Tony Benn: "What a world we would have created if we had listened to him"

LEAP Chair John McDonnell MP pays tribute to Tony Benn

LEAP chair John McDonnell MP spoke in Parliament yesterday (20/03/14) paying tribute to Tony Benn (click to watch via Youtube).

John, who also chairs the Socialist Campaign Group of Labour MPs (founded by Tony Benn), said:

"I want to go back not to the manifesto of 1983, but to Labour’s programme of 1982, which was the Bennite programme, and virtually all of it was written by Tony Benn. It is worth looking back at what it said. It was absolutely prophetic. It basically said, “We will create a society that is more democratic, more fair, more just and more equal.” How would we do it? Tony’s ideas in that programme were straightforward: we would undertake a fundamental, irreversible shift in the redistribution of wealth and power. How would we do that? Through a fair and just tax system, tackling tax evasion and tax avoidance, taking control of the Bank of England, preventing speculation in the City and the banks because it could be dangerous to our long-term economic health, and creating full employment. That is what he was about. That is what he inspired us to do.

"It is interesting that he said we should invest in housing, health and education; give all young people the opportunity to stay on at school with an education maintenance allowance; and make sure that they had a guarantee of an apprenticeship or training and the opportunity to go to university, not by paying a fee but on a grant. That was his programme in 1982. It was prophetic and years in advance of its time. He said that what we needed to create the wealth was an industrial strategy—a manufacturing base based on new technology and skills. Actually, I remember him talking in one of his speeches about alternative energy sources, well in advance of the debate about climate change.

"He inspired my generation and he inspired generations to come. What a world we would have created if we had listened to him. But more important, what a world we can create now if we listen to him.

"Solidarity and go well, comrade. You made a significant contribution to all of our lives. I hope we will be able to implement the lessons you taught us, when Labour next gets back into power."

The above are extracts from John's speech. Read it in full

Tory home loan bribes 'unwise'

 
by Richard Bagley

Tory Chancellor George Osborne revealed his latest desperate "big idea" for housing today that will see more of our cash used to bribe banks into lending to people who can scrape together a mortgage deposit.

He plans to gamble £12 billion on high-risk 95 per cent loans where the state will act as a guarantor.

That means we will pick up the tab for some of the loss in case of a default.

Mr Osborne claimed following talks with construction firms that the extension of the Help to Buy scheme was "about getting behind those who aspire to own a home."

It will cover houses priced up to £600,000 and will only help those wealthy enough to save a 5 per cent deposit.

With average house prices at around £150,000 in Scotland and Wales - rising to a whopping £454,000 in London - people in the two nations would need at least £7,500 in cash to qualify for the mortgages or over £22,000 in the English capital.

The government's obsession with fuelling the housing market even drew criticism from Bank of England chief Paul Tucker.

He described the scheme as "unwise" in the long term because of fears that it will help reinflate a housing bubble that has left hundreds of thousands packed into expensive private rented accommodation.

Construction union Ucatt general secretary Steve Murphy accused Mr Osborne of "fiddling round the edges of the housing crisis.

"If the government wants to begin to solve both issues then they need to be investing and building social housing which will get skilled workers back to work and will also provide homes for the millions of people who are currently in ina
dequate accommodation."

Left Economics Advisory Panel co-ordinator Andrew Fisher ridiculed the Chancellor's announcement.

"After three years of economic failure, Osborne's great new strategy for growth is a house price bubble," said Mr Fisher.

"The Help to Buy Scheme is an admission of political failure and of the continuing fragility of UK banks.

"This is nationalising the risk and privatising the profits again - a bank bailout by stealth."
He added: "The solution is not subsidies for the big construction companies instead of the banks, but for councils to borrow and build to meet local need."

This article appears in today's Morning Star

Mervyn King’s rosy recovery prediction means little for a shattered nation

Prem Sikka

The outgoing Bank of England governor Mervyn King has presided over a huge economic crisis. His parting gift is the claim “a recovery is in sight” that the UK might achieve economic growth of even 1% this year. Despite this, the GDP will still be less than the 2007 figure.

