.
    On the post, I do not think it is one of your best.
    It says that seeds predicts all of this and then gives a straightforward monetary analysis.
    I find this disappointing. I am going to download the resources and look for the correlations you are claiming but which you have not explained here.

    One glaring point missing from your analysis, even though you give per capita GDP and Debt figures are that wealth re distribution and increased inequality is not stripped out of your figures.
    I have become increasingly persuaded that the precariat is a matter of political Design and not some accident or necessity due to energy constraint realities. I believe it is explained by the oldest cause of want and that is the greed of a corrupted elite.

    Since 2008 net wealth of the very top 1% has increased in the UK by better than 185%, the bottom part of society is much worse off. This is of course in solely Monetary measures.

    To go some way to adding to the analysis I found this excellent paper at the House of Commons online library the other day.


    15. Taxation comprises three fundamental economic parts:

    l Creation of the medium of taxation and issue into the economy

    l Distribution of the medium of taxation through the economy

    l Collection of the medium of taxation

    17. Modern taxation systems are still based around the creation, distribution and collection of tokens, but the tokens now take electronic rather than physical form. These tokens are bookkeeping entries in the banking system. The structure of the taxation system and the economy it controls is determined by the rules under which these electronic bookkeeping tokens are created, distributed and collected. Coins and notes are still issued in small quantity but are subsidiary to the banking system’s bookkeeping entries.

    19. “Contemporary governments grant the exclusive power to issue the medium of taxation to a state-sanctioned banking cartel. The banking cartel comprises a central bank and private member banks. The central bank is responsible for price-fixing, information sharing, promoting member interests and preventing member defaults. Serving the public interest is not a primary goal of a central bank. The cartel holds the exclusive power to set the price of and issue the medium of taxation. Governments generally prohibit the issue of alternative media for exchange and mandate payments of taxes only in the cartel-issued medium.”


    52. Development of the tax system has been constrained by political reality and driven by the demands of vested interests in finance and real estate. The fundamental principles of tax policy should explicitly incorporate the money system and the welfare system. The tax system is not fit for purpose and is beyond repair. It should be replaced by an efficient, neutral and distortion-free system based around clearly defined recurrent payments from owners of land, immovable property and natural resources based on contract law. Means-tested welfare should be replaced by a Citizens’ Dividend distributing the financial surpluses of government arising from such reforms.

    53. The transition to a new, principled tax system should be on an “opt-in” basis where people can choose to permanently leave the old system when they can benefit from so doing. The effect of such a transition would be an rapid and dramatic revival in economic performance without battling political headwinds.

    54. The principles outlined here fully meet all the objectives of the OECD tax report and the Mirrlees Review. They meet Smith’s canons of taxation and adhere to orthodox and common heterodox academic analysis. They are comprehensible and achievable.

    January 2011

    The Author was a Cambridge computer scientist who tragically killed himself a few years back. He also wrote convincingly on carbon-based credits in conjunction with his Georgist Land Value ideas.

    Anyway, I thought you might be familiar with Dr Wrigley as he is from you Alma Mater’s home town.
    Others here may not be.
    Merry Christmas again and I hope you can spell out the explicit data supporting your interpretation of the monetary measures depended upon to make your analysis.

    All the best

    • Hi Roger

      You’re entitled to your view, of course, and healthy debate is what it’s all about.

      My own view is that we discuss two very significant themes here. If the core thesis of the surplus energy economy doesn’t ‘leap off the page’ in this one, be assured that it’s there.

      The interpretation of the EM economies is solidly based on SEEDS – conventional interpretation is only inching its way towards something that is important, and identified – indeed, red-flagged – by the SEEDS model.

      The second part, about assets and incomes, also ties in. The gap between incomes and asset pricing is a consequence of monetary policy – but this policy was only adopted in the first place because the authorities didn’t understand that the economy was faltering, let alone the reasons why it was happening, or their powerlessness to ‘fix’ it with monetary gimmicks.

      In that sense, the disequilibrium is a symptom – but one that’s going to have very big, real-world consequences and, I think, sooner rather than later.

    • In many countries, property taxes have been the rule for generations. What would be different with your (Georgist?) scheme?

      Also, re:
      “Means-tested welfare should be replaced by a Citizens’ Dividend distributing the financial surpluses of government arising from such reforms.”

      As most governments are in deep, maybe unrepayable debt, wouldn’t surpluses from any activity be sucked into that black hole?


    • Hi Tim,
      I do not dispute that the Energy Cliff ECOE is in the pie. Of course, it is. The Extent to which it explains the apparently failing international global financial system at the moment is not separated out though with this analysis.
      The CLaims on Wealth post the Global Financial Crisis of 2008-2010 were rebased and redistributed to the Billionaire Class and the State Sanctioned Corporate and Banking sector. The result of this has been to disenfranchise both economically and politically almost everyone else and in increasing numbers.
      The resulting bottom half of society has now termed the precariat and the precariat is growing and not shrinking.
      Under neoliberalism, the Precariat is not an unfortunate by-product but a necessary condition for top-down state-monopoly capitalism. Jean Calvin said that “the poor must remain poor so that they remain obedient”, he could have got a job writing copy for the EU constitution where Austerity is baked into the cake or any number of the Alphabet soup of Global Bi and Multilateral trade deals and IMF and world bank liberalisation conditions attached to development loans and government development aid packages.
      The truth of all of these Political Economic factors is that they are driven by Geo-Political balance and Particularly US Dollar Hegemony in international trade. That arrangement began to break back in the late sixties when De Gaulle repatriated Frech Gold. and criticised the US and its Exorbitant privilege and of course , come to 1972, Connoly famously said, “It’s our currency but your problem”.

      The energy is part of the problem, and the thing about Energy Based econometrics is that they can capture dynamics rather more concretely that econometrics based upon an abstract, debt-based and variable monetary measure.

      A stock-taking of the real economy based upon a seeds accounting unit and indexing of the previous 25 years would give a far better idea of what the potentials are going forward.

      The current system is not fit for purpose and hopelessly corrupted.
      Steve Kurtz, The Sovereign Debt crisis emerges straight out of the GFC, it exists because in 2008 the banks were bailed out to the tune of Trillions by the treasuries of Nation States, of course, the who enterprise is farcical and imaginary.
      What merely happened is that Losses were socialised ( Socialism for the Rich) and Profits were previously privatised and remained in the hands of the Privileged Oligarchical classes.
      Regarding Georgist single land, taxation read a book.even do a google search. His ideas remain relevant and workable today and fit very well with incorporating SEEDS realism into our political Economy.

    • “Steve Kurtz, The Sovereign Debt crisis emerges straight out of the GFC, it exists because in 2008 the banks were bailed out to the tune of Trillions by the treasuries of Nation States, of course, the who enterprise is farcical and imaginary.
      What merely happened is that Losses were socialised ( Socialism for the Rich) and Profits were previously privatised and remained in the hands of the Privileged Oligarchical classes.
      Regarding Georgist single land, taxation read a book.even do a google search. His ideas remain relevant and workable today and fit very well with incorporating SEEDS realism into our political Economy.”

      Gee, R.L., thanks for assuming that I haven’t known all the above for many decades. The GFC wasn’t time of the first gov’t bailout, more than banks have been saved, and it won’t be the last. Chrysler maybe 40 years ago comes to mind. I’m against *all* bailouts.

      “I.R. Sprague, in his book, Bailout: An Insider’s Account of Bank Failures and Rescues, notes 200 bank failures in 1984-1985, which accounted for more than all the failures in a forty-year period from World War II to the 1980s. Sprague also recounts eight high profile government bailouts in the 1970s and 1980s, four of which were of banks. Four “congressionally approved [corporate] bailouts” included Chrysler, Lockheed Corporation, New York City, and Conrail. The banks included Unity Bank and Trust of Boston in 1971, Bank of the Commonwealth of Detroit in 1972, First Pennsylvania Bank in 1980, and Continental in 1984. Bailouts are controversial because not all banks will be saved—large banks are generally saved before smaller ones—and there is no single criteria determining which banks are worthy of saving.

      The savings and loan crisis of the 1980s saw hundreds of savings and loans associations bailed out by the government to the tune of over $160 billion. The Federal Savings and Loan Insurance Corporation (FSLIC), a government agency charged with insuring the savings and loan deposits, went bankrupt largely because it had charged the same premium to all institutions regardless of risk (Ely, 2008). Savings and Loans were at risk as the result of heavy investments in real estate, restrictions on interest rates, and by high inflation. The deregulation of savings and loans and improper supervision allowed risky investments leading to failure.”

    • R.L. Forgot to add that I’ve known Harry Pollard (head of Henry George School in California) for 3 decades, and I asked you to explain to the list how your scheme differs from current high property taxes in the US o land and unmovable real property that you mentioned.

    • Hi Peter,

      I read Gail’s article at the link you kindly provided. I like Gails WOrk as indeed I like Tims work too. Where I found Gail’s emphasis less credible was on the assumption that the Monetary Economy is a self Organising system empirically it is not and we should not forget that. Free Markets that self organise in my opinion can not exist under a State ordered Capitalism due to two factors, the first that State sanction money tokens are not Neutral and secondly where the state-sanctioned Money token is created as debt at interest the boundary conditions that will play out are exactly as Chrysihphus says here in Lucians Sale of Creeds.


