Japan, China: the sun also sets

"Red sky at morning, sailors take warning"

Pic source: Wikipedia

I've just read Michael Crichton's "Rising Sun." A warning (hotly resented by some) about the hollowing-out of America's economy by Japan, it was published in 1992 just as the latter began its long stall.

And then the same happened all over again with China, which is seemingly following the same trajectory.

Underneath both is the unchanging process in the USA (and UK): loss of manufacturing capacity, trading away its intellectual property rights, ballooning debt, frozen real hourly wage rates, bright youngsters looking to get rich quick in law and finance rather than actually making anything.

Cui bono? And where is this tending for the West?


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Puppet politics

I keep asking what exactly is meant by "Left" and "Right", which are used more as labels in political argument to cut discussion short before it becomes intellectually awkward. Here's a suggestion:

I think we need to move on from the Left-Right way of seeing. Tony Blair could just as easily have stood for the Conservatives that his father had supported. It is about power, and both sides of that specious divide love it.

Immigration suits the businessman - cheap labour supports his profits while an expanding population creates additional demand. Ironically the Socialists may be cutting their own throats by going along with it, as the economically poorer countries from which many of the immigrants come have traditional ideas about family and community and may agree with British Conservatives when the latter preach that you should look after your own and not have to pay higher taxes for layabouts to whom you are not related.

As inequality of income and wealth increases, the most fortunate are in a position to detach themselves from their native lands and float about the world like the inhabitants of Laputa, escaping taxes and regulation and increasingly, using their servants in the political assemblies below to change the rules on both to suit themselves. And of course they are also co-opting the Fourth Estate. I have long said that this nexus of business, politics and the media is becoming the new pan-European (perhaps global) aristocracy. "Bella gerant alii, tu felix Austria nube (Let others make war; you, fortunate Austria, marry)."

I suppose they also hope to escape the dangerous social consequences of the instability they create, but perhaps like the ancient Mayans they will discover they are more dependent on their inferiors than they had assumed.


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HSBC - the shakeup continues...

"Right, that's the building transferred under a PFI arrangement to a trust registered in the Dutch Antilles, the headteacher will in future be paid via a personal services company in Jersey with "salary" deemed as staged loans, and petty cash stored overnight in a Swiss call account..."


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EU debate: JD weighs in

Here is something to think about. On local TV the other day the UKIP candidate for one of the seats up here (can't remember his name) said "Nissan threatened to pull out of the UK if we didn't join the Euro. We didn't join and they didn't leave."

Correct and shows the propaganda machine in action on behalf of the CBI and other business leaders. (*see note below)

The same propaganda is in full swing again about how disastrous it will be if we leave the EU. Are they crying wolf again?

Probably, but there again I started wondering after I read this in last night's paper -
http://www.chroniclelive.co.uk/news/north-east-news/nissan-could-face-battle-investment-9175512

The interesting thing is that Nissan is 43% owned by Renault and Renault is 20% owned by the French State, recently increased from 15%. Apart from the obvious question of why state ownership works in Europe and not in the UK and why we allow foreign state ownership/participation in our railways and power generation etc., my thoughts were that the French government would put pressure on Nissan via Renault to ensure that the cars were built in France should the UK decide to leave the EU. I wonder how many other businesses that might apply to?

Anyway, I think this comment to the article sums up our cynical attitude to politics and politicians-

Dave R • a day ago

Yes lets scrap the EU and go back to having wars instead. they are more fun and cost less, mind we have just finished paying for the last one, so maybe I'm wrong and its cheaper being in the EU.
My thoughts above are based on my personal observations; working for a French construction company in Spain I noticed that the hire cars we were using were all French makes. And specialist subcontractors were brought in from France even though I knew that the Spanish subcontractors were better. The German companies I have worked for do the same sort of thing - they source from their own first before looking elsewhere. (British companies never do that, they will always go for the cheapest option rather than the best option.)
________________________________________________

* Note: I saw Digby Jones on telly a while ago complaining that British people don't speak foreign languages and so British companies lose out because of it. The interviewer didn't ask the obvious question - "How many languages do you speak Digby?"

