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.

What's your house worth?

Home prices WILL contract so that the median house is 2.5-3x the median income

says Karl Denninger. Now do your sums.

Some interesting comments and suggestions (including my usual twopenn'orth) on this post at the Capitalists@work blog - people seriously discussing inflation hedging and survivalism, here in the UK. We're getting beyond ivory-tower discussion.

Beyond gold

This blog by Thomas H. Greco looks interesting. The author, an American, has taken the trouble to address a convention in Malaysia on currency issues,and you'll recall that they're trialling the gold dinar in the province of Kelantan.

Greco thinks that modern technology may let us keep accounts of exchanges without having to resort to traditional forms of currency. I suppose this could be similar to Local Exchange Trading Systems. It's also interesting that he's featured and commented on Ron Paul's proposal that currency systems should be allowed to compete. Greco even looks at Air Miles as one candidate!

Going down

Another grizzly, this time Captain Hook:

You should know that when banks begin to fail in the States, and they will, things could spiral out of control to the extent controls will to need be placed on both digital and physical movement. Transfers between banks will cease up completely, debts will be called in (so pay them off now), systems from food distribution to medical care will break down, and Martial Law will be the result as the population retaliates. Life will change as you know it.

[...] Japan has never really escaped the credit crunch that gripped their economy back in the 90's after bubblizing the real estate market. That's the tell-tale-sign a bubble economy is on its last legs you know - when master planners need resort to bubblizing the real estate market. Generally it's all down hill after that on a secular (long-term) basis because this is a reflection of not just a turn in the larger credit cycle; but more, and the driver of credit growth in the end, this is the signal demographic constraints have turned negative. [...] It's a simple numbers game, where an aging population is less prone to take on debt.

He considers the possibility of a Japanese-style asset deflation, which gels with my earlier thoughts regarding a generation-long UK property slump.

Place your bets

Peter Navarro lays out three global economic scenarios and their effects on different asset classes. The grid looks a bit like the betting board for roulette, or possibly craps. At any rate, a good tool for helping you decide.

To me, decoupling seems the least likely at this stage; I don't feel the rest of the world has yet built up demand sufficient to be unaffected by the loss of the American consumer. But what do I know.

I'm guessing the first scenario for a while, followed by the third when governments panic.

... and I thought I was a bear!

My position is firm, that the US banking system has been irrevocably destroyed, unfixable.

See the above and more in this from Jim Willie - and thanks to John East for the link.

The end of democracy

Simon Watkins and Helia Ebrahimi in The Mail on Sunday (p.58) give a graph showing that sovereign wealth funds (SWFs) purchased over £20 billion worth of British business in the last three years, and report a prediction that SWFs will own £6 trillion of world assets by 2015.

Wikipedia estimates the world's stockmarket capitalisation at $51 trillion and bonds at $45 trillion. Taken together, in sterling terms, that's about £49 trillion. So in seven years' time, sovereign funds are expected to control 12% of the market. This is significant: you'll recall that and EU countries require declarations of shareholdings at various levels between 2 and 5 per cent (3% in the UK), as seen in Appendix 5 of this document, and anyone owning over 1% of a company's shares has to declare dealings if the company is the subject of a takeover bid.

My hazy understanding of democracy is that it includes two crucial elements, namely, the vote, and the right to own personal property. We're losing both. What is our freedom worth when collectively, governments not only employ large numbers of people directly, but many more of them indirectly, through ownership of the businesses for which they work?

What does the vote matter? Here in the UK, we have had a coup by a small, tightly organised (and unscrupulous, even if and when principled) group who have realised that what matters is the swing voter in the swing seat, and nothing else. "What works is what matters" - a slogan that, superficially, seems simply pragmatic, but actually slithers away from identifying the principal objective: you can only tell if it works, when you know what you want it to do. And under our first-past-the-post system, with constituencies determined (how? and who is on the committee?) by the Boundary Commission, I could vote for the incumbent or the man in the moon, but I'm going to get a Labour Party apparatchik in my ward.

And I don't think the system will be reformed if "the other lot" get in, either: "Look with thine ears: See how yond Justice rails upon yond simple thief. Hark in thine ear: Change places, and handy-dandy, which is the Justice, which is the thief?" Structural issues matter: we are cursed by the psephologists, spin doctors and databases.

And as for property, when sovereign wealth funds go from being the tail that wags the dog, to becoming the dog, multinational businesses will be less concerned to satisfy the local shareholder, who may also be an employee. Big MD (or Big CEO) will have his arm around the shoulders of Big Brother.

We worry so much about wealth, and forget what it's for: not just survival, but independence, respect, liberty. Now, the peasants are fed, housed, medically treated, given pocket money, have their disabilities catered for, their children taught, and their legal cases expensively considered. So many of them are fat, enforcedly idle, addled with drink and drugs, chronically ill and disabled, negligent of their offspring and familiar to the point of contempt with the legal system. Despite (because of) their luxuries, they suffer, like the declawed, housebound cats in some American dwellings.

What matters is what works; these outcomes don't matter, except that they work for a class - which I think is becoming hereditary - that seeks, retains and services power. I have said to friends many times that we are seeing the reconstruction of a pan-European aristocracy, disguised as a political, managerial and media nexus.

The American Revolution was about liberty, not wealth, and it is one of the few major nations where the mice did, for a long time, succeed in belling the cat; there was a period here, too, when Parliament could call the King's men to a rigorous account. Now, even in America, the abstract networks of money and power are turning the voters into vassals of the machine that sustains them. As here, the political issues there will soon be welfare, pensions, Medicare and other elements of the badly-made pottage for which we sell our birthright.

As for Bombardier Yossarian in Catch-22, the first step back to our liberty is to stop believing in the benevolence of the system.

BTW: the man who wrote "The Anarchist Cookbook" later converted to Christianity. The one thing not to do with the system is to try to smash it - you'll only get something worse.