Don’t be in a hurry to pop any champagne corks, because the assumed economic recovery is not what it seems and is unlikely to be sustained. It has been achieved through quantitative easing, printing money as old-fashioned economists used to call it, to the tune of £375 billion. That is equivalent to about £16,000 per household.

This money has been added to national debt – the only thing that citizens seem to own these days – but has not been used to restructure the UK economy or start new industries. Instead, it has been mainly given to the banks and they have used it to bolster their balance sheets and pay high executive salaries.

The plight of ordinary people has been getting worse. UK unemployment is rising and the official count now stands at 2.52 million. Nearly a million young people aged 16-24 are unemployed, taking the rate to a depressing 21.2%. The number of young people on zero hour contracts has doubled from 35,000 in 2008 to 76,000 in 2012. Zero contract hours are jobs which provide no guarantee of regular work or pay and have become the preferred mode of employment for some 23% of UK employers. Many miss out on rights such as sick pay, pension and paid holidays. Many firms and even charities and public sector organisations are adopting zero hour contracts.

Large sections of the UK population are wracked with insecurity. Since the 1980s, the governments have sought to weaken and destroy trade unions. In 1979, some 13.2 million UK workers, or 55.4% of the workforce was in a trade union, but by 2011 this declined to just over 6 million workers or 23% of the work force, compared to 69.2% in Finland, 68.4% in Sweden, 66.6% in Denmark and 54.4% in Norway.

In the absence of countervailing power structures, workers' pay has been ruthlessly assaulted. In 1976, wages and salaries paid to employees, expressed as percentage of GDP, stood at 65.1% of GDP. Now it stands at barely 53%. The plight of ordinary people is made even worse because the above statistics include the rewards lapped up by executives. The rates of corporate profitability are at historically high.

Wealth has been sucked upwards with the aid of state policies. Corporation tax rate has been reduced from 52% in 1982 to 21% for 2014. The top marginal rate of income tax has declined from 83%, in 1979, to 45%. Despite the recession, the rich are getting richer. In 2012, the richest 1000 people, representing just 0.003% of the adult population, increased their wealth by £35 billion to £450 billion, enabling them to fund political parties and shape public choices.

It is misery for ordinary people who have borrowed £1.423 trillion, equivalent to the GDP, to maintain a decent living standard. Thousands of people have become victims of the payday loans industry which does not shy away from charging interest at the rate of 4000%. Some 13.5 million people, including 1.8 million pensioners and 2.5 million children were estimated to be living below the poverty line and with a deep austerity programme these numbers will increase.

The number of people relying on emergency food handouts, simply to survive, has trebled to 350,000. People are facing massive hikes in the price of electricity, gas, water, transport and other essentials and simply do not have the financial capacity to take any further hits. One survey has suggested that an increase in monthly bills of just £99 will prove to be disastrous for a large number of families.

The above sketch of the social landscape is a million miles away from the rosy picture painted by the Bank of England. Equitable distribution of income and wealth is a key requirement for any sustained economic recovery, but it is not on the agenda of any major political party. Some may be happy to gather the crumbs of economic recovery; but most of us will simply be asking, “what recovery?”

• This article first appeared at The Conversation

Pushing on a piece of string

The Funding for Lending Scheme (FLS) published its quarterly results yesterday. Announced at the 2012 Budget and established in August, the scheme aimed to boost lending by effectively subsidising it - £14 billion has so far been given to the banks.

In total £70bn is being made available to banks at reduced interest rates to lend on to small and medium-sized businesses, as well as individuals.

However, results announced yesterday for the last three months of 2012 show that bank lending fell by £2.4 billion. So despite giving cheap money to the banks, lending fell why?

The answer is simple: demand. With the average wage growing by just 1.3% in the last year - and inflation at 3.3% - people's living standards are falling, and have been for over four years now. You can supply as much cheap credit as you like, but if there's not sufficient demand then it's just pushing on a piece of string.

As I told the Morning Star:

"When people's incomes are being constrained and job insecurity remains there is no confidence to borrow money, even at marginally reduced rates.