And it isn't true. The vast majority of British people working abroad can speak the local language. I have even met a few in the Middle east who were learning Arabic not because they needed it for work but because they wanted to learn it.

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Why we SHOULDN'T vote Conservative (just for the sake of an EU referendum)

Influential blogger Richard North thinks our best chance of an EU referendum is to vote Conservative this time. I think he is mistaken.

EU-skeptics like me like to think that if British people properly understood the EU and were given a chance to leave, a majority would vote to take it. So it's easy to be convinced that what we need is another referendum as early as possible.

But everything depends on how well the people are informed. Look at what happened in the 1970s. According to Albert Burgess, the media were carefully steered to foment approval of EU membership:

But how to do it? First, organized breakfast meetings at the Connaught Hotel in London; these meetings were attended by Government Ministers, MPs, the British Council for the European Movement and top people from ITV, the BBC and the national newspapers. At these meetings the media people were persuaded to remove all their front line anti-EEC reporters and to replace them with pro-EEC reporters.

They set up a department in a back room of Chatham House where five people wrote thousands of letters all purporting to come from people like you and me, every letter saying what a great idea this EEC was; but the IRD did not have a facility to distribute them, so they were distributed to the central offices of the Conservative, Labour and Liberal parties and the British Council for the European Movement. They got them signed and sent to the letters pages of the news outlets. By this method they completely skewed the public’s perception of what was best for the Kingdom and themselves and their families.

Well-known author Vernon Coleman says what happened at that time in the Press, in "How The British Media Lied And Tricked Us Into Joining The EU"  - see the "Politics" page on his website here. (Hat-tip to "JD".)

Would we get more balanced coverage now? I doubt it.

Look for example at the strange behaviour of the Mail on Sunday. Followers of anti-EU Peter Hitchens have noted that his regular Sunday column failed to appear yesterday, and there was no explanation why. Hitchens himself tells enquirers on his blog that he is "unable to comment," and has resorted to republishing his anti-Cameron, anti-New Tory pieces from 2010 (here and here) and (today) 2007. I can't wait to see what he would have said in print yesterday if allowed, but maybe we'll never know.

Things often go wrong when you redefine a problem in terms of a proposed solution. Think of the Marx Brothers' "Animal Crackers":

We're getting hung up on "referendum now", but until we can secure fair treatment of the issue over-eager Ukippers will be like turkeys voting for an early Christmas. Voting Tory falls into Cameron's trap, and he'll delight in setting up a sure-fail referendum campaign, with the eager assistance of "it's about leadership, Aleisha" Milliband (see that link from 47:03) and College-of-Europe-graduate Clegg.

Tactical voting is tricky and really if EU-skeptics had never voted for the Referendum Party and later UKIP, I very much doubt that EU membership would ever have registered with politicians as an important issue. And those who compromise their beliefs are compromised in debate when challenged on consistency. I'm still haunted by Steven Glover's Mail article (16 April) in which he says of UKIP's manifesto:

"... this is for the most part a carefully reasoned, practical and candid document. There is nothing remotely ‘fruit-cakey’ about it. It has the merit of being more specific than the manifestos of the three main parties. I am sure many millions of voters would agree with most of it. I certainly do... come May 7, like many millions of others I will be placing my ‘X’ elsewhere without much confidence that my hopes and aspirations will ever be reflected."

I emailed Glover on the 19th, saying:

"Why not vote for a manifesto that is in your opinion practically flawless? You and I are the same age, I believe (b. 1952) and have seen the two major parties ruin Britain between them over more than 40 years. Is it not a good time to vote on principle?"

Alas, no answer yet.