      In regard to things external, health, wealth, and the like, I am then all
      that Nature intended me to be. But there is much previous toil to be undergone. You
      will first sharpen your eyes on minute manuscripts, amass commentaries, and get
      your bellyful of outlandish terms. Last but not least, it is forbidden to be wise without repeated doses of hellebore.

      dealer All this is exalted and magnanimous to a degree. But what am I to
      think when I find that you are also the creed of cent-per-cent,1
      the creed of the usurer? Has he swallowed his hellebore? is he made perfect in virtue?

      Assuredly. On none but the wise man does usury sit well. Consider.
      His is the art of putting two and two together, and usury is the art of putting interest
      together. The two are evidently connected, and one as much as the other is the prerogative of the true believer; who, not content, like common men, with simple interest, will also take interest upon interest. For interest, as you are probably aware, is of two kinds. There is simple interest, and there is its offspring, compound interest. Hear Syllogism on the subject. “If I take simple interest, I shall also take compound.
      But I shall take simple interest: therefore I shall take compound.”
      Seventh dealer

      And the same applies to the fees you take from your youthful pupils? None but the true believer sells virtue for a fee?

      Quite right. I take the fee in my pupil’s interest, not because I want it.
      The world is made up of diffusion and accumulation. I accordingly practise my pupil
      in the former, and myself in the latter.
      Seventh dealer

      But it ought to be the other way. The pupil ought to accumulate,
      and you, “sole millionaire,” ought to diffuse.

      Ha! you jest with me? Beware of the shaft of insoluble syllogism.

    • Hi Roger,
      Thank you for all this, most interesting, and I can see that you are a classics scholar so I will have to mug up on your references!

      Actually I agree that the global financial system is not self-correcting because of the reasons you describe. It is broken and controlled mainly by the USA and the Fed. My book explains all this and I concur that it is the energy economy to which we need to address our solutions.

      I fear that the end of our fiat currency system is due, perhaps even by the end of this year as the BIS plans its digital currency for the New World Order.

    • Hi, Stephen, I do not claim ownership of The Ideas of the Late Dr Adrian Wrigley.
      I do not claim either to be A Henry George or Single Land Tax Expert. I have Read George and also some developments of his ideas. Mainly I have been into the work of GK Chesterton and Hillaire Belloc and Distributism which is an Honest hybrid of Market and Social ideas that is neither Left or right but founded in the Catholic Christian tradition.
      My won work on all of these ideas of political economy is on my blog anyone can search the concepts I mention and with respect to elaborating here, I prefer not to as persons such as yourself have made it quite clear that you will brook no discussion only passive submission to your own settled minds. Tim our host is I must say not included in that remark but you certainly are.

    • Ah, so Your refusal to explain your scheme to the blog members is my problem. And then you cloak your muddled thinking with a religious doctrine. Must be greatly self-satisfying, however the list learns nothing from it.

    • Steven,
      Thank you for your invitation to address the List? I will decline thank you very much. My ideas are very extensively explained and sourced with citations, links and so forth and my Conquest of Dough Web site also has many links to downloadable PDF’s.


      I did explain to you that The Late Dr Adrian Wrigleys work is his and not mine and they are his ideas and not mine the full web site which is now run by Robin Smith, who used to publish a satirical blog called the melt Fund, now runs it.
      Here is the link.
      The Systemic Fiscal Reform Group (SFR Group)
      Melt Fund on the way back machine.

      For the dilettantes and hard of Irony please be aware that the Melt Fund is a footlights production of Cambridge academics bursting with good old fashioned British irony. I merely mention this as Steven has self-identified previously as a dilettante in one of his only moments of blinding insight I recall from his participation on the “List”. In sharp contrast of course to my own cloaked .. “muddled thinking with a religious doctrine”.
      I still await a link to your 2000 systems paper Steven but you are I recall not interested in ideas outside of your own No Intelligence allowed religious doctrine of atheism.

      mentions “retired dilettante trained in analytic philosophy, but have researched this for 3 decades or so”. So Steven 3 decades as a Dilettante it seems? Have you got a link to your 2000 systems paper quoting Smil, I would like to read it.
      Just out of courtesy and so those who resent the links I have added and do not wish to and have an understandable disinterest in Stevens charges against me a philosopher and poet on little note or consequence that lives in the middle of nowhere in a Swedish forest here are the bare bones on the question of Distributism and “ChesterBelloc” political Economy of the Catholic Christin Democratic variety.
      Distributism is found under the Christian Democracy section of Wikipedia, rather than dabble in ad-hominem and making strawmen arguments for a correctly cited school of thought from the Christian Catholic Tradition, where Belloc and Chesterton drew from to produce their very interesting system in the “30 acres and mule” and “3 acres and a cow”, land reform traditions in the USA and The British Isles.
      Predicting in the Serville State modern Neo-Liberalism and of course the rise of Adolph Hitler.


      That an ethical foundation can be found within a traditional religious framework should not provoke such harsh reproach as it does in you Stephen such reactions are found in Iconoclastic Zealots and no doubt dilettantes down the ages, is it presumptuous to think you might bring your personal experience and self-analysis to bear on that question?



    • Dear Mr Lewis,

      You obviously are unfamiliar with the Negative Fallacy. It is 100% up to the claimant of supernaturals to provide sharable evidence. In a complex, open system, proving non-existence is logically impossible. The ball is in the court of *all* claiming the existence of *anything* non-physical [energy-matter-information] I stand ready to wager for charity at longbets dot org that there will be no evidence forthcoming.

      I recall giving a link to my System Science paper which is “Feedback and Dis-Equilibrium in Human Overpopulation.” It was given to the Plenary of The World Congress of the System Sciences- 2000, Toronto, webcast to 3 continents, and has never been rebutted. Search Countercurrents dot org and the above title, or my name Steven B Kurtz

      As to cluttering Tim’s blog with many references from *your* blog and other sources rather than replying to the two simple points I challenged in my original reply, I must say that our gracious host is most tolerant.

      Yes, retired dilettante is my title, but I stand willing to debate and/or wager for charity on points about which I am confident. Religious sorts and ideologues never step up to the plate.



    • You asked about my Systems Science paper from 2000, and you found it in a space I was not aware of. One has to scroll down to find it. Note that I was not asked if it was OK to post it there!! It is not my sort of website. It shows it was first republished in Countercurrents in 2011.

      It is about overpopulation and optimum population, and is not a subject for this blog. It has been in the public domain for nearly two decades, and has receive only positive responses as far as I know. If you have objections regarding it, you are free to write a rebuttal.

      I had responded to your first comment on this blog’s topic with two points. You’ve addressed neither. They require only a few sentences of clarification/explanation. You declined twice to address the list on them.

      If I find your rebuttal to my paper substantial, rest assured that I will respond in a relevant public forum concerned with Systems Science and Human Population. You may send the rebuttal to my Yahoo address:
      kurtzsb AT yahoo DOT ca

      I will inform you of the forum to which I will post your statement along with my response.

  13. Pingback: #159. The perils of equilibria. Carbon Taxation. GE2019 the #CO2 #COP outs, Our Democracy is on Fire! Von Der Leyen and the #EUGreenDeal #WrongKindofGreen – Not The Grub Street Journal

  14. mixed health care insurance model
    Just very briefly, because this could be an enormous subject. Suppose that the government offers free lab work resulting in the measurements Dr. Jaffee recommends. But instead of being guarded like the gold in Fort Knox, the results are released to any private insurance company that asks for them. Insurance companies know how to deal with risk, and they will then quickly develop packages which represent risk groups. A person can get into a lower risk group by changing their life.

    The government also needs to formulate laws making it illegal for an insurance company to cancel the policy if the insured actually does develop a chronic disease.

    The payoff for the US economy could be enormous. The change would be vigorously opposed by the food companies and the alcohol lobby. It would be supported by the gym lobby and the yoga instructors.

    One of the many mistakes in ObamaCare was to believe that all disease is genetic and that, therefore, the results of lab work needed to be kept secret.

    Don Stewart

  15. Excellent article and discussion: an asset -re-set’ to 2008 levels would drop the valuations on my properties in the UK by approx. 60% or so (it would be less of course in other less desirable locations).

    Ouch! What politician would ever accept that? ! Let alone those who seek to preserve -as in 2008 – their paper wealth.

    Electoral death for their party, for a very long time (as happened with the PSOE in Spain who were blamed unfairly for 2008 and have only now just crept back into power (largely only because the conservatives screwed up with huge corruption scandals).

    So, they must try against all odds to maintain the insane bubble valuations of assets, and go for steady inflation. But how long could that remain viable?

    • Thanks.

      I’ve read today that, of people planning to vote Labour or Conservative in the UK, 49% and 48% will do so only because it’s the ‘least bad’ option. Very few people, around the World, like or trust the political leadership in their country.

      Part of this is because the deterioration in prosperity, identified by SEEDS and discussed here, is known to the public, but is either not known, not understood or denied by political leaders.