"Likewise businesses know that consumers are spending less and are not borrowing to invest in expanding their operations,"

Consumer spending in the retail sector fell 0.6% in January from December which itself saw a 0.3% fall in sales. The January 2013 figure is also down 0.6% from January 2012. With wages lagging inflation a sustained upturn is highly unlikely to materialise.

That's why it's encouraging that members of the PCS union have voted to strike - primarily over pay - but this needs to be widespread and result in inflation-busting pay awards to boost demand.

Even some Tories are reaching the conclusion that the supply-side is not the problem. Step forward the Mayor of London's new economics adviser Dr Gerard Lyons, writing in the Telegraph today:

"The economy is suffering from a lack of demand. There needs to be more spending by the Government on both infrastructure and construction and people and firms with the ability to spend need to be given the confidence to do so"

On the business side, some have pointed to statistics showing that the number of small business loans rejected by the banks has quadrupled since the crisis - they say this is evidence of unmet demand. That may be true to a limited extent, but it ignores three salient factors:

1. Businesses are now making more loan applications to cover (what they hope are temporary) shortfalls, rather than to invest
2. Banks, whose reckless lending practices played a major role in causing the crisis, are now more rightly more cautious
3. The same business plan in 2006/07 at a time of high employment and rising real wages was a lot more attractive to invest in than it is in 2012/13

I expect that lending via the scheme will pick up marginally in 2013, as from the low base borrowing at reduced interest rates will be more attractive to some businesses and to some people. However, increases in FLS lending are not likely to be enduring until something happens to increase demand.

Bankers try more of the same to solve crisis

From the Morning Star

Alarmed Bank of England policy-makers pressed the red button today and printed another £50 billion to try to boost the struggling British economy.

The bank's Monetary Policy Committee voted to increase the quantitative easing programme from £325bn to £375bn in a desperate attempt to drag the country out of a double-dip recession.

It held interest rates at a record low of 0.5 per cent.

They took the decision amid signs that the economy deteriorated in June, with the construction sector in reverse and the services sector suffering its worst performance for eight months.

The bank said the decision to pump more money into the economy came as Britain's output had barely grown for a year and-a-half amid signs its main export markets are slowing.

Left Economics Advisory Panel co-ordinator Andrew Fisher said: "The use of quantitative easing is based on the assumption that our economic system is in crisis due to a lack of available credit.

"But the economy does not suffer from a lack of credit - it suffers from a lack of demand.

"Unemployment, underemployment and wage constraint have all produced a situation in which living standards are falling.

"The Bank of England's now £375bn quantitative easing programme has clearly not been used to extend credit to meet any growing demand.

"Instead, the banks have used the extra liquidity to speculate in derivatives markets and to invest in safer foreign markets. It's good for the banks, but bad for the UK economy."

TUC leader Brendan Barber added: "This will only stop things getting even worse, not kickstart the economy."

Quantitative Easing isn’t working

There is an economic crisis, yet those who advocate quantitative easing as a solution have misunderstood both the nature and the magnitude of it. This blog has consistently criticised Osborne's austerity programme and his evidence free belief that the public sector has been ‘crowding out’ the private sector.

Now I want to look at the Bank of England’s monetary policy: quantitative easing.

Quantitative easing (QE) is often referred to as ‘printing money’. In fact it is more accurately described as giving banks cheap credit (see BBC guide to QE). The use of QE is based on the assumption that our economic system is in crisis due to a lack of available credit (a credit crunch) and a lack of lending.

The same intellectual malaise is evident in the ‘soft Keynesians’ who advocated bailing out the banking system, but now reject an economic stimulus. Their unspoken slogan is ‘save the banks, fuck the people’.

These people failed to foresee the crisis, and now fail to offer viable solutions for resolving it – in fact (if one assumes their policies are advocated rationally) they seek to make it permanent by institutionalising declining real pay and hoping the private sector will magic some jobs soon (crowding out theory)

There are several collective nouns for this group: Chancellors, Treasury ministers, leading economists or business leaders.