One of the reasons Glover gives in his article is the First Past The Post system and how that affects results, which is I suppose why he and others think we need to vote Tory simply to stop Labour. Yet as Hitchens asserts, there's not much difference between the two and increasing numbers of people hate both, hence the hung Parliament.

The key to unlock this problem is electoral reform - again. Have a look at this startling letter in today's Mail:

If the number of seats in the House of Commons reflected what is predicted about GE votes cast nationally, at c. 11% UKIP would have something like 70 MPs after May 7. And if people thought their vote really mattered, doubtless voter behaviour would change accordingly and maybe the EU-skeptics would have a really major party representation in the HoC. As it is, it's not certain that even Nigel Farage will win his seat (though Iain Dale thinks so - see #13 here).

What would make electoral reform more likely? Yet another hung Parliament, perhaps worse than last time. SNP have been snubbed by Labour, and are themselves snubbing the Tories, though we'll see how their line changes when the results are anounced.

If you must vote tactically, vote in the way that you think most likely to lead to No Overall Control. For if one party can command a majority, we're back to the same old rotten game as before.

But if you vote for what you don't believe in, don't be surprised if that's what you get.

The road to freedom is longer and harder than some of us thought.

And that's just the start. For believers in nation-based democracy, the EU is merely a regional campaign, compared to the issue of global governance and the tsunamis of money and multinational corporate trade that are roaring across the world, smashing down all opposition with no thought of the end-state of the world's economies and polities.


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Yesterday's Men and today's BIG, BIG issue

In the General Election campaign of 1970, Alan Aldridge designed a controversial poster showing plasticine models of the Conservative Cabinet and encouraging the electorate to write them off.

It didn't work. Heath won:

Edition of 20th June, 1970

- and the country lost. But it didn't know it. Ten years earlier, Lord Kilmuir had advised the future Prime Minister:

"I must emphasise that in my view the surrenders of sovereignty involved are serious ones and I think that, as a matter of practical politics, it will not be easy to persuade Parliament or the public to accept them. I am sure that it would be a great mistake to under-estimate the force of the objections to them. But those objections ought to be brought out into the open now because, if we attempt to gloss over them at this stage, those who are opposed to the whole idea of our joining the Community will certainly seize on them with more damaging effect later on."

RESEARCH PAPER 10/79 - Appendix 2 Letter to Edward Heath from Lord Kilmuir, December 1960 [www.parliament.uk/briefing-papers/rp10-79.pdf]

From 1973 on we were in what we thought - what we had been told and assured - was nothing more than a trading arrangement, and Heath had long known to be a glass slope down to European Union.
‎

Edition of 30th December, 1972

So in the Labour manifesto of February 1974, the Leader of the Opposition Harold Wilson said (my highlights):

"The Government called this election in panic. They are unable to govern, and dare not tell the people the truth.

"Our people face a series of interlocking crises. Prices are rocketing. The Tories have brought the country to the edge of bankruptcy and breakdown. More and more people are losing their jobs. Firms are going out of business. Housing costs are out of reach for so many families. The Common Market now threatens us with still higher food prices and with a further loss of Britain's control of its own affairs. We shall restore to the British people the right to decide the final issue of British membership of the Common Market.  

"The British people were never consulted about the Market. Even more, the country was deceived in 1970 about the Government's intentions on jobs and prices. They will not be deceived again."

Hence the 1975 Referendum, by which time Wilson was Prime Minister and was recommending a Yes vote:

"THE NEW DEAL

"The better terms which Britain will enjoy if we stay in the Common Market were secured only after long and tough negotiations.

"These started in April 1974 and did not end until March of this year.

"On March 10 and 11 the Heads of Government met in Dublin and clinched the bargain. On March 18 the Prime Minister was able to make this announcements:

"'I believe that our renegotiation objectives have been substantially though not completely achieved.'

"What were the main objectives to which Mr. Wilson referred? The most important were FOOD and MONEY and JOBS."