      This imbalance is likely to be redressed at some point. Asset prices can only be maintained, if at all, by taking huge risks with inflation, and the economic downturn in the EMs is a game-changer.

      Ideally, political leaderships would embrace the new realities.

  16. Tim,

    Thanks for a very interesting blog post. I also really enjoy the comments.

    As I read your post I reflected on something. My Grandfather bought a new semi-detached 3 bed house for £750 in 1929* – he was middle class clerical worker earning a salary of £350pa. So his house was about twice the value of his annual pay.

    Fast forward to 2019 – with average incomes (in the UK) at £29,400, I think it is almost impossible to buy a house for twice your income. My Grandfather house would I estimate be worth about £230,000 today. Maybe more.

    I have no idea what **interest rate my Grandfather was paying at the time – but I have a feeling it would be more than the cheap money we see today.

    I’m not entirely sure what I am trying to illustrate here – but a house is a asset – and prices are surely inflated.

    * I don’t know if the crash of 1929 had any effect on his purchase or not.
    ** Seems it was about the historic average of 5- 6%

    • Adjusting for inflation (well the official one by the BOE) the house should have been worth only around 48k by 2019.

      Something is amiss here


    • My parents, I believe, almost bought a holiday cottage, no doubt needing work, but within a short distance of the sea, for £250 – I think that was circa 1967. Probably worth upwards of £350k today.

      Back in the 1950s, an ordinary house cost less than most new cars. But a television was extremely expensive!

    • I think the problem is Gordon that in your grandfather’s day a house was a home. Only since the inflation drama of the 70s have housing been considered an asset class which is an anomaly actually because assets should yield an income, which houses (unless rented out) owner-occupied don’t. and are in fact IMHO liabilities because you need to repair, maintain and pay rates etc on them.

      Of course in these days of negative rates, even some bonds could be seen as liabilities to the holder who has to actually pay to own them. Everything has been turned on its head.

  17. Very nice piece Doc. Collapse of the assets bubble OR use fiscal policy (read MMT like stuff) to increase buying power and reduce debt relatively.

    What is your opinion on what they will do? I think the system cannot withstand a small (20%) in asset prices, so fiscal policy, aka monetize gov debt, will have to be huge and this crushes the currencies.

    Fools we all are to let it come this far. We will pay the heavily inflated price.

    • We didn’t bite the bullet and have, as it were, just a hand amputated in 2008.

      Instead, we spoke soothingly to the patient and encouraged them to ignore their situation.

      Now, the whole arm is gangrenous, and any intervention so much more perilous for the life of the patient…..

    • Thanks houtskool.

      The priority will be to prevent an asset price crash, and they’ll use monetary policy to attempt this.

      There’s almost – stress, ‘almost’ – a certain logic to this, as follows:

      – Inflation of 10% pushes up people’s wages and costs by roughly the same amount, i.e. is neutral.

      – Prices of stocks, bonds and property don’t crash, but don’t rise either, so fall in real terms and relative to incomes.

      – The real value of debt falls. This is good for the borrower, of course, but for the lender it’s “soft default” (being repaid the nominal $1000 owed to him, but in money now worth only $500 vs its value at the time when he made the loan).

      This might work, IF the underlying economy really was ‘business as usual’, with “growth” carrying on, albeit at modest levels. But that, unfortunately, is not the case.

      Fundamentally, those mavericks who said they were getting it wrong in 2008 will say the same again – and, once again, will be proved right.

      Essentially, we’re lurching from one band-aid gimmick to the next, and will be, until the energy basis of the economy is understood.

    • Tim and all,

      The consumer sector (most not in dire poverty or multimillionaires) is choking on debt. To increase non-asset inflation significantly, demand needs to increase or supply of necessities decrease. Aside from population growth, peak food/energy, or government spending, is there another way inflation can occur?

    • Steven:

      Despite the Japanese experience – a special case for many reasons – we can induce inflation.

      A critical part here isn’t money quantity alone, but velocity (Effective Money Supply = Q x V).

      This ‘how quick should I spend it?’ velocity is tied up with the psychology of public expectations. If you were persuaded that inflation next year was going to be 5%, you might just shrug. Persuaded that it’s going to be 15% or 20%, though, you’d be likelier to spend your money whilst it still has value.

      The money printed by Weimar wouldn’t have caused hyperinflation if it had all been stuffed under peoples’ mattresses or left in a bank vault. It was the rapid spending of it – and the accompanying, self-reinforcing psychology that gripped the public – that led to inflation.

      This, incidentally, is one very logical reason for the authorities to understate inflation. (Another is that it keeps down the cost of benefits like social security).

    • I understand velocity, Tim. You’ve mentioned it before as well. But if most consumers are cash strapped (already “choking on debt”), then demand has difficulty rising as I see things.

    • Point taken, and this is where “credit exhaustion” (which we’ve discussed before) might kick in. The place to look out for inflation, I think, might be in the cost of essentials.

    • Thank you Doc. And agreed. Gimmicks until the currency dies.

      EM under pressure this soon already is what i didn’t expect. But ok.

      Again, a very nice piece, thanks.

  18. Farnam Street
    is a blog that might be interesting. The blog discusses the various thinking tools that one one can use. The current blog is Economics thinking, defined as the science of allocating resources while prioritizing goals. Quotes like ‘there are not solutions, only trade-offs’.

    Why might this be interesting?
    *Political arguments typically involve only ‘more of everything’. For example, in the discussion above about housing prices, it is taken as a given that the huge appreciation in values is a good thing. But looked at from the standpoint of young people, it is disastrous…unless they inherit. So the central bankers and the politicians have chosen (apparently) to maximize the benefit to the currently politically and economically powerful while short-changing the younger generations. *Politicians and corporations can make a huge number of arguments which sound good so long as the assumptions (are there any trade-offs?) are not examined. For example, that the incumbents have done spectacularly judged by a rising stock market. Or that the number of millionaires and billionaires being minted is evidence of ‘progress’. Economists have, as a group, fallen into the quasi-religious belief that rising GDP is the solution to everything…particularly Nordhaus…the winter of the Economics “Nobel”.
    *Does increased use of fossil fuels increase well-being, or does excess maximum power inevitably lead to poor health and depression?

    I suggest that these are the sorts of questions that it will be important to consider as ECoE increases and other resources decline.

    Don Stewart

    • In 18th century Scotland, physicians noted that as the working class grew more prosperous, they spent their money on hard drink and finer clothes (silk waistcoats, not rough wool) , wanting to have fun and cut a good figure.

      This led to increased mortality and deaths from consumption, etc. Poorer, they were healthier….

      They also noted that psychological disorders were more frequent among the idle rich, living off income from and and investments, than among the labouring poor.

    • ” Inflation of 10% pushes up people’s wages and costs by roughly the same amount, i.e. is neutral.”

      Is this strictly true, Dr Tim?

      1) If wage increases lag price increases then the worker will be worse off; and fiscal drag will also be an issue.
      2) Presumably the exchange rate has to fall to make up for this; otherwise the balance of payments goes even further into the red?

      I would be most interested in your comments.

      Thanks for another brilliant article, by the way!

    • Thanks Ian, and of course you’re right. I was giving a broad-brush view from a ‘what are the monetary choices?’ perspective.

      Both price lags and fiscal drag are amongst many factors making high inflation extremely unpleasant, and worst for the poorest. The echange rate point is true too, unless the inflation phenomenon is global.

      Glad you like the article – I enjoyed writing it, and am enjoying the debate.

    • Marx called it primitive accumulation he also said History is repeated first as Farce then as tragedy.
      The eyewitness stories told of these evictions are blood-curdling. One man tried to save some bits of wood and was caught in the act. The wood was burned so that he would have nothing to cook or keep warm by. Many starved and froze to death where their homes had been. Some died of exposure, disease and fatigue. Starvation was rampant. A callous remark was made by the Countess of Sutherland upon seeing some of the thin Highlanders. She wrote in a letter to a friend in England,

      “Scotch people are of happier constitution and do not fatten like the larger breed of animals.”


    • I am certainly no expert. But here is what I see. Regardless of whether shale makes a positive cash flow, the gusher of money coming out of the Fed leaves a lot of people with money they need to invest in something. Shale is losing some luster, but still may be better than alternatives. Just keeping the money as cash is something many of the recipients are reluctant to do. It is true that velocity has declined, and so keeping cash is increasingly the alternative. But even a very small percentage of the money being created can keep the shale industry afloat. A billion dollars isn’t what it used to be. The gusher of money plus the ‘plunge protection team’ can squash alternatives such as gold.

      It’s also worthwhile examining John Williams statistics on truck freight in the US. Truck freight is powered by diesel. And the truck freight has been declining for a while. Shale is all about gasoline. And so long as the fed can keep up the illusion of economic growth, then gasoline consumption is likely to increase. When the underlying erosion of the economy described by Williams, and as evidenced by the decline of diesel intensive industries, finally affects employment and earnings in a seriously negative way, then the mileage driven and the price of gasoline are likely to fall…perhaps finally driving the shale companies out of business and prompting more majors to disinvest in it. However, it could be six more months before reality strikes.

