Monday, June 1, 2015

Misrule Britannia

When I moved back to the UK two years ago after living abroad for a while, nobody could accuse me of not knowing what I was getting into. For quite some time pundits in the collapsosphere have been calling out the UK as one of the riskiest countries in which to live, right up there with Japan. Not only do we have a nation that is heavily over-populated with respect to its resource base, but one which hosts one of the world's major world financial viper pits. It's a nation where Arab playboys drive gold-plated Ferraris around the gentrified streets of London while snot-nosed urchins everywhere else go to school without eating breakfast. It's a nation where an unelected old lady in a £300 million hat recently sat on a throne and managed to keep a straight face while announcing her government's plans to slash money for the poor. Basically it's a nation engaged in a war of attrition between those with wealth and those without.

But something in the air has changed since the recent election in which David Cameron's Tories won a majority in the House of Commons. Within days - unshackled for their former collation with the moderating hand of the Liberal Democrats -  there were announcements of plans to walk away from human rights treaties, to impose a 'snoopers charter' of surveillance, to further slash welfare spending, push through the TTIP 'trade' agreement, ramp up fracking, bring back fox hunting with hounds. The Left have been howling in pain ever since.

Although all this was to be expected of the 'nasty party' the one thing that nobody seems to be talking about is how the nation itself will manage to survive as a modern state given the, ahem, challenges it faces. The three main immediate challenges, as I see it, come from the realms of finance, energy and politics. Failings in each one of them alone could prove disastrous, but it seems as if we will get to witness all three calamities occur simultaneously. 

Let's take finance first. 

I've been trying to get to the bottom of what the UK's debt/deficit position is. Mention 'the deficit' and most people emit a strangled howl of indignation. "Don't you know the deficit is a tissue of lies fabricated by the right wing who want to impose Dickensian conditions on the poor?" they ask. Granted, it doesn't seem fair to cut the benefits of society's most needy while simultaneously heaping more money up at the other end of the spectrum, but that wasn't the question. That's simply what failing states do - the more powerful grab what they can at the expense of the less powerful. It's all there in the history books. The next act usually involves pitchforks. 

But this time is different, they argue. Money can now be created by magic, and all we need to do is do whatever it is that those clever folks at the Bank of England (or Bitcoin) do to create more of it using their computers. And, bingo, then we can simply spend it on 'making things great again'. The country can continue to produce 'services' again, everybody will have a decent standard of living once more and we will be back on track to that future of driverless cars, space missions and living to 150.

Money might not seem important if you think it isn't important, but that doesn't alter the fact that throughout modern history there has not been a time when money is not considered important. Especially to creditors, of which the UK has a lot. So, in a kind of back of the envelope way, I decided to try and get a grip on how much debt the government owes. It seems that the total debt is about £1.5 trillion, and the annual deficit is running at about £107 billion - or over £2 billion a week. At that rate the proposed 'austerity' of £12 billion will thus be used up in six weeks. This doesn't matter, according to the economists in the mainstream media, because Britain's economy is doing so well that the annual deficit will be wiped out by rising tax receipts in a couple of years. 
Yet tax receipts from oil and gas have fallen by about 75% since 2008, and will probably drop to zero when North Sea oil and gas stops flowing completely in a couple of years' time (still no mention of this in the media...). And tax receipts are falling as a) more people are in lower-paid jobs and/or falsely counted as employed because they have been forced to declare themselves self-employed b) the larger companies have had their corporation taxes cut and can avoid paying tax entirely if they have savvy accountants.

VAT receipts are flat as most consumers have maxed out their credit cards and run out of spending power. The only way they can rise is if people take on EVEN MORE personal debt - which a lot have actually been doing (currently average personal debt is running at an all-time record of 172% of income, according to a PwC report). But personal debt needs to be repaid one day, and with falling real incomes and plenty of hidden stealth inflation (e.g. food items getting smaller, durable goods getting shoddier, hidden charges becoming more unavoidable etc.) that will become more difficult.