Today the economy does not suffer from a lack of credit. It suffers from a lack of demand. Unemployment, underemployment and wage constraint have all produced a situation in which living standards are falling.

Separately, the government has massively cut its capital spending, sucking further billions out of the economy.

Vincent Cable whinges that the banks are not lending to small businesses yet why would they in a climate of falling demand, and wider financial uncertainty? Regular pay is increasing at only 1.1% per year, outstripped by inflation at over three times the rate. It is no surprise that retail sales volumes fell 0.8% in February 2012 (incorporating a 1.5% decline for non-food items).

Some, to make the case that QE is necessary, have pointed to statistics showing that the number of small business loans rejected by the banks has quadrupled since the crisis. This ignores two very salient factors:

1. Businesses are now making more loan applications to cover (what they hope are temporary) shortfalls, rather than to invest
2. Banks, whose reckless lending practices played a major role in causing the crisis, are now more rightly more cautious
3. The same business plan in 2006/07 at a time of high employment and rising real wages was a lot more attractive to invest in than it is in 2012/13

The real need for the UK economy is not more credit, but more demand –and that means putting more not less money in people’s pockets. It would mean doing the exact opposite of what George Osborne is doing – redistributing £30bn from benefits and tax credits into the pockets of businesses via tax breaks. It would mean ending pay constraint and reversing the VAT hike (a tax on consumption). This could be funded by reinstituting the 50% rate and closing down on the loopholes used by the super-rich and big business to avoid their obligations.

Meanwhile the Bank of England’s now £325bn quantitative easing programme has clearly not been used to extend credit to meet any growing demand. Instead, the banks have used the extra liquidity to speculate in derivatives markets and to invest in safer foreign markets.

This is not to say quantitative easing is always a bad policy. It’s not, but in the current climate it has long outlived its utility. Part of the problem is the limited policy options open to the outsourced (independent) Bank of England and the lack of any coherent strategy from HM Treasury.

Instead of botched austerity, we need investment based around a new industrial policy to create jobs in sectors that meet people’s urgent needs, including housing, energy, and transport.

King: Recovery will not happen soon

From today's Morning Star by John Millington



Bank of England governor Mervyn King admitted today that the economy would not recover to pre-recession levels for at least the next three years.



Mr King gave a damning assessment of the economy at a packed press conference in London, claiming that it was vulnerable to "headwinds" from enormous debt overhangs from public and private debt.



He also warned that despite any countermeasures taken by the government, Britain would remain vulnerable to fluctuations in energy and other import prices.



"The outlook for growth in the world economy has deteriorated and, largely as a consequence, near-term growth prospects at home are somewhat weaker," he said.



"The intensification of sovereign fiscal concerns has been associated with renewed funding stresses for banks which are contributing to high borrowing spreads, tight credit conditions for households and smaller companies and exceptionally weak credit and money growth in the UK."



The Bank of England governor also said that the euro-zone disaster in recent weeks had raised challenges for Britain.



"The greatest risks to the prospects for global demand come from the euro area and the substantial challenges faced by several member countries as they seek to ensure the sustainability of their fiscal positions and preserve the stability of their banking systems," he said.



Slashing growth forecasts, Mr King said that inflation was likely to hit 5 per cent by autumn and not reduce by 2013 at the earliest.



"Inflation has been pushed up by rises in energy and import prices and the increase in the standard rate of VAT," he added.



Mr King also said that Bank of England monetary policy could do "very little."



In a stark omission, Mr King refused to speculate on the prospects of a double-dip recession and added living standards would only be squeezed further if import and export prices rose.



Leap co-ordinator Andrew Fisher said: "Demand has been suppressed by unemployment, falling wages of those in work and consumer inflation.



"Until those issues are addressed - and there is no prospect of that from this government - then the crisis will continue and exacerbate.



"Politicians are proving themselves entirely powerless in standing up to those destroying our economies - the speculating financiers, bankers and corporate executives hiking prices to maintain profit margins."

