Tsunami that threatens to engulf us

In 1902 Winston Churchill said, “A politician needs the ability to foretell what is going to happen tomorrow, next week, next month and next year. And to have the ability afterwards to explain why it didn’t happen.” Half a century after saying this and having twice crossed the floor of the House of Commons, he was able to add, in 1952, “It is better to be both right and consistent. But if you have to choose – you must choose to be right.”

Winston was more than a politician and would admit that he wasn’t always right. He was derided many times for his outspoken advocacy in the face of opposition. He was a statesman with an independent viewpoint founded on king and country. I would add that a good politician should also have common sense and wisdom, and have real-life experience. The CDP bedrock is founded on the Church’s moral and social teaching, which is much derided. We are truly independent, neither to the left or right, nor in the centre or any other labels that critics might stick on us. Morals and religion do not feature in other manifestos. It is not our intention to evangelise, only to set a good example.

Our defence of family and marriage requires the moral renewal of our society. In setting an agenda in pursuit of a Christian Democratic Resurgence we will be derided and labelled the New Puritans. So what? Every political party claims to be for social justice and many socialists claim to act for the common good, but this is just spin and sound-bites. They probably do not know that these concepts derive from Catholic Social Teaching, and if they do not acknowledge the right to life that upholds the human dignity of each individual from conception to natural death, then they are hypocrites. These modern progressive politicians follow a route to university, reading politics economics and philosophy; then party worker and ministerial adviser; and then find the safest possible constituency seat to ensure a long tenure in Parliament. We seek local candidates who are representative.

It follows that for us it is not ‘the economy – stupid!’ But, the economy is the issue that will provide the vehicle to establish our credibility. When the Great Crash, we foretell, happens the remainder of our agenda will be taken seriously. I should make it clear that there are no prophets in our ranks and we do not have the resources to pay for original research. We use other people’s research, operating on the sponge principal, soaking up information from think tanks, with predictions and prophecies in the mix and a dash of common sense. We then squeeze the sponge and distil the outcome to produce our own distinctive position. When it comes to prophecies we take the approach of, believe it when it happens, but when it does happen we start to take the source more seriously.

With regard to the Great Crash we have proposed policies that will possibly avert it, if people take the threat seriously and act differently. Unfortunately there are no signs that banks, politicians and economists, and the G7 are looking that far ahead. Like all these crisis and catastrophe it will originate in the United States and quickly spread across the globe because we are now so interconnected. Experts and specialists know this and have issued warnings. Even lay commentators on business and economic websites are voicing concerns.  But nobody says when.  Nobody believes the official line and there is no confidence in the ruling elite to take the difficult but necessary measures that will avoid a major collapse of the world economy. The UK needs to put its affairs in proper order if it is to withstand the Tsunami that threatens to engulf us.

There is misplaced confidence.  Cameron and Osborne state that we have turned the corner and gone from rescue, to recovery, to revival.  This is not true and they are not telling us how bad the situation is.  They avoid using the discredited words of a former Conservative Chancellor, who claimed to have seen the green shoots of recovery.  Any politician who tells you that we are over the pain hump with the worst behind us is lying.  The light that they see at the end of the single track tunnel is the headlight of a huge US locomotive rushing towards us and the engineer is asleep at the controls.

We are told that the UK and US economies are powering ahead of the other leading economies, but we are not told at what cost.  In the UK it required the Government to rescue Northern Rock and take substantial new share holdings in Lloyds and RBS groups, with new money.  The US sacrificed Lehman Brothers which precipitated the financial crisis and was probably not necessary because following liquidation it looks like all the creditors will be paid in full.  Both have followed the same track to rescue banks that acted irresponsibly and often criminally.  With interbank lending frozen and the perennial problem of bank liquidity (converting assets to cash) they resorted to quantitative easing (printing new money) and an assets purchase programme, which would drive down the cost of borrowing.  This new money was used to purchase Treasury bonds from banks and financial institutions, these being held by the central banks along with the interest due on them paid by the governments [that is the tax payer as governments have no real money of their own].  In the UK the Bank of England has made cheap money available to the banks, meaning that they do not have to rely on savers, which has destroyed the savings of prudent depositors.  Both have continued to hold down base lending interest rates, for an unprecedented length of time, which are artificially low.  The UKs £0.37 trillion QE pales into insignificance compared to the $4 trillion QE of the US Federal Reserve, which was in three phases from 2008 to 2014.  Worryingly the last phase also included purchase of mortgage-backed securities – that is those same dodgy derivative junk bonds, comprising mortgage loans that will never be repaid – which flooded the international markets and created the damage for the banks that held them and who have had to write them off as a loss.  It is a myth that we live in free market economies.  They are rigged and they are not fair.