Moneyweek's take on the debt situation

Future projections of the debt/deficit all presuppose a 'healthy' and growing economy. This seems very unlikely IMO given that a financial 'accident' is likely to happen at any moment. And all the while the structural deficit grows larger as the population ages, annuities reach maturity and the bill for the NHS soars. In this context GDP figures don't really mean anything useful: the economy might be improving but it's not the economy that most people ordinarily live in. Plus, any downgrade of the economy by ratings agencies caused by - say - a fracture of the UK, or a severe credit event, will have a knock-on effect on the government's ability to borrow cheaply  and we will simply end up paying the interest on the national credit card, while the capital debts piles up. The interest on this debt alone already costs us £55 billion a year and that's with interest rates at near zero.

All in all, it's difficult not to conclude that the UK is insolvent. But, in any case, perhaps that doesn't matter because this brings me onto the political aspect of the crisis: perhaps there soon won't even be a UK (after all, what do you call a bunch of small countries that are not united?). Since Scotland got royally shafted in their Independence referendum they replied by booting out practically every MP from a Westminster party and instead elected Scottish National Party members to speak up for them. The upshot of this is that David Cameron wants to press ahead with swingeing austerity measures (which, looking at the dire financial figures will actually have to be FAR worse than most people imagine) - but the Scots say they won't accept it north of the border. It's difficult to imagine all of us in England and Wales living in Third World conditions while the Scots keep handing out brown envelopes of cash to their citizens, and people accepting that as fair.

So, sooner or later, Scotland may well get independence, which means that others might want to follow suit. All of a sudden everyone seems to be talking about breaking up. UKIP and most Tories want us to break away from the EU, Scotland, as previously mentioned, will probably go for a messy divorce (and take a large chunk of GDP with them as they leave), London may want to declare itself a 'city state', northern England might want to join Scotland in getting away from the southerners - even Cornwall is starting to get a bit itchy. 

Given that the UK's finances are one big Ponzi scheme (what does the country actually produce these days that has a physical presence?) any political rupture could bring down the house of cards. Parliament, in any case, is almost paralysed as the Tories actually only won by a slim majority and will have trouble passing any contentious legislation. Who knows, perhaps even faraway Greece could provide enough turmoil to shatter the status quo should its amputation from the EU cause death judders. There's a simmering tension and people are already angry enough ... what happens when they get even angrier?

Finally, we have the energy conundrum. I've been saying now for at least two years that my guess is that we will see some kind of restriction on the sale of oil and/or petrol in the UK in 2016. I still have 18 months left to see if my prediction will come true, but at the rate things are going it seems like it has a good chance of doing so. As previously noted, North Sea oil is facing a precipitous decline. That decline is accelerating in step with the lower oil price, as new projects are not begun and old ones are mothballed due to high costs. Hundreds of oil workers have been laid off in Aberdeen (and the Scots think they can avoid austerity by using their oil money ...).

Not to worry, old chap, says the media. Don't you know that we'll be getting LNG from America soon, and fracked gas from beneath our very own land?

That's the standard response, whenever energy shortages are mentioned, which is rarely. Of course, it's quite ludicrous that either of these schemes will ever happen in the real world. To unlock the British shale gas they would need to turn huge areas of the country into industrial wastelands - huge areas that currently have millions of people (many of them wealthy) living on them. This, in a country where planning and conservation laws are so tight it's a major achievement just to put up a sign lest it spoil the character of the area. And let's not forget that millions of people are implacably opposed to fracking - to the point where they would be willing to lay down their lives to halt the drillers. Heck, this must be the only country in the world to employ magical defence against frackers (it's working, so far). 

Let's add ISIS into the mix. At the rate things are going in the Middle East, if things carry on as they are in Yemen and Saudi Arabia, there could be a major conflagration. It's not hard to imagine oil installations set on fire and the price of crude heading up to $200. This, ironically, is one way the fracking industry and the North Sea could avoid immediate bankruptcy. Not that anyone would be able to afford to fill up their cars any more ...

So where, exactly, will the UK get its energy from in the future? There are a lot of cars and trucks here. There are millions of shops and offices and ports and sports grounds and malls that all need lavish amounts of energy to keep functioning. It gets cold here in winter and old people are already dying from exposure inside their own homes - what will happen to them all as the inevitable energy crisis begins to bite?