King's speech wins Oscar for half-truths

As everyone who buys their own food and fuel knows, price rises are accelerating. Even in the unlikely event that the revolutionary uprisings in the Middle East and North Africa don’t push oil prices even higher, inflation in the UK is shooting past 4% and heading towards double that by the middle of the year.

The supermarkets which control 75% of groceries, have already doubled the inflation coming through the commodity markets. They’ve pushed the price of processed food up by as much as 6.5% as they try to protect their profits from falling demand.

As the world has seen, when rising prices push food beyond reach even the most autocratic governments feel the anger of the people.

Inflation is just one side of the global crisis. It is the direct and inevitable result of desperate attempts by governments and central banks to reverse the implosion of the global financial system in 2007-8. They poured in trillions of dollars, pounds, yen, and yuan, hoping to restart lending through commercial banks that they had rescued with money borrowed in advance – without asking – from billions of ordinary people, their children and grandchildren.

It was clear from the outset – at least to some – that the growth needed to repay the debt will never materialise. But they had to try. So another solution to the worsening debt crisis is now in play – higher taxes and cuts in government spending which have already provoked social upheaval throughout Europe.

Now the reality is hitting home. Mervyn King, governor of the Bank of England, told MPs yesterday:

The research makes it clear that the impact of these crises lasts for many years. It is not like an ordinary recession, where you lose output and get it back quickly. We may not get the lost output back for very many years, if ever.

And, he added something that should strike fear into the parliamentarians:

The price of this financial crisis is being borne by people who absolutely did not cause it. Now is the period when the cost is being paid, I'm surprised that the degree of public anger has not been greater than it has.

Maybe King is thinking of joining the national demonstration called by the TUC for March 26, which looks like turning into the Britain’s very own Day of Rage. King told the Treasury select committee that the billions spent bailing out the banks and the need for public spending cuts were the fault of the financial services sector. And so he’s now proposing that rather than rescuing ailing banks, ways should be found to allow them to fail, albeit gracefully.

But the bankers’ banker is only telling half the story, or at best one side of it, to shield the real villain in all this – the capitalist system of production for profit. This is the elephant in the room that few people want to speak of. Certainly not the TUC nor Ed Milband and his let's-build-a “prosperous capitalism”-party which we wrote about yesterday.

For decades, global growth of the capitalist economy was only made possible by an expansion of credit many times greater than the new value generated. It couldn’t last. When the limit was reached, meltdown took over. Then everything that was done to try and solve the crisis by treating its symptoms only made it worse.

Growth has been replaced by recession, and everything and anything that is done to try and deal with it just inflames the people affected most. King wonders why people are not angrier and out on the streets like the workers of North Africa. Don’t worry Mervyn. The rage is building and when it blows it needs to be directed not just against a few bankers but at the crazy capitalist system as a whole. At that point, you will be out of a job!

Gerry Gold
Economics editor
www.aworldtowin.net

Beware the mea culpas of the Central Banks

It seems to be fashionable now for leading figures inside central banks to issue mea culpas. Their statements are along the lines of: perhaps the bank bailout was wrong; the taxpayer shouldn't have bailed out the banks.

Yesterday the Deputy Governor of the Bank of England, Paul Tucker, surprised a few people by saying "something has gone wrong with capitalism, with the very heart of capitalism". After the bank collapse of 2008 that can hardly be argued. However his remedy is that banks must be allowed to fail for capitalism to "work".

Tucker is not coming over to some sort of progressive anti-bank position or becoming an advocate for regulation. Quite the opposite, he is echoing his counterpart on the Federal Reserve's FOMC (the US equivalent of the Bank of England's MPC), Charles Plosser, who epitomises the increasingly vocal, laissez-faire camp, which calls for an end to an active monetary policy to support economic recovery.

Appropriately enough, Plosser was speaking in Chile (petri dish of Friedman's 1970s free market disaster) on Monday. It was the usual mystification thesis of the 'invisible handers': nothing can be planned, the market moves in mysterious ways, there is no alternative; and other total blather. Here's an excerpt:

"Successfully implementing such an economic stabilization policy requires predicting the state of the economy more than a year in advance and anticipating the nature, timing, and likely impact of future shocks. The truth is that economists simply do not possess the knowledge to make such forecasts."