Who doesn't want these things? Who can manage without them? Who would have continued reading the pamphlet after this point, if they had read it at all? How many who did, would have teased out the timebomb issues further on in this document, or understood how to weigh them against the bribe-threats of "FOOD and MONEY and JOBS"?

Wilson continued:
 
WILL PARLIAMENT LOSE ITS POWER?

Another anxiety expressed about Britain's membership of the Common Market is that Parliament could lose its supremacy, and we would have to obey laws passed by unelected 'faceless bureaucrats' sitting in their headquarters in Brussels.

What are the facts?

Fact No. 1 is that in the modern world even the Super Powers like America and Russia do not have complete freedom of action. Medium-sized nations like Britain are more and more subject to economic and political forces we cannot control on our own.

A striking recent example of the impact of such forces is the way the Arab oil-producing nations brought about an energy and financial crisis not only in Britain but throughout a great part of the world.

Since we cannot go it alone in the modern world, Britain has for years been a member of international groupings like the United Nations, NATO and the International Monetary Fund.

Membership of such groupings imposes both rights and duties, but has not deprived us of our national identity, or changed our way of life.

Membership of the Common Market also imposes new rights and duties on Britain, but does not deprive us of our national identity. To say that membership could force Britain to eat Euro-bread or drink Euro-beer is nonsense.

Fact No. 2. No important new policy can be decided in Brussels or anywhere else without the consent of a British Minister answerable to a British Government and British Parliament.

The top decision-making body in the Market is the Council of Ministers, which is composed of senior Ministers representing each of the nine member governments.

It is the Council of Ministers, and not the market's officials, who take the important decisions. These decisions can be taken only if all the members of the Council agree. The Minister representing Britain can veto any proposal for a new law or a new tax if he considers it to be against British interests. Ministers from the other Governments have the same right to veto.

All the nine member countries also agree that any changes or additions to the Market Treaties must be acceptable to their own Governments and Parliaments.

Remember: All the other countries in the Market today enjoy, like us, democratically elected Governments answerable to their own Parliaments and their own voters. They do not want to weaken their Parliaments any more than we would."

Fact No. 3. The British Parliament in Westminster retains the final right to repeal the Act which took us into the Market on January 1, 1973. Thus our continued membership will depend on the continuing assent of Parliament.

The White Paper on the new Market terms recently presented to Parliament by the Prime Minister declares that through membership of the Market we are better able to advance and protect our national interests. This is the essence of sovereignty.

Fact No. 4. On April 9, 1975, the House of Commons voted by 396 to 170 in favour of staying in on the new terms.

Note the ultimate reassurance in "Fact No. 3".

And so:

Edition of 7th June, 1975

Forty years on, the 2015 Conservative Manifesto says (contextualising it in a discussion of economic migration to the UK):

We will negotiate new rules with the EU, so that people will have to be earning here for a number of years before they can claim benefits, including the tax credits that top up low wages. Instead of something-fornothing, we will build a system based on the principle of something-for-something. We will then put these changes to the British people in a straight in-out referendum on our membership of the European Union by the end of 2017.

Once again, fundamental democratic issues are blended with economics. And there is some question about the circumstances in which this pledge would be binding. In his speech of 23rd January 2013, Cameron said (my highlight):

The next Conservative Manifesto in 2015 will ask for a mandate from the British people for a Conservative government to negotiate a new settlement with our European partners in the next Parliament.

At present we do not have a Conservative government, but a coalition, and this seems likely to be the situation after next month. And even it there is indeed an in-out referendum, will the people be fully informed of the implications? Will they be bribed and threatened? What will the Press and TV do?

Now here's the big, big issue: we're past the point at which national freedom simply means freedom from the EU. Wilson told us forty years ago:

Fact No. 1 is that in the modern world even the Super Powers like America and Russia do not have complete freedom of action. Medium-sized nations like Britain are more and more subject to economic and political forces we cannot control on our own.