So, as nice as it would be to get a bag of popcorn and watch this spectacle unfold from afar, I find myself up there on the stage. Still, not to worry, as we say ...


  1. Presumably you'll get some of your energy from fracking the remnants, and coal. But it takes a lot of lending to allow the higher costs required to be ignored in the near term.

    1. ... and lending will be hard to come by. I'm sure the gov will prop up the oil and gas industry until it physically can no longer do so.

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  3. Excellent as always Jason. You might appreciate the following from the comedian/realist Frankie Boyle. I usually prefer systemic explanations for the unfolding crises, but in the case of the UK: "What if David Cameron is an evil genius?"

    1. Funny!

      Or maybe not? John Michael Greer wrote an essay a while back asking if America was being ruled by genius Satanists. I don't think he was joking, either.

  4. Yuh.... In Canada, I'm stockpiling filling carbs, macaroni and rice; and tinned foods; individual products are higher every time I go to the food store: "Special this week!", the signs clamour, for more on special than they were at regular price last week; looking for sources of twigs and branches on public land when heat stops coming out of the wall when I push a button; waiting. We're all waiting. (Signed, Tech-Sullen.)

    1. Food is still very cheap for us here in the Western world, even if it feels like it is getting less affordable - there's a long way to go yet.

      Good luck finding those sticks. Why not try a bit of guerrilla coppicing next winter?

    2. There is still a lot of slack in the economy, and the people who can't afford food now can't afford it because of political decisions taken over the years that were not inevitable that led to expensive housing and not enough well paid jobs.
      If the new government thinks it can force housing associations to sell up at a discount, then why not private buy-to-let landlords, the aristocracy, even the Royal Family. That's you included Prince Charles, who is preaching environmental ideas while building out-of-town supermarket and housing estates on greenfield sites.

    3. Hey, hey, hey! I've just been contacted by a Land Trust to which I'd applied and not heard back from and they said, "Come on d-o-ow-w-n!" So I'll be coppicing in earnest before next winter. (Did you ever hear the one about the two maggots? They were fighting in dead Ernest.) And now I'm being silly. It's this little buzz of hopium finally. (From, Tech-Sullen.)

  5. Excellent article, you asked, "what happens when they get even angrier?"

    Nothing while the Telly is still working...

    1. True. It's amazing how television controls people's minds.

  6. So, why did you move back here and not somewhere nice,

    1. Exactly - I wrote about whey I chose to move to the UK here:

      The UK might have its problems - but show me somewhere that doesn't.

  7. Hi Jason,

    I believe he was joking, but also not joking around at the same time. Comedy provides a safe stance from which a person can point out the very necessary and sometime very obvious goings on that can be perceived as being funny. Actually if it wasn't serious, it would be funny... And round and round it goes!

    I read your post a few days ago and had to go away and ponder the many meanings in it. All I could come up with was that: if it is unsustainable then sooner or later it can't be sustained.

    Monetizing debt is the option that governments appear to take when there are no other easy options left, and that is what I see going on all over the place. It is mildly disturbing and if you think about it a whole lot, then you'll realise that whilst that has been going on, wealth inequality has been steadily rising - what does this tell you about the brittleness of the people in power? The other conclusion I can take from that it is that money is not ending up in your hands, but it is actually going somewhere and is being reinvested in the speculative economy. The whole process has a finite shelf life and I could tell you more about the process but have no desire to depress you.

    I am actually really interested in your charcoal creating process. How is that going? Have you started to build a local market for the product? That opportunity is very interesting. Have you gotten your head around the issues relating to coppicing? I'm slowly experimenting with the trees here, but have multiple problems to deal with as well relating to bushfires.



    1. Hi Chris. When I read it I thought he was joking too, but then when he replied to a number of the comments it occurred to me that he was only half-joking. I think his point was that the policy makers are acting in a way that is the diametric opposite of what Jesus taught - so even if they are not card-carrying members of the anti-Christ fan club, the forces of Satanism are winning anyway. But that's just my take on it.

