The Edge of Tyranny

In this essay I outline the crisis we are in, describing the way we got here and my fear for what happens next

In the 1930’s the collapse of a credit bubble resulted in a strong enough economic collapse that there was radical reform of the finance industry.  The reforms aimed to give government stronger control of credit, so that it was used to finance productive investment, rather than speculation on asset values and projected returns. These systems of credit control were steadily eroded from the mid 1950’s on, in large part because they were based on control of capital flows between countries. In practice it was unrealistic to have controls on the primary trading currencies. As the offshore banking of US dollars, in particular, expanded, so too did the opportunity to undermine the controls on credit put in place in the 1930’s and consolidated at Bretton Woods. This in effect gave rise to the low tax, low regulation, high secrecy jurisdictions often based on former colonial islands. This was no accident, but was actively supported by the Bank of England as a means of stemming the decline of London as a financial centre as finance became dominated by the US. In due course this led to the collapse of the Bretton Woods controls on credit, followed by the end of controls on the movement of capital. By the end of the twentieth century all remaining controls on banks were effectively removed as the US and the UK competed for dominance in global financial markets by offering lower and lower standards of regulation.

As regulation declined, speculation increased, particularly in asset values where speculative investment itself was the driver for higher values. The increased availability of credit enabled real wages to stagnate as workers were encouraged to use their income to finance debt to improve their lives, rather than financing expenditure only from income. Combined with other work place changes, this facilitated the decline of unionised labour. The result was a win for capitalism as more people consumed more while feeling richer if they had property investments. In the background however was the need to keep expanding production and consumption in order to enable the credit to be repaid. As the relationship between savings and credit became uncoupled, assessment of risk, rather than the banks’ capital reserves became the factor limiting the expansion of credit. The systems for evaluating the risks associated with financial institutions and their products had been set up when there was a high degree of effective bank regulation. They were and are, not fit for purpose, with the result that the liabilities held by the world’s leading financial institutions are a time bomb.

After the start of the crisis in 2008 there was a push to get banks into a safer condition by insisting on larger reserves on the grounds that governments and their taxpayers could not withstand covering more losses. There was not however a reintroduction of controls on the banks’ ability to extend credit for speculation rather than for productive investment. Once their economies appeared stable most governments affected by the crisis began introducing austerity measures to decrease government spending so as to repay debts, primarily accrued through bailing out banks and providing an economic stimulus to avoid collapse in the early stages of the crisis. The resulting decrease in demand as jobs were lost and wages were pushed down created an environment where investment in production offered low returns. This effectively has left a vast amount of capital and credit capacity, both in the banking system and the predominantly offshore based shadow banking system looking for a home.

Despite the emergence of China, India, Russia and Brazil as rapidly growing economies, there has to-date been no serious alternative to the US dollar as a reserve and trading currency. Investment in US treasury bonds has therefore remained strong, as they provide the only secure and tradable investment for countries running trade surpluses. The high price of oil and gas, in part driven by speculation, has resulted in vast sovereign wealth funds. Together with the funds of other winners from the bubble and its burst this has created a concentration of power within the financial markets that has no morality and no interest in the lives of people. The institutions involved in the management of this money, together with some of the wealthy individuals, appear to be very deeply involved in manipulating the decisions of political leaders throughout the developed world democracies. In the US this has resulted in the formation of highly militarised state with the most obscenely powerful war machine that has ever existed and a vast network of slave prisons incarcerating a greater proportion of the population than any other regime, either now or in the past. The UK is closely bound to this emerging tyranny. With fears that some countries can not meet the costs of their sovereign debts, particularly in the Euro zone where the tools of economic management are restricted, the effect is to undermine totally the ability of our politicians to take steps to write off debts that can never be repaid and to return the economies involved to proper functionality.

What is happening instead is very alarming. Governments fear unrest at home and their loss of power and influence overseas at a time when access to food, energy and other commodities is becoming increasingly competitive. They are not speaking out against the US, but are keen to be seen as on the same side. They are finding common cause with corporations keen to protect intellectual property assets vulnerable to free distribution on the internet (never mind that the value of these assets has been inflated by copyright protection that is not in the public interest) as they explore how to control the explosion of self education that the internet is enabling. To control unrest governments are engaging in inventing enemies and threats so that they can bring in restrictive laws. This abuse of the law reflects the shift of power away from ordinary people and to those who control wealth.

So what happens next? Will the sand castles of finance be washed away by waves of worthless debt and in the chaos that ensues will order be maintained at the end of a gun with the millions of CCTV cameras managing curfews. Will the views and networks we described ourselves by on Facebook become the evidence for our confessions in night courts. Will our release onto cold streets with our clothes stinking of our own piss and shit and our bodies and minds battered be the expression of how benign is the new regime. Will our young people find some pride in their recruitment to serve the nation either in some overseas horror or in creating order through terror at home as we adjust to the new dark age. And God help you if you are different for the compliance of the masses requires the “thank God its not me” sacrifice of some vilified others.

Or are we better than that. Can the meaning of being educated include the ability to challenge this emerging tyranny? Can we make it clear that this future is not and can not ever be an option? Not for you. Not for me. Not for brown people with beards or for people who protest. Not for anyone. Our politicians must understand that they must turn on the rich and their institutions, not on us. We can cope with the hardship, but only if we know that the power is coming back to us and that the systems that are then put in place are the systems we need to be able to look to our future with hope, confidence and pride.