We are now slithering further down the glass mountain, into an era of global governance. International trade agreements and regulation will more and more take precedence over national governments and their courts - and a secretive system of arbitration in trade disputes is bypassing open fora of international justice, so that a handful of firms in London (now taking one side, now the other, case by case) can impose multimillion-pound settlements on the UK and other sovereign nations, to suit the ambition and avarice of multinational enterprises.

To think we are still fighting the EU issue, when an even bigger threat to democracy is at our backs. David Malone ("Golem XIV") makes this clear.

But democracy can be used against itself, now as before: prejudice, misunderstanding, lack of understanding, misinformation, bribes and threats, the jokes of ignorant and partisan comedians, the slurs in the unthinking social media.

Fight, or flight? Are we "yesterday's men"(and women)?


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David Malone, TTIP, TISA and Russian dolls

http://www.theguardian.com/membership/2015/feb/18/guardian-live-what-is-ttip-and-how-does-it-affect-us

Practical example: Raytheon.


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Why the TTIP will end the NHS...

... and much more, including democracy itself:






Q&A, including an idea how to handle the banks with a "depositors' union":




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A child's-eye view of robofascism

The above clip is from a child's game called Raft Wars 2. As with the original, cute little characters (including a baby) bravely battle a series of teams of bad guys.

But one of the teams in version 2 interests me. The bad guys are in blue and labelled "Security" - and not our security, obviously. This team appears more than once in the game, and has a helicopter and several missile-launching drones.

Is it too much to treat this as a sign of the times? More in a moment...

IT'S BEEN 40 years since the William Tyndale School scandal began to brew- ooh lefty teachers and their progressive methods, good job they were smacked down.

Except that such methods were not unique to that school, but were generally accepted and enshrined in the Plowden report. Today even more than then, we are aware of the multiple differences between children in their mental and emotional makeup, not to mention the multifarious traumas that they carry with them because of modern widespread family dysfunction.

A not-terribly-well-written 2008 review of the affair by a retired head (how come so many teachers can't write?) got a riposte from Brian Haddow, the deputy head at the time. He maintains that what made it important to smack down Tyndale was that implicit in a more cooperative learning approach is the principle of active democracy.

Up to a point. Tyndale was a gift to reactionaries because of the intransigence of the leadership. If the latter had taken time to sell their ideas to all those involved, tweak their systems in the light of experience, and soothe those who were upset, the outcome might have been very different. But the British are just as uncompromisingly self-righteous as any other nation - quite possibly we can blame the revolutions and civil wars of the eighteenth century onward, on the pig-headed Puritans that Elizabeth I contained for so long during her reign. So it was "my way or the highway" - and the fragmentation began.

As I recall, the leaks and counter-briefing began with a member of staff who was not a teacher and who didn't feel her views had been valued (some teachers today may find that their TA can be a challenge as well as an asset).

At any rate, Parliament got into the control issue and we now have inspectorate squads of Fault-Finder Generals roaming the country in search of schools to pick apart and justify conversion to the Latest Great Thing: Academies! The business model rules - if by that you understand widening disparity in pay, increasingly high-handed (and venal) management, etc. We've seen it all before in tertiary education.

Returning to Brian Haddow's letter, one of the things he says points the way to the debate we should be having today:

"We are tightly regulated and policed because of social fragmentation and a breakdown of ideological consensus."

I'm not sure when we did have consensus, except in response to the dreadful threat of the Nazis and then the need to rebuild our country after 1945. But economic globalism is driving fat wedges into our population, as billionaire Jimmy Goldmsith warned so clearly in 1994 during the GATT talks (see the interview here). With overpriced assets (especially houses) powered by ridiculous levels of debt, we cannot possibly drop our wages to compete with the emerging economies. The playing field has been heavily tilted towards mobile capital and against much-less-mobile labour.

