Monday, October 12, 2009


The Depression Chronicles – 7: Britain's going broke

Britain is going broke. How do I know this? Well, the same way I knew that Citicorp was strung out like a junkie­­­­­—the country hopes to sell off a major chunk of assets. Sixteen billion pounds worth ($25 billion) to be exact, according to Prime Minister Gordon Brown. He described it as a "portfolio of non-financial assets," which is reasonable since Britain has no financial assets.

Of course this fire sale cannot be acknowledged for what it is—a desperate act in a desperate time. Instead it is couched in the rhetoric of privatization and the supposed superiority of the private sector—

Downing Street said the sale marks the beginning of a radical assessment of what other non-core government business activities can best be done by, or in partnership with, the private sector.
So what "non-core"  businesses does the British government hope to divest itself of? These don't look like "non-core" businesses to me.

More than a few Conservatives would like to see the government toss the BBC into the bargain, which would really put the capitalists in charge, though it must be said that the BBC tries not to offend them unduly as it is. And here are some other government holdings that might conceivably go on the block. Will the government sell off Scottish water and the Royal Mall?

The £16 billion the government is hoping to raise cannot possibly keep the wolf from the door for long. The Chancellor (equivalent to the U.S. Secretary of the Treasury) has estimated that Britain will need to borrow £175 billion ($276 billion) over the next two years.

Why is Britain so broke?

Everybody of course knows by now of the meltdown of the "financial services" industries—the banks, the hedge funds, and the mortgage lenders. But the public is little aware of just how much tax revenue was generated by that sector of the economy. In my humble opinion, one of the principal reasons both the U.S. and British governments turned a blind eye to the many violations of existing regulations—regulations that might have forestalled the meltdown—was that both governments were benefitting so magnificently from the tax receipts. London became a capital of world finance, and billionaires were a dime a dozen. Unfortunately the cash cow has now run dry.

But the fiscal problem that the press mostly ignores is the British involvement in Afghanistan. I wrote in 2004, long before the financial crash—

Wars are, regrettably, expensive. If they weren't, I'm sure we'd engage in them more often. Or maybe just launch ourselves into one very, very long (perhaps even indefinite) war, as George Bush has proposed.

Without the promise of treasure at the end to make it "pay for itself"—as Deputy Secretary of War Paul Wolfowitz suggested of our Iraq invasion, once we got the oil flowing—the cost of the entertainment works out to be exorbitant. Even when you're dutch-treating with friends.

And that is what has happened to the British—they are "overextended" ....
While the U.S. was squandering lives and treasure in Iraq, Britain has been doing likewise in Afghanistan. There was simply nothing that then-Prime Minister Tony Blair wouldn't do in return for a smile from his pal George Bush.

Last week we were told that—

Brown had a video conference call with U.S. President Barack Obama to discuss Afghanistan on Thursday, with Brown keen to see a full Afghan security force trained up by the end of next year to ease the burden on the NATO coalition.
For Britain that burden is primarily fiscal.

How bad off is Britain?

I could bore you (and myself) by looking up statistics on British unemployment, the housing market and capital flight. But an announcement this past Friday was so stunning, at least for this reader, that I don't believe we need to go into all that.

The British Territorial Army (TA) is Britain's largest military reserve force and celebrated its 100th anniversary last year. It operates somewhat like the American National Guard. According to the Ministry of Defence, 6900 TA personnel were called up for the invasion of Iraq and some 1200 continue to be deployed in Iraq, Afghanistan and the Balkans.

So how 'bout this bit of news? Michael Evans reports

The Territorial Army has been told to stop training for six months to save millions of pounds from the Army’s budget because of growing financial pressure on the Ministry of Defence.

Drill-hall instruction, weekend exercises and all other training associated with the TA will stop, cutting costs by about £20 million.

The Land Force budget of the Army has been cut by £54 million, and the TA is the first to be affected. The huge cut in TA spending will mean that the weekend warriors will not be paid. “They are paid to go training, and if there is no training, they won’t get paid,” a Ministry of Defence official said.

A spokesman insisted that the savings and the ban on training would not affect the TA’s operational contribution to Afghanistan, where about 500 Territorial soldiers are serving. There are also ten TA soldiers in Iraq.

One MoD official said that care would have to be taken to ensure that the temporary suspension of training did not undermine the TA’s role in Afghanistan. The official also said that, given the budget restrictions, the training suspension could last longer.

Can you imagine the outcry in the U.S. if it were announced that National Guard training would be suspended for six months? And then there's this
Skint defence chiefs plan to axe 900 cops who safeguard top secret bases in a drastic bid to save money.

The revelation comes two days after The Sun exposed plans to halt all Territorial Army training for six months to save money.

Top brass are being forced into the desperate cost-cutting measures because they are so short of funds for the war in Afghanistan.

Last night there were calls for Defence Secretary Bob Ainsworth to admit exactly how deep his budget black hole is.

The 3,600-strong MoD force is a civilian constabulary, separate to the Redcaps and other Services police, with 86 units across the UK.

As well as guarding nuclear sites it investigates serious crimes at military bases.

Desperation is the order of the day in Britain, and you should expect more of the same for the foreseeable future.

Related posts
What's up in Britain? (9/23/04)
Lie of the Day: The financial system is stabilized (11/24/08)


Sunday, October 11, 2009


Historical Note of the Day: The end of American dominance

The economic crisis has accelerated China's emergence as a center of power, and in Pittsburgh the leading industrialized countries agreed that decisions on global economic issues in the future would have to include important players among emerging economies such as China and India.

Speaking from Istanbul, World Bank president Robert Zoellick said the crisis had brought the curtain down on the unipolar world that followed the collapse of communism 20 years ago.

—Antoaneta Bezlova reporting in "China stands firm against US market scramble"

Related post
Scariest Headline of the Day (2/02/09)



Academic Overdose of the Day

He was studying Classics and English at Oxford University's Lady Margaret Hall when he was discovered by a fellow student on Thursday. —story from the BBC

Either topic can be fatal but taken together no one could be expected to survive.


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