      I am not the expert that Rapier is, but I question his statement that the transport system is rapidly electrifying.

      Don Stewart

    • Thanks for reply Don. 6 months isn’t very long I though you were going to say 6 years.

      There’s trouble ahead whatever we do.

    • Yes, and according to Mr Williams, all we need to do to restore prosperity is get rid of the Federal Reserve. Then we’d grow!

  19. I see two issues regarding inflating our way out of a market crash. First, holders of debt instruments tend to be the upper income and most powerful segments of the populace. Is it realistic to postulate that this group will be willing to take an enormous haircut on their debt obligation holdings? Secondly, inflation will do nothing to address the wealth disparity issues that are causing social distress and riots across the world. If anything, inflation will exacerbate wealth disparity since it would disproportionately impact the so called precariat to a much greater degree than say the upper 10%. The precariat would see increases in food, staples, transportation, etc that would have little or no impact on the upper-middle class to wealthy segments of the population. The assumption that wages would keep pace with inflation is questionable at best. It seems more likely that inflationary price increases in staple goods would lead to decreased demand accompanied by the usual downward wage spiral for the precariat.
    What am I missing here?

    • I agree with all of that. The choice of inflation could only ever fall into the “least bad solution” category. It would indeed hit the poorest hardest, but it would also hit those on middle incomes very hard indeed. Sales taxes, based on what people buy rather than on what they earn, exacerbate these effects.

      Popular unrest is rising, and will continue to do so, because (a) prosperity is deteriorating, and (b) the authorities don’t recognize its causes, and sometimes take a high-handed attitude.

      If the authorities don’t understand the real processes going on in the economy and, at the same time, are disconnected from the experiences of “ordinary” people, then they are poorly equipped either to understand the issues or to respond effectively.

      We’re seeing this trend right around the world, often in EM countries, but also in Western Europe.

    • Not missing anything, as far as I can see.

      The masses have no power at all to drive their wages up – above all in high-immigration regions like the uK (although Labour could make a gift to public sector workers their immediate 5% rise promise) – and will be the first to go in a wave of mass-redundancies which will be the certain corporate response to economic stress.

      As most businesses are part of national and global chains this could happen very quickly across regions, rather than small local businesses making adjustments and trying to keep open. Thousands go in just a few weeks in drastic economy measures.

      Even without a very sharp shock in the UK, we must surely see an acceleration in the closures of bank branches, large high-street retailers, supermarkets (too many opened over the last decade and intense competition) which is already well underway.

      So, the basic amenities of life may disappear quite dramatically in many towns, even seemingly ‘prosperous’ ones, and the former employees have nowhere to go except the Amazon warehouse or the equivalent.

      As the now obvious global recession (the EM’s are surely the alarm bell here) deepens, this will also have a strong impact on middle-class employees, in management and professional services.

      This downwards spiral seems unstoppable, merely a question of the speed and depth. A severe step-down for all classes except the very wealthiest and most-cushioned now seems inevitable, distinguishing it from the post-2008 situation which many escaped unscathed.

      Or is that too pessimistic? Maybe: a silver lining is that redundancies among career politicians are expected to be 0%. So we shan’t lack for our ‘leaders’…..

  20. The Labour Party ads running at the moment in the UK address declining prosperity very directly: ‘We’ll put more money in your pocket’.

    • Yes, but not much help if it has been devalued by inflation! Reminds me of Harold Wilson’s “The Pound in your pocket will not be devalued”.

    • If any Labour canvassers knocked on my door and said they’d be putting more money on my pocket I’d just tell them to go away and study the laws of Thermodynamics.

  21. We need Alf Garnet to comment on the manifestos.

    Although I think he was ‘aspirational’ before the term was coined?

    He too thought that higher property valuations meant increased ‘wealth’…..

  22. Hi Tim,

    You say, “The place to look out for inflation, I think, might be in the cost of essentials.” Are there any sources or stats that you follow to do this?

    • This is a combination of national statistical offices and observation of things like gas and electricity prices.

      I used to run – and still maintain – the UK Essentials Index, which got a lot of traction in the press.

    • HI Tim, Your remark about electricity prices caused me to check back on my records for Scottish Power tariffs:
      Mar 2017 – 4.67/unit
      Dec 2019 – 9.68/unit
      Over a 100% increase!……. and these politicians refuse to answer emails even during an election. When they appear on radio or TV again they talk around the questions, rarely answering directly as any honest, authentic, genuine or sincere person would. I’m sick of these smarmy toads – they are all as bad as each other, whatever colour their politics.

    • Probably still good value compared to Hinkley Pointless

      Incidentally the initial sky-high price for the above is linked to inflation – so is there a cap on the inflation rate incase if hyper-inflation.

    • Point taken thanks but I was thinking rather more of those ‘just managing’ – for myself, being an OAP of the Silent Generation (1944), my surplus discretionary income can cope with ‘sudden’ increases of this kind – the lower quintile, not so much. As Tim makes the point that most are suffering falling prosperity as time passes.

      Re: hyperinflation can only occur within an economy when the domestic currency collapses if there is an alternative currency available, generally the US dollar. Therefore in island states such as UK, hyperinflation cannot occur unless the government allows it. Venezuela and Zimbabwe are excellent current examples.

      My book explains all this and much more about the economy and global financial system.

    • Hi sorry I didn’t mean to seem as though I was ignoring the impact of ever increasing tarrifs on people – I was having a jab at our current Government’s energy policies.

    • Well there’re so many technical problems and recently announced delays and cost overuns I’m not sure Hinkley Point will ever become operational.

      EDF will take a huge hit of it fails

    • On the subject of essentials I’ve noticed the price of my cat littler has risen from £4.50 to £7 over the last 3 years.

      Also – as everyone knows – we have shrinkflation.

      At current rates the £1 bar of chocolate – I buy as a guilty pleasure – will disappear.

    • The traditional jota lyrics (maybe known to our expat host?):’The man who drinks water when there’s wine on the table is a fool; when you’re dead they’ll all forget you anyway!’ always cheers me up – same sentiment….

  23. So now we know that the US government consistently lied about Afghanistan, and elements in the US government bent to law to get surveillance of Trump aides. And John Williams tells us that the US government is bending the rules to tell us rosy stories about the economy. What else is new?
    Don Stewart
    PS. But I agree that it is all Putin’s fault…the bad man MUST be controlling all these puppets!

  24. So now the UK economy is flatlining, as predicted. I do believe we are seeing the beginnings of the end of growth (perhaps no bad thing in the long-run for the fragile Earth). Things are looking bad. I live in a relatively prosperous community near Bristol and note that the local Food Bank (where my wife is a volunteer) has suddenly got much busier – some users are what might be called the ‘fallen middle class’ where illness (no insurance, alas), relationship break up or, increasingly, a small business failure, has led to a crisis.

    I’m also the treasurer of a small grant-making charity that aids young people under 25 who incur educational, vocational or activity (sport, etc.) costs. There has been a big uptick in applications this year, too, again not really from those whom you might think need the cash.

    My clients (I’m a financial adviser) are, frankly, terrified (whatever the outcome of the election this week) and are really struggling to secure enough guaranteed income with the rapid demise of ‘final-salary’ pensions and low annuity rates. I predict a bloodbath in the defined contribution ‘flexi-access drawdown’ pension area very soon, as the long bull-run in equities and bonds peters out. Many have been extracting far too much from their pension funds over the last 4-5 years and will certainly run out of money.

    If you pick up a good novel by the likes of Trollope (‘The Way We Live Now’ would be a good choice!), Dickens, Austen, etc. the characters often bang on about their worth. But they refer to income, not capital. Nowadays, we all bang on about the meaningless ‘net worth’ based on financial assets, forgetting what the assets are for – to produce an income! That’s a very hard task for the likes of me today, as risk abounds, unless we go back to ‘annuitisation’, which I happen to think we should and will.

    I remember reading a paper (‘Uncertain Lifetime, Life Insurance, and the theory of the Consumer’) written by Menahem Yaari in the mid 1960s. In this work he created the foundation for life cycle economics (and much of the financial planning profession) by “proving” that for rational individuals trying to “smooth” consumption over their life cycle, there was no other investment asset that could outdo the annuity. Why? The mortality credits and risk pooling. This ‘safety-first’ approach is deeply unfashionable but, if what Dr Tim says comes to pass, will mean my clients are protected 9as annuities are the safest financial product to buy and effectively 100% covered by the government).

    Hey, ho.

    • Hi Mark

      Of course, I’d say that the UK economy – like many others – has been worse than flat-lining, and for a very long time. Even conventional economics shows that what’s reported as 0 growth is actually a decline.

      When the history of this period is written, the grotesque mis-pricing of risk will be an important theme. Investors, traditionally, have earned a decent (though modest) return at very low risk, and thereafter have had the choice of moving, gradually, and in tandem, up the curves of risk and return (you know this, others might not).

      This time around, this no longer applies. Any real return at all requires the adoption of enormous risk. An era in which investors pay for the privilege of lending to the government of Greece says it all.