And then there is identity. I find it really hard to understand why political leaders don't appreciate how much identity matters to people. Yorks v Lancs, Scots v sassenachs, one football team v another - surely it must be obvious that these reflect fundamental instincts that need to be handled very carefully. Yet the EU's insistence on totally unrestricted freedom of movement creates just the sort of strains that its starry-eyed Ode To Joy brotherhood theme was meant to deal with. There is no such thing as a unihuman.

Now since globalism won't work*, it must be made to work, and the hammer to drive the square peg into the round hole is: security.

The "conservatives" (they aren't) with their money-obsession, and the Left with its amorphous goodbuddy dreams are combining to create the conditions for fascism.

Do we really want a world full of robospies and ubiquitous buzzy drones? Do we have to make nervous old ladies check for beardies under the bed? Couldn't we just have national sovereignty and the Rule of Law?
______________

*(Of course, it does work - most for those who matter most - otherwise it wouldn't be allowed.)


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Alabamageddon

"People want to kill somebody, but they don't know who to shoot at" ...

Unemployment a good thing? For economists?

A thought-provoking piece from Mark Thoma, in which he argues that many jobs that have gone deserved to go; it's the creation of new ones that should occupy our minds.

There is a pipe-smoker-in-a-leather-chair comfortableness about this (I'm not sure what the unemployment rate is for economists; should the 10 - 15,000 who failed to predict the credit crunch all be sacked?), but he may be right.

However, the allegedly self-righting mechanisms of the market may not operate quite so efficiently in a single nation's economy when there are other major causes of disequilibrium at work in the world, including quarrelsome international politics and sharp disparities in global wage rates.

An image: picture a man in his study, happily using a tiny screwdriver to adjust the mechanism in a carriage clock, while a block of frozen waste hurtles silently towards him from a passing jet liner.

PS:

Coincidentally: "... if you fail to heed the roar in your ears and fail to look up what will inevitably come, while it may surprise you, does not surprise anyone who has passed sixth grade math." - Denninger

Deflation? You're joking!

Newpaper headlines: we're in deflation for the first time since x years.

Yes, looking at RPI, which takes into account mortgage costs, which have plummeted since the Bank of England cut the rate to its lowest since the Bank started.

No, if you look at non-mortgage costs of living - another newspaper article says pensioners' experience of inflation is something over 12%.

I can't be bothered to find and link the MSM articles. In my view, Guido is right: journalists have become lazy, uncritical copytakers. Now have a look at Zeal's graph of the money supply, the immediate-demand form of which has doubled in 12 months in America.

I still think we're in a sort of re-run of the 70s. Cash will be forced out of accounts and into the market, where it will still lose value, but nothing like as badly as if left rotting in banks and building societies. The Great Theft is on its way.

If you follow Marc Faber, you'll know that he's currently suggesting holding half your wad as cash, since the bubble hasn't really burst yet; but other than that, he's thinking 10% gold and 40% in a combination of resource and emerging market stocks.

The world's average per capita income is $8k - $9k; as globalisation continues the levelling-out process, the East will never be as rich as we once were, but they'll be less poor. For us, on the other hand, this may be the last chance to put something away for our future.

Should we leave the EU?

Is this a fair picture of our relationship with the Far East and Europe? If so, what happens if we disconnect from "ever-closer union?" Wouldn't they just throw away the straw and drink straight out of the glass?

Laptop computer for sale, perfect condition: $10

This report says it's coming. (htp: Upside Trader)

UPDATE: Not so - think $100!

Money and life

The previous post is a summary of Brad Setser's views on China and the dollar. What with the oil price coming down and the trade deficit reducing because of declining demand, it seems reassuring for Americans. But Michael Panzner also returns to one of his themes, the inflationary phase that he (and many others) fear may succeed the recession-depression.

Marc Faber has observed that this is the first time in history that economies around the world are affected simultaneously, since we are now much more inter-connected. So if inflation should take hold, perhaps it will not be fully reflected in the exchange rates - it might be that the dollar remains relatively buoyant against the pound, Euro, renminbi etc.