All the measures outlined above are supposed to be temporary, have created higher levels of national debt, are intended to be reversed and if not contain the seeds of the Great Crash.  Economics is taught as if it was a science.  Carry out a scientific experiment to the same formula and the result will be the same each time.  Try repeating an economic experiment and the outcome will be different because it involves the actions of people and they are unpredictable.  The same goes for politics and there is uncertainty in applying a philosophical approach.  It is ironic that professional politicians study these nebulous subjects.  They excel in the magicians art of smoke and mirrors.

There are mixed views about the effectiveness of QE.  Its use in Japan has been declared a failure, although in desperation and arising from twenty years of stagnation, the exercise was repeated following the millennium.  Richard Werner, the inventor of QE while in Japan in the 1990s, states that it was never intended to be used by governments and was intended as a tool for the private sector.  He also has concerns about how the reversal of QE will be handled.  Simply put, if a corporation issues more shares its liquidity will be improved but its share price will be lower.  If, when it has too much cash, it buys its own shares back there will be less on the market and the price will increase.  This is an economic formula that does seem to work, but perversely and unpredictably people make a subjective judgement about how much they are prepared to pay for a particular share and an objective judgement that the physical assets set the value of the company and thus the lowest price of the share.  More cautious cynics might judge the value of the physical assets to be the highest share price.

With an increase in money supply the same principle should apply.  The wonder is why hasn’t the value of the $ plummeted?  It is the world reserve currency and used in many sectors, such as commodities, metals, oil and aerospace.  So when the US prints more money, which lowers its value, the suppliers in these sectors complain that they are the losers.  There are calls for an independent alternative world trade currency.  Countries, such as China and Russia, could refuse to accept the $; a consequence of this would be the collapse of the mighty $, but no one wants to take the risk.  Asia holds 60% of US Treasury bonds and they will experience heavy losses if they do not prop up the $.  Except perhaps Russia, in retaliation against the trade and other sanctions imposed under the leadership of the US government, will trade oil for gold.

The national debt of the US is now $18 trillion and of the UK is £1.4 trillion and rising.  The UK also has a similar amount of unfunded future commitments.  While ever the UK runs a deficit budget the national debt will increase and as interest rates increase the proportion of the budget allocated to interest payments on the debt will increase.  The only major economy running a surplus budget in Europe is Germany, who for historical reasons opposes QE due to their experience of rampant inflation.  While we cannot influence events in the US there are measures that can be implemented in the UK.  There is a real danger that QE will not be reversed.  What should happen is that the asset purchase programme changes direction with the sale of the government bonds previously purchased by the Bank of England.  The essential part is that the proceeds of the sale – the money – then goes into the furnace, reducing the money supply and increasing the value of the £.  This should reduce the cost of imports and lower inflation.  The Bank of England has appointed a deputy governor on £250,000 a year to manage the exit from QE, which means that alternatives are being considered.  One idea is for the bonds held by the Bank of England [one-third of all bonds issued] to be destroyed, thereby reducing the national debt and the debt interest payments, but the value of the £ is lower and imports cost more which is inflationary.  The real danger is that neither of these options is implemented, with unknown consequences.

I hope you are keeping up.  The questions that need to be asked of the party leaders are 1) When will you reverse QE?; 2) Which method will you use?; 3) What will the effect on the economy be?