      The snag with annuities – though please correct me if I’m wrong – seems to me the extraordinarily low yields. These got crushed in 2008-09 as the authorities went all-out to rescue profligate borrowers, and I can’t foresee any route out of that conundrum.

    • I’d add, as an observer from Europe, that Mr Johnson or Mr Corbyn may not look all that great as choices, but, for me, they’d still be an improvement on Major, Blair, Brown or Cameron.

      Looking on the bright side, at least the British won’t wake up on Friday 13th with a Macron or a Trudeau!

  25. Tim, a note on moderation. Steven Kurz does not hold back in his ad-hominem. I have a thick skin and broad shoulders so no problem with that. What I do find galling is that my responses do not pass moderation. I do not know if Stevens posts are moderated as well, or indeed who else is policed as my own posts are. I do find the possibility that some posters engaging in the spirited argument are treated more equally than others. Roger

    • First of all, any comment containing links is moderated.

      Second, yours often contain repeated links to your own site, which is OK once or maybe twice during any given discussion, but not more frequently.

      Mainly, though, any comment – and especially any very long comment – needs to be of interest to readers in general. Here, we’re discussing the EM economies, asset prices and so on, so comments need to be within this general area, and preferably brief enough for people to read them.

    • The list can decide who is using ad hominem. I simply stated two points needing clarification in your first comment to Tim’s recent post. You attacked me for doing so.



  26. Even back in 2000 it looked as if the income v house price equilibrium was seriously out of kilter, but barring a dip around the time of the crash various factors since then have allowed it to increase especially in London including, cheap mortgages, foreign investor money, bank of mum and dad, lack of housing stock, buy to rent, first time buyer schemes, part rent part buy, etc. These sometimes ingenious steps has allowed the gulf to keep on widening in a way most of thought was unsustainable. Having said that outside London the average UK house price is around £230,000 and the average UK income around £29,400. Back in the 1970s the husband’s salary was often the sole or main income but most couples buying houses today will have two incomes so close to £60,000. Thus the average house price is slightly less than 4 times joint salary – more than the multiple of three preferred by lenders but still currently within the orbit of affordability especially when combined with the above mentioned schemes, hence the market keeps on going. This mortgage will however take up a large part of people’s income and soon become unaffordable if interest rates increase. The Conservatives don’t dare risk trying to deflate the market but Labour will do so both intentionally and unintentionally. Increases in Council Tax on all homes, and especially second homes (which will likely double), rent controls which will take out the small buy to let and last but not least inflationary pressures which will drive up interest rates. All this will likely see the market collapse. Negative equity will return, foreign investors will flee, and income v house price equilibrium will to a degree be restored. A necessary adjustment many of us would agree, but will it take the UK economy with it?

    • Thanks. I think I’m right in saying that, when combined incomes are involved, lenders prefer a multiple of 2.5x rather than 3x.

      The housing squeeze is attested by other factors, including (for example) the average age of first time buyers – last time I looked it was 34, way above the traditional 20-25.

      I think it’s implicit in the situation that cost of housing (whether owned or rented) will, like other essential costs, keep on rising relative to incomes. Likewise, no political party is proposing a significant reduction in tax for the average person, but that’s surely a logical consequence of deteriorating prosperity.

      The SEEDS model indicates that, whilst prosperity per capita has fallen by £2,570 (-10%) since 2003, tax per capita has increased, by £2,240, over the same period. I can’t see that as a sustainable trend, even if the allocation of taxation itself is changed.

    • WRT lending for mortgages, yes the 2.5x for joint incomes was, until not that long ago, the standard norm. That has now been blown out of the water with gizmos such as Help to Get Hopelessly in Debt – sorry – Buy – that have artificially over inflated the price of new builds. Close to where I currently work there is a huge estate going up with the sign “From only £250K+ “. Like most of us have a combined income of £100k – yeah, right.
      What hasn’t been discussed in much detail is the role of Housing Associations and their role in all this. So, having a bit of knowledge of this, i will flesh this out a bit. Many of them, on their websites, say how many thousands of new properties they want to plonk on the greenbelt. Trouble is that, in quite a few instances, the current housing stock that these same HAs have are in a state of dilapidation and need urgent repairs that are not forthcoming. In some cases, these places should be condemned as unfit for human habitation. The craze for converting old offices into flats has also created some real potential death traps – they, too, should be condemned. These HAs do charge a fair old rent to live in such accommodation and are punctual with rate increases each year.
      There was a report, not so long ago, that originated from the ONS that stated what they thought the population would be by 2030 and what was needed infrastructure wise. It reads more like a press release for a large house builder rather than anything scientific. This report said that the population would increase from 66 million to 71 million in 2030, with 73% of this increase coming from immigration. Trouble is, this does not actually tally with what is really happening. For a start, the immigration levels are declining from the predicted levels of said report – they are currently over estimating this by around 1 million at current trends. I have seen some predictions that reckon immigration will dwindle to less than 100k by 2025 – whether that comes to pass remains to be seen. An economic downturn will no doubt impact on the demographics as well – increase in mortality rates and decline in birth rates are both real possibilities.
      Housing is an unproductive asset yet the UK has an unhealthy infatuation that buying a property makes you a “financial guru”. It doesn’t. It makes them home owners – that is all. If you cannot keep up with repayments – well the bank can always foreclose

  27. But, surely, this is, historically, almost always the case?

    In order to maintain itself, like a greedy divorcee ‘in the manner to which it has become accustomed’, the state will crush the increasingly impoverished mass of tax-payers regardless of their plight.

    Are there any historical examples of the tax burden being lightened – as anything except an exceptional measure – in a complex economy, in order to ease distress?

    Moreover, as many state institutions are close to ceasing to function properly due to a lack of funds (as well as the usual hopeless incompetence), it is hard to see how it could be done, or how already demoralised state employees could ever accept it.

    • You’re probably right that there are no, or very few, precedents for the tax burden being lightened. But then there are no precedents, either, for general prosperity deterioration of the sort that we are witnessing now.

      Deteriorating prosperity changes everything. It means that, in a shrinking economy, a shrinkage of what government does becomes inescapable. It’s like the lower part of your house is about to flood, so you decide on the priority things that you want to carry to an upper floor – priorities, because you can’t take everything.

      So the agenda becomes one of deciding which activities have to be either dropped or scaled back. No state apparatus is going to want to make these choices, but falling prosperity, meaning a decreasing tax base, will make this inrescapable. If somebody is getting poorer, he or she will neither tolerate higher levels of tax or be able to pay them.

    • I’ve noticed that there have been news articles about the NHS having to cut back on certain services – many of which relate to pain relief injections which are now considered poor value for money – aspirins it is then.

      We certainly are in a perfect storm of an aging population with diminishing resources.

      I expect most Governments would like to find the answer to successfull Nuclear fusion in their Christmas sock

    • Very thought provoking comment, Dr. Tim.
      Assuming that an economic collapse will usher-in a period of sound monetary policy, ( ie. no borrowing – live within your means kind of thing )
      The question is, how will a government prioritise the divvy-up of its shrinking pie ?
      Will the government voluntarily reduce its own size ?
      Will the Welfare State be shrunk ?
      Will pensions be cut ? ( undernourished pensioners die off quicker )
      How much of your savings will the government allow you to keep ? None -oh !
      How about defence ? Do we still need nuclear weapons ?
      Maybe we could sell our Tridents to the Chinese or the Russians ?

    • Thanks.

      Part of the answer lies in whether we face “collapse” or “gradual deterioration”. There’s a case to be made for both. Governments cannot do much about the former, but should at least be planning for the latter, meaning some form of ‘managed retreat’.

      A complicating factor is that we live in an era characterised by one writer like this:

      “Me, me, me! My feelings, my needs!”

      Part of the answer lies in changing attitudes away from this position.

    • So true Tim and I have postulated the same outcomes in my book. I suspect that we will face a financial crisis soon with the Fed and central banks engaging ultra QE4 with a vengeance, which will solve nothing, but merely exacerbate the continuing decline.and de-growth of the western world in particular and the world in general as EM become embroiled..

      Part 2 of my book deals with the points you make about people learning to deal with the changing conditions of life management and I have prepared the Introduction and Chapter 14 dealing with personal transformation. It is only 20 odd pages so I will email you a PDF copy if you so require.

    • Well, Dr. Tim, it is indeed going to take a very hard slap in the face to wake up the “Me, Me, Me !” brigade. In my view a great deal of this selfishness can be attributed to the advance of feminism, and these ingrained feelings of Entitlement within a society will not be removed gradually.
      There will need be a sudden sharp, shock, going from ” Everybody is entitled to Everything !” to ” Nobody is entitled to Anything !”
      I was looking for a diagram which you had in an earlier T.P. report, showing a box with arrows coming from it, the thickness of the arrow indicating its value. ie as the Pie is getting smaller, a greater %-age of resources is consumed just for essential services, and less is available for discretionary purposes.
      I think that diagram would be relevant to this discussion.

    • Johan – feminism and the “Me! Me! Me!” brigade are the symptoms and not the cause.
      What the underlying cause of all this is the atomisation of society as a direct result of Neoliberal policies that have been fanatically pursued by the West. They want everyone to be consumers not so much citizens. What they want us to consume is ever larger amounts of debt so that we have the “privilege” of driving a nice new shiny car for a set period of time in order to impress people you don’t particularly like!