So maybe the real victims of global inflation, or hyperinflation, will not be this nation or that, but cash savers as a class. They have set aside some of the rewards of work, instead of spending it, and will come back to the cupboard to find it turned half-rotten, as happened in the 70s (if they'd put it in the stockmarket instead, it would only have been a bit mouldy).

How is it that China can award death sentences to those who adulterate milk with melamine, but adulterating the currency - the accumulation of millions of years of human labour - is not even punishable by loss of office? In the year George Washington took Presidential Office, "coining" in England was treason, and perpetrators were accordingly hanged, drawn and quartered (or, in the case of women, burned).

Money is stored life, and devaluing money is stealing life. Next month will be the 20th anniversary of my becoming a financial adviser, and the people I have advised would mostly not bother with investments if only their cash savings could hold their real value. What a scam this all is.

The answer is blowing in the wind

I said on Friday, "I think 2008 will be seen in retrospect as the year that the global balance of power underwent a sudden tectonic shift, from West to East." I forgot to add, "...and from North to South, too"; but Michael Panzner is not alone in seeing America's exclusion from the Brazilian summit as a straw in the wind.

Yet another letter to the Spectator

Sir:

Your leader (“Riders On The Storm”, 1 November) suggests that current investor sentiment is “excessively negative”. That depends upon one’s historical perspective, in both directions.

A reversion to the mean (over the last generation) for UK house prices would be some 3.5 times household income, which on 2007 figures would imply average valuations around £120,000. Turning to shares, the progress of the Dow over the past 80 years (adjusted for consumer prices) indicates that a return to 6,000 points should be unsurprising, and a low of 4,000 not impossible.

But in addition to the business cycle and recurrent bubbles, there are deep linear changes at work. While maintaining the Western consumer in his fantasy of idle wealth, the East has been building up its human and physical industrial resources. We are focussing on the present recession, but not what the world will look like afterwards. When Asia has sufficiently developed its domestic demand, it will lose its enthusiasm for US Treasury debt, and the credit markets will tear at our economies with higher interest rates. Already, the search is well under way for an alternative to the US dollar as a world trading currency; and foreign investors, sovereign wealth funds and oil-rich governments are building up holdings in our bellwether businesses (e.g. Barclays Bank), thus converting imbalance into equity and exporting our future dividends.

Besides, the Dow and FTSE companies derive an increasing proportion of their income from abroad, so stock indices no longer reflect national prosperity. Real wages have stalled, and seem set to decline against a background of rising inflation and global competition; this, plus an interest rate correction, might strengthen the downward trend for house prices.

In short, successive governments have failed to repair our economic structure, and bear market rallies notwithstanding, I think we must eventually recalibrate our measures of normality.

From soup to nuts

Steve Moyer gives a pretty clear (occasionally a bit aerated) potted history of the woeful train of events, over the ten years from the start of the technology stock boom to the popping (and it's only just started) of the real estate bubble.

Nobody had to invest in tech stocks, but we all have to live somewhere. A bubble in housing is really pernicious, because it has implications for almost everyone.

Low interest rates inflated property prices, which led to much larger mortgages. Deflating valuations by raising interest rates would trap many mortgage-holders who have taken on big loans and kept up a good credit history so far.

Therefore, unless the government is willing to deal with the political pain of accelerated mortage defaults, interest rates must now stay low-ish for a long time. So I guess that credit risk will be adjusted not by price, but by access: it will simply get harder to find a willing lender. If there is less lending, then that (it seems to me) is deflationary.

I don't believe that the burden of the monster mortgage will be reduced by rapid general inflation of both wages and prices as in the 70s and 80s. Increased world demand for food and energy will inflate prices, but globalisation means that for many - especially the poorer sort - wages won't keep up. The cost of housing will be a generation-long millstone around the neck.