      Yes, monetising debt is a pretty futile policy when EROEI is declining. That's the key thing that most people fail to grasp. There is talk now of abolishing physical money altogether, with various cheerleader nations leading the charge (such as Sweden and Denmark). I can't see it happening in the UK as the pound sterling is an invincible magical token, for many.

      As for the charcoal - I'll be ramping up production shortly. To be honest, I'm kind of lurching from one semi-crisis to the next at the moment, but what I'm really trying to focus on is mushroom production and am at present in the middle of an application to get support for this venture. I'll say more if I'm successful :)

    2. Hi Jason. I hear you about the semi-crisises. Sending you positive energy... Hope it all works out, things have been going wrong here too, but you tackle each problem as they arise -or move onto the next one and admit defeat. I'd be very interested to hear about your mushroom ventures. I tried them here but the spot became too hot and sunny over summer and the whole process stopped, but before that they were producing very well. I kept one end of the log suspended into a bucket so that water was available.
      Cheers. Chris

    3. Thanks, Chris. It's nothing serious - it's just hard work trying to make ends meet sometimes, juggling several jobs along with everything else can be confusing for simple folk like me :)

  8. Jason,

    When not given the context of the percentage of GDP, absolute values of things like debt, however the reality is much less scary. Take the interest payments as a percentage of GDP ( ). Well within historical norms, and less than in the 80's. While you might be right when you say that "GDP doesn't mean anything" regarding living standards, it DOES mean something when compared to debt load, since both GDP and debt are denominated in pounds. It is also completely incorrect to state that the UK could ever be 'insolvent'. Pounds are not a finite resource, and if it wanted to the government could print away the debts. Now, this would have consequences for inflation and so on, but that's hardly the biggest problem facing us these days.

    Anyway, you go on about the debt, but why not mention who owns it? Well, turns out it's mostly banks, building societies and pensions ( ). Why? Well, this is because government debt is just net private sector savings. This is a consequence of the national accounting identity, and is definitionally true. The savings glut and the global debt bubble are the same thing. Besides which, neither private sector nor public sector debt will ever be paid off in the aggredate, new contracts will roll on and roll off. I might pay off my mortgage, but when I do that more people will be taking one out. As population and income increases, so (naturally) will debt, both private and public, as we build more houses, schools, train more teachers and so on. So long as debt is used productively, it can be a useful tool. I don't believe it's necesarilly good or evil, but is perhaps sometimes dysfunctional.

    Now, we probably do currently have an issue with too much private debt in the UK, as people need to repair their balance sheets. However more government debt might well be the solution to this. Not that it's always the solution to every problem, nor always the right thing to do, but in the situation after the financial crisis (highly leveraged private sector in balance sheet recession) more government debt to allow the private sector to net save and pay down debt would have been helpful.

    I think concerns about debt really detract from the larger problems, to be honest. As you correctly identified, there are significant security risks facing oil production in the middle east, combined with the current price collapse meaning that oil production might put in another peak similar to that of 2005 in a few years. Our electricity supply is in fairly poor shape, and the next 5-10 years will probably have some interesting surprises thrown our way. However I'd like to challenge the notion that we're one of the riskiest countries to live in right now. Much of the middle east has fared vastly worse than us over the early part of this century, same is true of sub saharan africa. There's probably some fragility in the system, the whole korowicz supply chain nightmare thing, but there are undoubtedly worse places to be.

    1. I find it really amazing that people can insist that governments can 'just print money' without there being any serious consequences, and that debt can go on rising forever and is relatively unimportant. We have all sorts of debt: government, personal (private) and company - but the only form of debt that really matters is ecological debt. And this last one is the one that is almost always overlooked by people speaking economic jargon.

      All of the other types of debt assume that we can carry on building up ecological debt without ever having to pay it back.

      As for being in one of the riskiest countries, I'm merely expressing what other people have said. Of course, being in Yemen or North Korea would be worse by a long margin, but I think we are just talking about too-big-to-fail capitalist industrialised nations here. Personally, I'm not worried. I just think a lot of other people should be - and they're not.