Well free market economists don't. Hence why Plosser was completely taken by surprise by the credit crunch of 2008.

What underpins these public statements from Tucker and Plosser is not a mea culpa on behalf of the banking sector, but actually a coded hands-off warning: State intervention is out of fashion now, because it bank regulation is now on the agenda and because the rest of the economy might demand government support.

The Morning Star today quotes Professor Roger Seifert and me in response to Tucker's comments yesterday:

Professor of Industrial Relations Roger Seifert said banks should be nationalised but the state would have to play an increased role in the long term to "regulate banking behaviour."

"The short-term position would be to nationalise failing banks permanently then use them to encourage behavioural change in other banks through more progressive employment and lending policies, linked with community and government projects," he said.

Left Economics Advisory Panel co-ordinator Andrew Fisher welcomed Mr Tucker's acknowledgement that "something had gone wrong with capitalism."

But he added: "To let one of the big banks go bust would see millions lose their savings and tens of thousands lose their jobs. The Labour government was right to step in and nationalise. However, with that nationalisation should have come democratic public control with fair rates for savers and borrower alike and investment targeted at creating sustainable jobs.

"While Tucker recognises the inherent flaws in the finance capital system, his free-market solution is the exact opposite of what any socialist would want."

Left economists say low interest rates is right

From the Morning Star
Monday 10 May 2010
by Louise Nousratpour

Left-wing economists have welcomed the Bank of England's decision to hold interest rates at record lows as policymakers weigh up the impact of a eurozone bailout and a hung parliament.

The Bank's Monetary Policy Committee voted to hold rates at 0.5 per cent and left its £200 billion programme to boost the money supply unchanged.

The widely expected decision came as European leaders agreed to prop up the euro and prevent Greece's sovereign debt crisis from spreading - while talks over a possible coalition in Britain continued following last week's indecisive election.

Despite worries over inflation, the current political and economic uncertainty is expected to reinforce the MPC's "no change" stance as Britain makes a fragile recovery from recession.

Left Economics Advisory Panel co-ordinator Andrew Fisher said: "With personal insolvencies and bankruptcies at record levels, and home repossessions continuing, the Bank of England was right to keep interest rates low.

"Raising interest rates now would hit the poorest hardest."

Mr Fisher warned against raising interest rates to combat inflation, arguing that the government should instead suppress gas and electricity prices, which would benefit the poorest members of society.

"This would be best achieved taking the utilities into public ownership to directly regulate prices," he said.

Rate-setters have not changed policy since November - and are unlikely to until the scale of government public-spending cuts can be felt and the economy shows signs of stronger growth.

Mr Fisher argued that the Bank "should not be looking to economic growth figures, eurozone fears or inflation spikes when judging interest rates, but at personal debt and mortgage defaults."

Labour MP "staggered" at secret funding for banks

The Governor of the Bank of England, Mervyn King, has today admitted that he lent Royal Bank of Scotland and HBOS £61.6bn in secret emergency funding in autumn 2008. Labour MP, and LEAP Chair, John McDonnell said he was “staggered” at the revelation.

John McDonnell MP, LEAP Chair, said:

"I am staggered at the affrontery of the Governor of the Bank of England to risk £61bn of public money covertly, and without any accountability to Parliament.

"At that time I expressed the concerns about the instability of a number of financial institutions and called on the Government to nationalise to stabilise, in order to plan the long-term rebalancing of our economy. This view was derided by the Chancellor and opposition parties but we now know the Government had pumped into these banks enormous sums of taxpayers’ money, seemingly without any enforceable conditions.

"This is no way to run a finance sector, an economy or a government."

Also see Paul Mason's report on BBC Newsnight on 24/11

Mutualisation the solution to 'out of control' banks

Leaked plans by the Tories propose to abolish the FSA and hand banking regulation to the Bank of England. Meanwhile, the Government continues to fail to intervene to control the banks that have been nationalised, and to rule out any major steps on regulation.