Inflating the currency won't help. It will reduce the wealth of savers, but if we are importing not only luxuries but (increasingly) necessities, inflated wages will be gobbled up by inflated import prices.

Some may argue that currency debasement will make our exports more competitive. But for a long time now, manufacturing industry has been disappearing like snow in midsummer. Even if our export prices should become more competitive because of foreign exchange rates, domestic productive capacity has shrivelled: whole factories and shipyards have gone abroad, and the related human resources have withered, too. You can't reconstruct the proletariat and their workplaces overnight. Gone are the days when the Midlands engineering worker tinkered with metal in his garden shed, showing his son how to use the tools. Half a mile from where I live, one of the big engineering plants set up by the Birmingham-based Lucas family was taken over first by the Italian Magneti Marelli, then by the Japanese super-corp Denso, and now it's been stripped of its machines and will be demolished to make way for... housing. Goodness know how the mortgages on them will be paid.

I think Karl Denninger is right: the banks must be made to eat some of the debt they fed us. Either they will be ruined, or we shall be.

What the rubber mat said

I sat in my clients' office yesterday afternoon, waiting for them to arrive. The office had lovely new desks; as it turned out, not new, but taken from another business that has recently closed.

The reason for the delay - at least for one of the directors - was a last-moment requirement for tico rubber, needed next morning for anti-vibration matting under a five-ton machine that was being re-sited. The usual supplier, a major international concern, has recently shut down the closest depot to Birmingham. Rationalisation. Outsourcing. Globalization.

So while waiting, I tried to help my client find the material somewhere else. Googling away, we found it in the far north of England, or Cornwall; too far. Maybe just possibly in Market Harborough or Leicester? On calling the nearer companies, specifications and stock levels were doubtful.

My clients' business is contrarian: they move machines, and although originally that meant from one UK site to another, more often now it involves sending them abroad. As the decline of British manufacturing industry has accelerated, they've been very busy recently. For obvious reasons, the bonanza will end sometime.

But back to the matting. Once, suppliers of components you needed would be close at hand. Now we could be looking at journeys to the ends of the country - meaning cost, delay and maybe, sometimes, a lost contract.

The Pearl River in China is now home to myriads of small manufacturers, and the synergy improves everyone's productive capacity. Like it used to in Birmingham, "city of a thousand trades". But now in the UK, we could be dropping below the threshold of economic viability for manufacturing industry.

That's what the mat said to me.

Economics in the dark

In 1971, the economist Stafford Beer brought the cybernetic revolution to Chile. His key perception was that economic decisions needed not only accurate, but timely information. So he set up a computer network and data analysis systems to empower the government's ministries without overloading them with irrelevant data.

In advanced economies, it's important for companies, banks and individuals to receive such information, too.

But nearly 40 years later, the USA needs to re-learn the lesson. The Federal Reserve ceased reporting M3 money supply data in 2006; accurate assessment of inflation is complicated by "hedonic adjustment" and periodic (and tendentious?) alteration of the types of item included in price surveys; the Bureau of Labor Statistics seasonally adjusts unemployment figures so that an increase can sometimes appear to be a decrease; nobody (not even the lenders) yet knows the full figures on bad loans and "Tier 3 assets"; it is not even clear how we should assess a nation's wealth (GDP per capita seems a misleading measure).

How can you navigate without up-to-date information? Even in the nineteenth century, Mississippi river pilots had to keep track of the river's changes, or risk getting stranded on new sandbars. And as John Mauldin reports, party political manoeuvering is stymying two appointments to the Federal Reserve's Board, at a time when the Fed most needs to concentrate on resolving the unfolding complex financial crisis.

Even given the right data, decision-making has become tougher. Increasing global interconnection and wealth transfer between nations means that normal cycles may be broken by epochal linear developments, so the past is now a very unsafe guide to the future.

We need clarity, direction and vision.