    2. Remember when the last coalition government came up with the idea of biodiversity offsetting? So if you wanted to fell an ancient woodland for your shiny new out of town retail park, you could plant more trees to offset the biodiversity loss.
      They don't get it, this ain't the Bullingdon Club where you could get really drunk and do a bit of criminal damage, as long as you left a large cheque to cover it.

    3. That's the problem with monetising everything and treating nature as a commodity. People just don't get it ...

    4. I am not sure I agree with your 'who owns the debt?' analysis Sam. Most money is created by banks when someone takes out a loan. It used to be that when you wanted a mortgage you were borrowing money that was someone else's savings, but that is no longer true. The banks create the money for your loan and when you pay it off that money disappears again. Positive Money are far better at explaining this than I am, so I suggest watching a few videos here In essence that means that the bank hold our debts, but they are not net savings - the debt mountain is far bigger than that. the debt is just a few numbers typed on a computer screen and it is only our collective belief system that is allowing this to continue.

  9. Good article Jason, I see you have an eye for drama with the choice of pictures taken. How is life treating you these days?

    I will try and reiterate some of the points raised in the article and explain in my own words why debt does matter and it is not something that can be resolved by monetising debt. To understand the problem we need to understand that money is largely created through the creation of debt via fractional reserve banking. Most of this debt is generated through the commercial banks and NOT the central bank so whatever money printing the central banks does will only have a limited effect on the overall economy.

    Since debt is money and money acts a claim to wealth then by logic having a greater amount of money means you need more wealth for money to retain its value. Therein lies the problem when people say rising debt levels don't matter. As debt levels rise then there is an increasing pressure to use more resources as consumption increases. Consumption must rise as money must maintain a rough equilibrium with amount of resources (wealth) consumed. If this balance is not kept you would get inflation or deflation.

    In any case as the level of consumption rises at some point the rate of consumption will exceed the environments capacity to recover so you will get a build up of ecological debt. This debt manifests itself through topsoil depletion, declining water tables, reduced biodiversity, declining fish stocks, ocean acidification etc.

    These problems cannot be resolved by printing more money as this just pulls the lever to increasing consumption further which is always the number one goal of the system. Remember more money supply means cheaper money which leads to more consumption.

    We should also note that the existing economic system always place profits and growth above all other measures so even if we had an attitude to save the environment this objective will be undermined at the crunch time when a choice to save the environment or maintain growth is required. This decision is somewhat understandable if you consider that the economy we know today would die if it contracted for a sustained period of time.

    1. Hi Monsta. I'm doing alright, thanks - can't complain. Hope all is well with you too.

      Great answer, BTW. The colossal fight that nobody wants to talk about is that between expanding the economy through money printing and consumerism on the one hand, and reducing the damage we are doing to the biosphere on the other. The two are incompatible, but we still hear nonsense claims about 'green capitalism', as if that were possible.

      I guess we'll just find out the hard way.

  10. Thanks Jason, you have made lots of interesting points. I am also appalled by the tories brazen plans, though I can see a few backfiring.

    Scotland should do alright after the oil and gas dries up, because they also have a large chunk of the UKs renewables. If oil and gas prices go up, the energy from renewables will be worth more too. Having a stable energy source will mean that Scotland will be more attractive than London in an energy shortage situation. Plus Scotland is less densely populated and without austerity measures they may have a more stable society - that's why I signed the petition for Northern England to become part of Scotland.

    The deficit could be paid off with a wealth tax or by closing the loopholes for large corporations. Funny that austerity is the only option on the table.

    I agree with you, that I doubt we will be fracked. That alone must make the UK a safer haven than large swathes of the US. (Try watching the Gasland movies if you are not convinced)

    As much as I love the first image you used (it is so well framed with the row of council houses in the background and the suspense of the child hovering above the perfectly still water), I think you have chosen images to shock us. But look at the energy and life that these children have, despite the poverty surrounding them. They can't be written off, just as the future is not set in stone. I'm glad you are a voice for a different way of life.


I'll try to reply to comments as time permits.