John McDonnell MP, LEAP Chair, said:

"The banks remain out of control, with the City ratcheting up the prospects of a return to the casino banking, sky-high bonuses, and all the associated risks to the stability of the economy.

"We cannot leave the control of our banks in the hands of a small group of speculators and a Government unwilling to act decisively.

"It is time now to develop new forms of public ownership and to bring forward proposals to mutualise the banks to develop a co-operative model of accountability."

25/06 update: Prem Sikka has an excellent article on Guardian Comment is Free on the Banking Crash and Lack of Reforms.

Interest rate decision

The Bank of England Monetary Policy Committee has just decided to cut interest rates by 0.5% to 1.5%. Below is the press release that we issued in advance of the decision:

PRESS NOTICE:

FOR IMMEDIATE RELEASE:

Bank of England and Government dithering has deepened crisis
. . .The Government must now nationalise the banks . . .

The Monetary Policy Committee of the Bank of England will decide later today whether to cut interest rates further. The decision is expected at about midday. LEAP is arguing that the Government must stop dithering and should nationalise the banks.

John McDonnell MP, LEAP Chair, said:

"In this crisis, the Government and the Bank of England have consistently been behind the curve. The Bank of England was slow to cut interest rates and the Government's fiscal stimulus was pathetic.

"The quantitative easing has been delayed and ineffectual, and the Government is now dithering over the necessity of taking control of bank lending and borrowing. The country cannot wait any longer, we have had nine months of indecision."

Andrew Fisher, LEAP Director, said:

"Whatever decision the Bank of England makes today will be largely irrelevant.

"Until the Government takes control of the banks this crisis will continue to grow - meaning more bankruptcies, more unemployment and more repossessions."

-Ends-

Read John McDonnell's comments in full

Time to Nationalise the Banks Now

Government policy on banks branded "failure" . . . Bank of England "dithering"

The Government's policy towards the banks has been branded "a failure" today as more bad economic news floods the media - from falling stock markets to rising repossessions.

John McDonnell MP, LEAP Chair, said:

"Despite all Government attempts to stimulate the economy, all the evidence points to failure. The billions in bailouts have done little to increase lending, and we are witnessing a startling rise in home repossessions.

"The Government now needs to be more forthright and move towards the full nationalisation of the banking sector to be run in the interests of the British people.

"We can't afford any more dithering by the Bank of England. We need an immediate and substantial cut in interest rates. It is now time for the Government to take back control from the dithering Bank of England."

-Ends-

Time to cut the losses

In the last week, stock markets the world over have been showing the classic signs of bipolar disorder, but in the most concentrated form. Euphoric, manic, hysterical highs followed by the deepest depression. Much of it, say some of the commentators, is internally generated, the result of speculators feeding off each other’s panic.

But as everyone else knows, there are clear external causes. The soaring highs are the direct result of a renewed series of injections, by governments and central banks, of credit – the same stuff that the world’s financial system became addicted to and wholly dependent on during the “long boom”. It doesn’t help. Yesterday, the two largest Swiss banks UBS and Credit Suisse were obliged to seek new capital in a further attempt to prevent them turning into non-banks, ceasing to exist, becoming, as Monty Python had it, dead parrots. When the Swiss banks fall, there’s nowhere safe left for your money.

The stock market lows – a five-year retreat reached in the UK and back to the 1980s in Japan – are the result of an avalanche of indications that the recession is not only with us, but will last for years. Giant corporations are bankrupt, jobs falling off a cliff, house prices dropping like a stone. Even the price of oil has fallen back, as the speculators move their money elsewhere. China, which has powered the global economy, is cutting back and shutting down factories.

The Brown-led government, which has taken on the role of street-level pushers, are looking to raise the money that they are guaranteeing to the banks by issuing more debt to the investment markets. But there’s a limit to what can be raised. The rest will come from an assault on government spending, public services, the elimination of the legal guarantee for public sector pensions, and last but not least, any measures to deal with climate change – irrespective of Miliband the Younger’s pronouncement on an 80% emissions reduction by 2050.