  28. In ancient Palmyra, it seems, the tax levy on a prostitute was directly related to her charges: the monthly tax was the same as her fee for one trick.

    I suppose as the lady’s charms declined and she could charge less, the tax went down?

    Seems quite fair. No doubt, being fixed, it also encouraged industriousness: the more you made, the more you kept……

  29. @Dr. Morgan
    No State is going to want to make these choices
    Granted that the US, with the reserve currency, is a special case. Let’s look at some very recent activities by the US under the direction of Donald Trump:
    *Tariffs levied on Argentina (and Brazil) for being ‘currency manipulators’. Argentina recently look out a loan from the IMF to bail it out, and the loan is denominated in dollars. So as Argentina’s currency devalues, the size of the debt in terms of the load on their economy increases. Trump’s actions make it much harder for Argentina to pay back the loan. Our admittedly brilliant President either can’t make the connection or is so singularly focused on re-election that he simply doesn’t care.
    *Industrial production and the use of diesel in the US are currently declining. So all the tariffs and sanctions must be doing some good? America is becoming great again? Some have pointed out that the US is behaving the same way it behaved at the beginning of the Great Depression….beggar thy neighbor.
    *In the same announcement of the tariffs on Argentina and Brazil, Trump again demanded negative interest rates from the Fed. So I guess such demands are consistent with your ‘choice avoidance’ theory, but I see little evidence that the general public is anything other than oblivious to the theater which occupies Washington and the media. I see little evidence of Awakening. But there really are ‘billionaire bunkers’ available for those with cash. I don’t think they give loans.
    *In the last few days a comprehensive book on the effects of diet has been published bu a non-commercial Doctor:
    (There is really no way to give a sound-bite on this book. It purports to look at the best science for the connection between food and health, along with some essentials such as sleep and exercise.)
    Now, in a country drowning in its own un-health, it would seem to be important that the Department of Agriculture take a look at the science in order to, perhaps, reduce the tax burden imposed not only by federal policies, but also as a matter of Public Health and the costs of treating chronic disease. But our (admittedly brilliant) President has issued executive orders which essentially forbid the Agriculture Department from assembling an expert panel to issue any proclamations which do anything other than continue the status quo.

    Some other countries may be waking up to the cold light of dawn, but I would say that the US, having awakened to a hangover, is looking for the hair of the dog to relieve the symptoms.

    Don Stewart

  30. So, an unstoppable decline in the global economy, and the undeniable end of even phoney growth, is now underway (although it will not be admitted officially): what do we predict?

    A growing wave of redundancies (banks, industry, retail, seeping into services ) and debt defaults both private and corporate, attempts to paper over this through negative rates and monetization, culminating in a serious crisis in, say late, 2021?

    2020 seems a little too early to me, as the can-kicking probably still has at least two years in it – it’s quite remarkable what can be done to ignore and evade reality if you try hard enough, as we have seen since 2008.

    Is this my usual wild optimism? 🙂

    • It’s impossible to predict, Xabier.
      As Dr. Tim has pointed out, just because the collapse is inevitable, it does not mean that it is imminent.
      My take on it, is that it will happen very suddenly, because we are at the cusp. It will only take one or two more snowflakes to set off the avalanche.
      The consumer is still spending, although not as much. Money is getting tight all around, and as soon as retail sales show a significant drop, then we will know that the avalanche has been triggered.
      Retail sales is one figure that cannot be fudged, it is anchored firmly in the Real Economy. Once people only spend money on essential items you know that something is very seriously wrong with the economy.
      Sure, they will then helicopter-in money.
      MMT will also have its day in the sun, but I see that, ( as will foreign investors ) as a leading to the immediate collapse of Sterling.

    • As Dr Tim has pointed out, just because the collapse is inevitable, it does not mean that it is imminent
      What also matters is how you are actually defining the term “collapse” as well. Dmitry Orlov put it is an on going process and not an event and there are clear tell tale signs that the system is in total distress – homelessness up, food bank usage going through the roof – etc. These could well be indicators of such an on going process that is hidden in plain sight.
      If you have seen the Tony Santoro vid that I posted on the last blog post, then you would have seen the homelessness situation in Oakland Ca covered in amongst a botany lecture – it was that surreal. At two moments during the vid Tony made the claim that this is like an empire in Decline – around the 17 minute and 30 minute mark, if I recall correctly. These homeless are not down and outs in the traditional sense of the word – many have jobs but have been priced out of the housing market. What was also telling was the “luxury” .condos that featured and came in for serious and well deserved ridicule and scorn. It was not just the price tag $600 k+ but also the location of them – built on an old landfill site and in between highways putting it in a pollution hotspot.
      Charles High Smith has been writing a lot about this – we are very near the far end of the S shaped curve, btw: https://www.oftwominds.com/blogdec19/taxonomy-collapse12-19.html

  31. @Dr. Morgan
    Looking at the pictures from Sydney, and having been assured by both Trump and the leader in Australia that they have nothing at all to do with climate, I expect our Brilliant Leader to threaten to withhold help (such as the planes which dump water and flame retardant on fires) because the Australians have so stupidly failed to clean up the ground in the Bush….no wait, that threat is reserved for ‘liberal’ places like California.

    I wish I could point out some ‘sane’ leader in Washington who offers a fresh perspective. But when Tulsi Gabbard says something that is obviously true, she is criticized by all sides.

    On a positive note, I received a mysterious email inviting me to a ‘roll up your sleeves’ strategy session in Rotterdam. If I didn’t have to tend my garden, I might go and help save the world.
    Don Stewart

    • As the Persian proverb says:

      ‘Everyone spoke well of him at his funeral? He must have been a liar and hypocrite!’

      Gabbard is no doubt doomed.

  32. Without Comment From Me
    Time Magazine has named Greta Thunberg as the Person of the Year. Bolsonaro is, of course, doing his best to Christianize the Amazonian natives. His forces just killed to or them. Greta reacted. He labeled her a ‘brat’.

    Don Stewart

  33. Recommended

    The Bank of International Settlements comments on the Repo situation. Long article by Zero Hedge outlining different theories about what may be wrong.

    The BIS suspects, as I understand the argument, that it is about difficulty in funding the federal fiscal deficit and how that ties into the relationship between the banks and hedge funds. If the hedge funds are forced to sell assets, then markets crash.

    Don Stewart

  34. And now our Food Bank has been broken into! Only food was stolen, not the petty cash, to our astonishment. Desperation?

  35. Just spent a few days in kingston upon thames for the first time in 20 years and was genuinely shocked by the amount of rough sleepers I encountered you don’t expect it in leafy suburbia could be partially down to declining prosperity as well as other reasons.

    • As a resident of the Kingston/Surbiton area I would agree with your observation there. I am also shocked at how many boarded up shops there are right now in central Kingston. I believed that Kingston, with two department stores John Lewis and Bentalls, would survive at the expense of the smaller commuter belt towns that surround it. That is clearly not the case.

  36. This explanation over at Zerohedge of the stages in inflation taking off is really clear and concise.


    Once you know what the signs are, living here in the UK, there are enough flashing red lights to start a grand prix right now. The worst part is knowing something bad is coming at you and still not being able to move out of the way in time. I don’t know if even ignorance is better, it certainly doesn’t make it easy to like people in general.

  37. I shall be pleased, at least, not to lose old friends to exile in Switzerland.

    Clearly, setting Brexit aside, those who thought that they still had something to lose by a Labour victory – the threat of substantially higher taxation even on modest incomes and prospective inheritances – outweighed those who clearly had something to gain, most notably public sector workers.

    The manifestos of all the parties were rather detached from reality, all of them overestimating the true prosperity of the UK and economic prospects in general.

    Interesting article in the Guardian on the decline of high street retail in the UK: astonishing to learn that the business rates paid by John Lewis on their Oxford Street store went up from £6.6 m to 10m in just three years – rather makes my point about taxation not responding to economic reality!

    Governments look for short-term milch cows and take as much as they can, not caring whether the animal will die of exhaustion.

    Still, even at these absurd rates there are takers: all the empty central retail spaces off the market square have now been taken in Cambridge – by fast food joints and a big coffee shop (but their old premises is now empty).

    (Our host will know the little shops opposite St John’s College: now £75k business rates!)

    • Quite so – though I think you’d be surprised by the cost of business rates for small shops, and pubs, even in small market towns.

      It’s indeed interesting to see politicians talking up economic prospects, with growth already at zero, and prosperity deteriorating, even before the widely-expected World recession even gets going.

  38. One person’s view from the US
    I think that the electorate is behaving like a pinball, bouncing off obstacles and creating flashes of light but no real illumination.

    I don’t think anyone trusts either the governments or the corporations any more. Nobody wants to give the bureaucrats any more of their money to squander, and they find that what the corporations are delivering is steadily deteriorating. They also find that going further into debt isn’t solving their problems…as we see from the current deterioration in the sub-prime markets. The only groups which still strongly believes in government are Wall Street and the Banks.