The moderators in the leaders debates for the general election should be asking tough questions but don’t hold your breath.  Prior to the last general election the leaders were questioned about their plans for the economy as set out in their manifestos.  When the Governor of the Bank of England said that the situation was much worse than they realised and tougher action was required, none of the leaders modified their proposals.  On a matter of such importance they should have been cross-examined.  The moderators did not and the voters were left in the dark.

In 2007 with the run on Northern Rock bank, and based on the information that we had soaked up, we correctly called the financial crisis to happen in 2008 and the subsequent recession.  Ours was a lone voice.  We identified the underlying problem of debt, making it clear that if government increased debt they would make the situation far worse.  It has and it has lasted longer than necessary.  We also spotlighted France as the next crisis with an impact on the Euro.  The problems in Portugal, Italy, Greece and Spain have hidden the fact that the real problem for the Euro is in France.

Since we predicted the forthcoming Great Crash, many respected commentators in the national press have started to refer to the 2008 financial crisis as the Great Crash, when it was no such thing and in no way comparable with the 1929 Wall Street Crash.  They also call the subsequent recession the Great Recession, when anyone who lived through the 1930s knows better.  The measures used to deal with the crisis are described as austerity (the long austerity), when our parents and grandparents knew real grinding austerity; and baby boomers (especially those in the 1940s baby bulge) were born into and remember shortages and rationing, a real housing crisis because bombed houses needed to be replaced, and the unavoidable necessity to live within your means, with tough credit controls.

Economists have identified cycles of fifty years and recessions on average every fifteen years.  These are not unavoidable natural occurrences.  They arise from the economic models that we live under.  We can break these cycles by adopting fairer systems and legislating against usury.  People will have to reassess their attitudes to a great many things.  Following on from that they will have to modify their behaviour.

The prediction of the 2026 Crash was made prior to the 2007 bank run and on the basis that the 2008 financial crisis would be minor compared to the Crash.   The crisis was mishandled, with the Bank of England, financial regulators and government caught by surprise and frozen into inaction.  A case of turning a crisis into a catastrophe.  Another prediction, from the US, pointed to 2008 and was based on demographics – baby boomers reaching 60.  We in the UK can add 20 years to that calculation as baby boomers are healthier and more active [welfare orange juice and baby milk?] than their predecessors, but by age 80 will start putting pressure on health and care services.  On a positive note, these pensioners are and will still be paying income tax, and have thereto been less of a burden on the NHS.

Using the recession cycle indicates 2028 as a danger year and the 50 year cycle would point to 2029.  There are worrying similarities with the lead up to the 1929 Wall Street Crash.  With low savings interest rates and businesses having to pay high interest rates there has been a growth in corporate bonds paying 9% pa + and they are very attractive to savers, but risky.  It is only a matter of time before some smart guy points out that you can borrow, on a personal loan, £15k at 4.5% and use it to buy corporate bonds with a return of twice the interest.  You then repay the personal loan when the bond matures or you sell it.  There will be mis-selling and people will forget to read the small-print.  There is a mis-match with loans for a period of 5 years and bonds maturing in 10 years.  When it comes to selling the bonds will there be a market for them?  The demand for these bonds prior to 1929 was so high that some dodgy corporations were formed solely for the purpose of issuing bonds that people bought with borrowed money.  Prior to 2008 the investment institutions ran out of mortgage loans that they could use as security for their derivative junk bonds, where they sliced and diced and packaged good and bad loans.  Mortgage lenders were encouraged to make loans to people who would not normally be considered a good risk.

History repeating itself?  Added to which our banks remain unreformed.  Last year a leading pension fund manager predicted a stock market boom over the next 15 years, which would benefit pensioners.  If that proves to be right, bust follows boom starting in 2029.  Our calculation is that the Great Crash will be in 2026, 2028 or 2029.  We are planning on the basis that it will happen in 2026 but hoping that we get three extra years breathing space.

The one thing we can be sure about is that our political leaders are clueless and short-sighted – the Unready.


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