Early signs of the brutal reality that will result came from the news that under Brown and Darling’s control, Northern Rock has been foreclosing, repossessing and evicting at double the rate of the rest of the industry, as detailed in Andrew's post on Wednesday. So much for the benefits of “nationalisation”.

Brown knows that the bankers’ bail-out won’t stop the rot, so he’s promoting a restructuring of the world’s economy, along the lines of the Bretton Woods arrangements that laid the basis for the post-war recovery and the boom years. The Financial Times says this is premature, adding:“Lest we forget, Mr Brown himself was in charge of the IMF’s ministerial steering committee for a large part of the past decade and yet signally failed to implement the ideas he is parading. During this time, it was repeatedly explained to him that every early warning system devised by the finest minds in international economics, including those at the fund, either predicts crises that never arrive or misses those that do.”

The paper of business is correct. The basis for restoring stability after a decade and a half of the Great Depression wasn’t Keynes’s proposals, but the massive destruction of surplus productive capacity and human lives during the second world war.

A much easier, less destructive way out of the mess would be to cut the losses, admit the capitalist system is bankrupt and make the transition to a new kind of economy altogether. One based on not-for-profit production, social ownership, self-management, planned production for need, distributed via an intelligent market informed by democratic processes and expressed preferences. That’s what we will be discussing tomorrow at the Stand Up for Your Rights festival. Be there!


adapted from www.aworldtowin.net

Cutting interest rates a vital first step, says LEAP

On Thursday 9th October the Bank of England's Monetary Policy Committee will meet to discuss the whether to keep interest rates on hold at 5% or to cut them. The Left Economics Advisory Panel (LEAP) is calling for a significant cut. This follows a call from the TUC for "aggressive" rate cuts.

John McDonnell MP, LEAP Chair, said:

"To avert the prospect of the longest and deepest recession in living memory, the Government must reassert democratic control of economic policy by overriding the Bank of England Monetary Policy Committee (MPC) and cutting interest rates significantly, if it does not act to cut rates hard and fast.

"The remit of the MPC should be widened to advising on the wider economic health of the country, but the Bank’s policy role should revert to being one voice among many others to be taken into account when democratic Government, not bankers, determine our economic policy."

Graham Turner, economist and author of The Credit Crunch, said:

"Following the nationalisation of Bradford & Bingley, the case for an early and decisive rate cut in interest rates is overwhelming. The collapse of the Congress bailout and the persistent upward pressure on borrowing costs have also heightened the need for swift action from the MPC.

"Repeated liquidity injections are not the answer to the current banking crisis. The core problem is one of solvency, not liquidity. By failing to cut interest rates, the MPC has ensured the housing market will continue to slide into 2009, endangering more banks.

"And unemployment is set to rise sharply. Wages have not responded to the spike in headline inflation, as feared by some members of the MPC. With the honourable exception of David Blanchflower, the MPC has overstated the second-round effects from rising energy prices, exposing their lack of understanding over how globalisation has fundamentally changed the world economy.

"Furthermore, the sharp downturn in the Industrialised West has spilled over into emerging market economies, precipitating steep declines in commodity prices. Inflation will fall quickly next year, and could even be back within target by the mid-point of 2009. The Bank of England should not wait for confirmation of this swift reversal. It should act now in accordance with its mandate.

US Bail Out Failure Demands Decisive Action From Gordon Brown

Labour MP John McDonnell, chair of the Left Economic Advisory Panel, has called for decisive action from Gordon Brown in face of failure of US bail out plan.

John said:

"After Bradford and Bingley and the failure of the US bail out plan we are facing further collapses and a long and deep recession. Simply addressing this crisis in Britain on a case by case basis means that the economy is staggering from one crisis to another into recession.

"The root cause of this crisis is the Government's policy of allowing the housing market for over a decade to be used for profiteering speculation rather than to provide homes. The resultant crisis of confidence in the financial institutions has created a self-fulfilling crisis of liquidity.

"Gordon Brown must take decisive action before it is too late. I am calling upon him to bring the home loans industry under pubic ownership and control and override the Bank of England Monetary Policy Committee to cut interest rates decisively."