    Taking a look at the grossest measure of health, overweight and obesity, only a tiny percentage of Americans are still healthy. The statistics show that fewer than 5 percent of Americans eat the recommended daily doses of fruits and vegetables and whole grains. Almost everyone is magnesium deficient. So reports that Obamacare premiums are still increasing strongly while deductibles are also increasing sharply shouldn’t surprise anyone…but Social Security payments are only inching up as ‘there is no (official) inflation’. We should also note that the health status of Americans indicates that their brains are shrinking, just as their life expectancy is declining.

    The smartest politicians tell us that Americans are not willing to see government play a more direct role in streamlining our convoluted system. And I agree, since the politicians can easily be bought by the highest bidders. When it is common knowledge how Obama’s disapproval of an initiative during his administration was simply bought…why would you want to make your health the subject of a bidding contest? Yet very few are willing to think about the absence of a government to bail them out when they inevitably get in trouble.

    What do I expect? Continued discontent, with erratic swings, and probably the emergence of more ‘radicals’ such as the ones we had during the Depression: Ma and Pa Ferguson in Texas, Huey Long in Louisiana, etc.

    Don Stewart

  39. Just been reading the reader’s comments about the election victory in the New York Times

    Some very intelligent posts which makes much of the comments in the Telegraph look like childish rants.

    Here’s just one :

    Brexit will fail because of its inherent contradictions. First and foremost because the tide of a refugee economy is only just beginning as climate change inexorably threatens human civilization, putting all of Europe at mortal risk.

    The UK simply lacks the resources to go it alone in an increasingly globally interdependent world, especially given the high and ironic likelihood of Scottish independence from the UK and its continuing intercourse with mainland Europe.

    If we are to survive the accelerating climate crisis, it will happen on the backs of all of us. Those who go it alone will be among the greatest, if not the first, contributors to an accelerating refugee crisis not far down the road.

    • I see one definite positive in the UK result, and another positive that’s more debatable, because it might not last.

      First, the result means that “Brexit” will happen. I’ve never been pro- or anti- “Brexit” itself, but I am pro-democracy, and, like it or not, “Brexit” is what the public voted for.

      The “Remain” camp has split into two since the referendum – die-hard opponents, and those who, whilst disagreeing, accept the democratic decision. Many opponents of Mr Johnson didn’t understand this division, didn’t understand ‘pro-democracy Remainers’, and left them out of their calculations. I think Boris did understand this, and it’s the key to why he won.

      The other point is more nuanced. For the first time in a generation, voters were offered a genuine, collectivist alternative to the neoliberal orthodoxy that has ruled unchallenged since the creation of ‘New’ Labour. Not many voted for this alternative, mainly because of “Brexit”, and uncertainty around Mr Corbyn himself.

      Labour now has a choice to make, between ‘Corbynism without Corbyn’, and a return to the ‘centrist’ past.

      If the die-hards have now been vanquished, I hope that we’ll see more debate over economic fundamentals. To hang on to former Labour seats in the North and Midlands, Mr Johnson needs to move his party’s economic centre-of-gravity very significantly. I think he probably sees this, but accomplishing it is an altogether harder task.

    • Comment from a green Green (as opposed to red Green) friend in Kew Gardens, London.
      Johnson is not all that I had thought on social issues. See his second email below this with
      a NY Mag article excerpt and link.

      Brexit was a factor, with many poor, working class areas that had voted
      leave in 2016, voting Conservative. As much as I don’t want Brexit, one
      has to accept the results that the majority in England and Wales (though
      not Scotland) want to leave the EU.

      The result was so much more than about Brexit though (remember Corbyn is
      anti-EU). It was a comprehensive rejection of the Communism, Marxism,
      Stalinism, Leninism, Trotskyism, Khomeinism and anti-Semitism that has
      destroyed the Labour Party. It is rejection of the vindictive woke
      culture on social media and in universities. Perhaps people will now
      realise that the BBC News Website and Twitter do not represent Britain.
      As former Labour MP Kate Hoey said, Labour has lost touch with
      working class voters. So has the media.

      According to the BBC, 40 percent of Jews were thinking about leaving
      Britain if Labour had got into power. Forty percent! That’s an
      exodus. The British people have comprehensively rejected red fascism.
      Corbyn isn’t entirely to blame for this – Momentum are. They have
      destroyed Labour from the inside. I hope the party will rebuild as a
      more tolerant one.

      PS. Unfortunately my MP Zac Goldsmith (former editor of The Ecologist)
      lost his seat.

      (from the same friend, a few hours later):

      Like Boris or not, this is an excellent piece on him. Those who portray him as a homophobe or Islamophobe (he is partly of Turkish descent) are wrong.
      Boris also smart enough to realise Trump is filth, but that one has to massage Trump’s ego.
      nymag dot com slash intelligencer slash 2019 slash 12 slash boris-johnson-brexit dot h t m l

      “…Or take gay rights. Back in 2003, Johnson was one of a handful of Tories who rebelled against Conservative Party policy, voting for an end to the Thatcherite ban on teaching about homosexuality in state schools. Like many pols, he couldn’t handle marriage equality at first, but then he adjusted, becoming in 2010 one of the first senior Tory politicians to entertain it. As London mayor, he marched in several Pride parades, and as foreign secretary, he reversed a ban on rainbow flags at British embassies. On a trip to Russia, he defended gay rights, saying at a press conference with Sergei Lavrov that “we speak up for the LGBT community in Chechnya and elsewhere.”

      Islamophobia? Johnson had previously favored the entry of Turkey, with 81 million Muslims, into the E.U. He is hostile to the illiberalism in contemporary Islam but has defended the religion as a whole: “Everything that most shocks us about Islam now — the sexism, the intolerance of dissent, the persecution of heresy and blasphemy, the droning about hell and shaitan, the destruction of works of art, the ferocious punishments — all of them have been characteristics of Christian Europe. It wasn’t so long ago that we were burning books and heretics ourselves.”

      Boris also appreciated the moderation of Barack Obama: “He is patently not the Marxist subversive loony lefty that some of his detractors allege.” And, of course, he has shown a deep contempt for Donald Trump. In 2016, he said he was “genuinely worried that [Trump] could become president … I was in New York and some photographers were trying to take a picture of me and a girl walked down the pavement towards me and she stopped and she said, ‘Gee, is that Trump?’ It was one of the worst moments.”

    • Excellent summary Tim, thank you, and i endorse your conclusions. I think the Labour party will now rip its insides out as the Marxist Momentum faction fight to remain in control and because there are few Centrists left, Labour will transmogrify into a small and irrelevant Party, forever on the sidelines, fighting the last war of the rust-belt, blue-collar workers that no longer exist.

  40. Sorry I pressed post comment by mistake before I had finished

    Start again –

    I feel that had Labour been led by a sincere figure like Neil Kinnock – – who (hopefully) would have respected the referendum then they would have got back into power.

    Another point is that the Conservative manifesto is very thin and wheras the Labour manifesto was much more far reaching.

    It did have some very caring statements in it although amongst these were some very questionable ideological aims – the funding of which would have been problematical.

    • They screwed up royally, which is a pity as there were some elements of decency and humanity in the Labour manifesto which one rarely, for some reason, finds among the Tories.

      People claiming welfare should not have to wait up to 5 weeks to be paid when they are usually in a very marginal situation to start with; and something has to be done to relieve the terrible work burden on nurses in the NHS, whihc appalled me when I had time to observe last year – utter exhaustion, no decent meal breaks, etc.

      The irony in Polly Toynbee’s wish that Labour had been led by a ‘charismatic’ figure is that they once had such a leader -Tony Blair, in his early days before everyone saw through him and the ‘spinners’.

      There was a lot of genuine public enthusiasm for the fall of the Conservatives in those days. But charisma doesn’t always augur well…..

    • Boris and his team should look at and incorporate the humanitarian elements of the Labour manifesto into their policies.

      If they do this successfully then they could win the 2024 election too unless the World has collapsed by then.


    • ‘humanitarian elements’?

      They only have human rights. What about obligations?

      They never speak about that.

      No obligations, no rights. Where’s the UN Treaty for Obligations of Migrants?

      Well, this problem will go away soon in de-growth, ever less to ‘share’. The people working and paying with prosperity in decline at >1% a year ain’t gonna take those ‘rights’ much longer.

      Their non existing representatives just exited stage left.

      Chimpansees can be quite charming when there’s enough to eat. But look at them when they become desperate..

      Reality, my friend, reality….

    • We all will Donald, we all will. Until reality sets in.

      Fiat currencies is the pink spectacles we’re all looking through, distortions of reality, since the day they were born.

    • The British can be a very hardy race.

      It’s in places like the US where there will be extreme violence.

      Remember many US citizens own guns – we do not

    • Houtskool,
      I fully agree with you.
      When everything is going reasonably well, then we can all get along with each other.
      But when things get tough, then we see a totally different aspect of people’s personality coming out.
      This is something that is being totally ignored today.
      I think we are soon to experience a very ugly side to human nature, and human life is going to become very cheap indeed.

    • I’ll have to disagree with you there. The UK’s living standards may drop back to those of the 1970s – and admittedly that era wasn’t without its problems – but there wasn’t mass murder.

      As long as the decrease in our standard of living occurs slowly then people will adjust.

      Anyway you must excuse me now while I travel to my hideaway on Elephant Island

    • Two problems with this comparison, I think.

      First, it’s the direction of travel that matters – not that people are better off than they were in the 1970s, but that they are worse off than they were one, five or ten years ago.

      Second, inequality becomes much more of an issue when prosperity is falling than it was when prosperity was rising.

    • Wel it’s up to the ‘new’ Conservatives to manage the process.

      I’m sure the penny will drop eventually regarding the reduction in our living standards – but is five years enough?

    • Donald, moral affordability is another aspect.

      First we have monetary, and then physical. After that, its moral. The part between physical and moral is the hard one. Will it be cooperation? Is the human mind capable of recuperation after 4 billion deaths?

      I know, questions are more difficult than answers.

    • Johan, you are a realist. You should become a farmer.

      And me, i guess i would buy some shares….

    • Houtskool,
      I do enjoy gardening and growing my own Veg. but I am not sure if I could tackle farming. But if you are going to supply the ( plough- ) shares, then I suppose that I will have to give it a go ! 🙂
      As Dr. Tim points out, it is the reversal of prosperity that is the bigger problem. We need to look at some failed states, look at Ukraine for example. If we ignore the ideological war which the Americans are promoting there, the Lot of the average citizen is not good. Essentials are in short supply, prostitution is rife, and old grannies sit out in the street all day trying to sell a cabbage that they have grown in their back garden. Theft and corruption are commonplace. This is a scenario which will be thrust upon us quite abruptly, simply because the powers that be are not facing up to reality, and are not preparing the population for it.
      I have some well educated friends, who still believe that the economy in the UK is doing well, and that their children have a Rosey future ahead of them. The Lie will be perpetuated until reality kicks in, and even then TPTB will insist it’s only a temporary blip and that there will be Jam tomorrow.
      The decline may well be gradual, but accompanied with some steep drops.
      We are not going back to the 1970’s.
      We are going back to the 1930’s. ( but with sporadic Internet !)

    • Re: “The Lie will be perpetuated until reality kicks in, and even then TPTB will insist it’s only a temporary blip and that there will be Jam tomorrow. The decline may well be gradual, but accompanied with some steep drops. We are not going back to the 1970’s. We are going back to the 1930’s. ( but with sporadic Internet !)”

      This is not just to Johan. It is to most who have been commenting along with our gracious host. While I agree that the trends point this way, certainty is not in my make-up. There is a well known statement attributed to Niels Bohr, Yogi Berra, and others which needs to be kept in mind:

      “Prediction is difficult, especially about the future.”

      Intervening unexpected variables can alter projections. A global pandemic or famine might reduce population by 15-20%. A tactical nuclear exchange could kill many and cause a cooling of climate. Luck of time and place would determine who is most affected. Fusion energy “could” surprise, changing the energy scenario. I’m not betting on these or other unknowns, and prudence (The Precautionary Principle) is rational. Perhaps it is my skeptical nature, but I resist joining certainty cults.

      Cheers on the Downslope,



  41. Not QE in the US
    I recently linked to an article from the BIS speculating that the Fed’s Repo actions demonstrate that the financial system is having trouble accommodating the fiscal deficit. Here is another article talking about the situation:

    My question: If the Fed had not absorbed 90 percent of the treasuries issuance, would the system have melted down? Second question: What now?
    Don Stewart

    • If the ECB had not bought Greek gov 10 year debt at 2.4%, where did all the ‘migrant’ boats have to go?

      BTW, congrats Britons, with your victory against political correctness!

    • If the %s are anywhere near correct, I suspect so, Don. I can’t see foreign buyers stepping in, particularly as the USDX is rolling over and looks like a serious correction is ripe.



    • I understand that “not QE” since September has totaled slightly more than $160 billion. That’s a huge amount of “not” intervention in just three months!

  42. Albert Bates on Greta Thunberg
    I just read Albert’s advance copy of what he will post on Medium on Sunday. He recounts the room full of people trying to get close enough to Greta to ‘touch the hem of her garment’. He discusses why the right-wing slanders don’t stick to her (at least not yet). What strikes me is how infantile Trump’s attacks on her sound, and how adult her tongue-in-cheek rejoinders sound.

    This is not to say that getting off fossil fuels is something we actually know how to do.

    Don Stewart

    • That’s rather the point, though, isn’t it?

      One side assumes and insists that we can transition away from fossil fuels, and the other side assumes and insists that we can’t. Both assume and insist that the economy will carry on growing

      With all this assumption and shrill insistence, there’s a glaring lack of objective analysis where the debate ought to be.

    • Albert makes the point that Greta has grown physically in the last 12 months (when he last saw her) and that she has managed to keep the focus right where she wants it: on the science supporting a dire future for the children. She does not hold herself out as being an expert on solutions. And she doesn’t get sidetracked when people launch ad hominems in her direction.

      I constantly hear attacks on her as just a mouthpiece for her ‘handlers’. But Albert says she writes all her own speeches. She apparently spent the long days at sea reading the science literature.

      Albert contrasts her lifestyle with those of some prominent people such as Al Gore or Leonardo DiCaprio. I know I was shocked when she camped out by a railroad track on her way to Davos.

      She ticks off the carbon footprint of:
      The rich countries
      The rich people
      The 70 big corporations
      and concludes that ‘we all have adjustments to make, but some a lot more than others’. And that, of course, is what motivates so much of the opposition to her message. Going all the way back to 30 years ago, Bush I said ‘the American way of life is not on the table’.

      Ironically, as we see from the trillion dollar fiscal deficits and the Repo crisis, the American Way of Life may fail for other reasons also.

      I spent last evening listening to a couple of related conversations. One featured Nora Bateson talking primarily about her Warm Data project, but also about incidental subjects such as Swedish culture. In a warm data session, one moves around to different tables. At each table, some particular subject (e.g., health or prosperity or equity) is considered from different viewpoints. The result is that the participants get out of their silos and begin to look at the whole complex picture. The alternative, which we see stopping conversations all the time, is to pick a single viewpoint and demand that the world accommodate whatever narrow interest I, myself, have.

      On the subject of Swedish culture. She was raised in the US of Cambridge University lineage and considers herself an American by culture. But she married a youthful Swedish summer lover when both of them ended up single in late middle age. Some Swede was allocated 13 minutes a day of medical treatment by the government, which obviously was not enough. So she started trying to organize friends and neighbors to give the sick person more care with people rotating their help. She could sense that what she was trying to do was getting resistance. She finally figured out that, in Sweden, the government was perceived as the liberator from church and social repression. In the US, her perception of the government was repression. The Swedes do not have the tradition of neighbors helping neighbors…which she thinks is one of the essential characteristics needed for survival in our rapidly disintegrating world.

      The other interview was a Silicon Valley dropout talking about Plan B. Plan B is a sort of Santa Fe Institute approach to developing a way of life which does not assume that the current suicidal way of life in the rich countries is the only way of life. It shares with the Bateson methods the notion that Plan B has to be multifaceted and primarily a learning experience guided by analogies and evolution.

      Albert Bates notes that Al Gore has finally mentioned carbon farming as a possible strategy. Think about the difference the conversation over the last 30 years might have taken if we had used a Warm Data or a Plan B approach rather than a laser focus on emissions and national targets and commitments. As Greta’s speech points out, the climate problems are not going to be resolved by national commitments….and I would add nor will all the other limitations to growth.

      Don Stewart

  43. It seems to me that Britain, like other countries, needs an opposition party which speaks up for the poorest, the least fortunate and those ‘struggling’ in the middle.

    It doesn’t need a London-centric Labour party which puts an ideological agenda foremost, but neither did it need a ‘New’ Labour party that bought into neoliberalism and privatisation. What Labour needs now is to find a leader who bears little resemblance to Jeremy Corbyn, and even less to Tony Blair.

    • Any ideas Tim who that person could be.

      As I type there’s a debate on Breakfast TV about whether Labour should elect a female leader.

      I agree that we need a strong opposition to speak up for the groups you’ve mentioned. I wouldn’t want to experience the Conservatives going to far right.

    • No, but there are certain selection guidelines, initially negative, that I’d follow if it were me.

      First, exclude anyone who was a last-ditch, anti-“Brexit” wrecker. The voters, whether “Leavers” or “Remainers” in the first instance, have now made their anger about this abundantly clear. Those “stop it at all costs” people made their play, miscalculated public opinion, and lost.

      Second, don’t appoint anyone tainted by ‘New’ Labour centrism. Labour needs to be a party of the Left, not ‘Tory-lite’.

      Third, try if at all possible to choose someone who isn’t from London.

      What they really need is a bright man or woman with Left credentials, state-educated, preferably not virulently anti-“Brexit”, and with a traditional Labour background, from the Midlands or the North.

    • And (of course) someone who can read and understand blogs like yours so adjust economic policy accordingly.

      Again on TV this morning there was mention of a post Brexit baby boom. That’s the last thing we need with our crumbling infrastructure and diminishing resources.

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